Working capital management and firm’s profitability in Pakistan: A disaggregated analysis

Journal of Emerging Issues in Economics, Finance and Banking , 2016

The purpose of the present study is to examine the statistical significance of the impact of working capital management on profitability of the selected listed agriculture and food companies of Saudi Arabia. Besides, the research aims at finding out the relationship between the components of working capital management and the profitability of firms. A sample of three firms engaged in agriculture and food services listed in the stock exchange (Tadawul) is used for a period of 6 years (2009-2014) with a total observation of 18 firm years. Data were extracted from the annual reports and financial statements of the companies. Correlation and Regression Analysis (Ordinary Least Square) were used to draw conclusion of the study. Gross Operating Profit as dependent variable and Average Collection Period, Average Payment Period, Inventory Turnover in Days, Cash Conversion Cycle as independent variables were used. The regression analysis revealed that there is no significant impact of working capital management on profitability of the selected listed agriculture and food companies of Saudi Arabia.

Journal of Advanced Management Science

Working capital is the life blood for an organization; no business can be run successfully without it. Since there is an inverse relationship between liquidity and profitability therefore a firm should maintain a delicate balance of working capital so that smooth operations can be conducted without disturbing the profitability. There are studies proving both, relevancy and irrelevancy of working capital management with profitability. Recently, researchers have analyzed working capital management component wise. The aim of this study is also to find out the component wise connection between the effective management of working capital and productivity in the context of Pakistan's cement sector. Panel data of 18 companies listed in KSE from cement sector from 2007 to 2011 is collected. Profitability of Companies, being dependent variable, is gauged through Return on assets (ROA). Efficiency of working capital management is calculated through six accounting ratios. Panel Least square method of regression is applied for analysis. Results suggest that assets turnover ratio (ATO), current ratio (CR) and size of the firm (SLS) have positive and significant affiliation with the return on assets (ROA). Inventory, account receivable and payable, the most important elements of working capital, found insignificant. Thus, it can be inferred from this research that in cement sector of Pakistan, efficiency of working capital management does not play any significant role in enhancing the profitability of firms.  Index Terms-efficient working capital management, components of working capital, profitability 238

Working capital can be considered as source of existence for a financial body and management of working capital is regarded as one of the most essential part of business management. This study aims to find out the impact of working capital policies on profitability. Return on assets is used as a measure of profitability. Current assets to total assets ratio is used to compute the investment policy of working capital management and to determine financing policy of working capital management current liabilities to total assets ratio is used. Other variables that are used in this study are quick ratio, debt to equity ratio and size of the firms. Secondary data of 117 textile firms listed on Karachi stock exchange is taken for a period of six years i.e. 2005-2010 to calculate all these variables. Results of the regression analysis show that aggressiveness of working capital management policies is negatively associated with profitability. Moreover liquidity and size of the firm have positive relation profitability whereas debt to equity ratio is negatively correlated with profitability. Textile sector is one of the majors sectors of Pakistan. It needs due consideration regarding the management of assets and liabilities. So, the aim of this study is to provide some useful recommendations for the people responsible for the management of this sector. This study also establishes the basis for future research in this area of business.

2010

The main aim of this study is to investigate the relationship between working capital management (WCM) and firm’s profitability in the textile sector of Pakistan. WCM plays an important role in firm’s financial management decisions. An optimal WCM is expected to contribute positively to the creation of firm’s value and enhancement of its profitability. Working capital, fixed assets’ cost, Cost of production, cost of debt (interest expense), and size (capital) of the firm as control variables are also used to investigate their effect on profitability (net income). A sample size of 55 textile companies in Pakistan has been selected for a period of six years, from 2003 to 2008. The relationship between WCM efficiency and profitability is examined using correlation, regression analyses and ANOVA (Analysis of Variance) test. The results show a strong positive significant relationship between WCM and firm’s profitability in Pakistan’s textile sector. In case of control variables, it is found that there is a significant relationship between working capital, fixed assets’ cost, cost of production, and size (capital) and profitability. However, results show a significant negative relationship between debt used by the firm and its profitability. The findings enhance the knowledge base of WCM and will help companies to manage working capital efficiently. Moreover, it will help the policy makers and decision making authorities to better orient themselves towards considering and adopting efficient ways of managing working capital.

Journal of Advance Management and Accounting Research

The study aims of investigate relationship of working capital antecedents and profitability of the company. Seven variables are taken as proxy variable to measure working capital and its management. Population of the study is based on Karachi stock exchange listed companies. The sample of study is manufacturing sector of Pakistan. Thus, sample period contains on the ten years from (2005-2014). All variables have sound reliability and data is normally distributed. Therefore, correlation and regression analyses are applied. Hence, study revealed significant relationship of working capital management and profitability.

European Researcher, 2015

The fundamental purpose behind this study is to exactly test the effect of working capital management on profitability of cement industry of Pakistan. To explore this relationship between these two, the creator gathered auxiliary information from 12 listed firms in Karachi stock exchange (KSC) for the time period of 2007-2013. For this reason, in this study we utilize variable of return on assets ratio to gauge the benefit of organization and variables of CR, QR, NCA/TA, WCT and ITR as living up to expectations working capital management criteria. The consequences of the research demonstrate that there is a huge effect of the working capital management on profitability of cement industry of Pakistan. Accordingly, manager may improve the Profitability of their organizations by minimizing the inventory turnover ratio, and by diminishing working capital turnover ratio but there is no impact of expanding or diminishing the current proportion on profitability. Along these lines, the results show that through fitting working capital management the organization can expand its benefit. This study shall be helping hand for the cement industry of Pakistan in the management of their working capital in such an effective way thus, to the point that they can increase their profitability.

2015

The main objective of the study is to empirically examine the impact of working capital management on Pakistani manufacturing corporate profitability. The study uses a sample of randomly selected companies from three manufacturing sectors i.e. consumer goods, chemical and construction & material for the period of five years ranging from 2006 to 2010. The correlation and panel data regression analysis were used to analyze the impact of working capital management on the corporate profitability. The results indicate that, the average collection period of account receivables, inventory conversion period and cash conversion cycle have strong negative relationship with corporate profitability while the current ratio has positive relationship with operating profit. The study also finds that the firm size and current assets to total assets ratio has significant positive relationship with corporate profitability. Findings indicate that finance manager can improve the firm profitability by fo...

IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY Institute of Management Sciences Peshawar Session: 2013-15

IAEME PUBLICATION, 2020

This study evaluated the effect of working capital management on the profitability of the Telecom Sector in Pakistan. It examined the influence of the average receivable collection period (ACP), inventory conversion period (ICP), average payment period (APP) and cash conversion cycle (CCC) on the profitability of the aforementioned firms with 5 year's data (2013-2017). This study deals with the performance of the Telecom Sector companies working in Pakistan with respect to its working capital management on profitability. The main goal of this study is to examine the relationship between the core components of working capital management with the profitability of the Telecom Sector in Pakistan. The result of the regression model identified that the average receivable collection period (ACP) and Inventory conversion period (ICP) to be the significant factors followed by the average payment period (APP) and cash conversion cycle (CCC). The result of the current study found that there is a negative and significant relationship between working capital management and the firm’s profitability. It is concluded that the profitability of these telecom organizations is greatly influenced by the average receivable collection period (ACP), inventory conversion period (ICP), average payment period (APP), and cash conversion cycle (CCC)

Working capital management plays a significant role in better performance of manufacturing firms. This paper analyzes the impact of working capital management on firm's performance in Pakistan for the period 1998 to 2007. For this purpose, balanced panel data of 204 manufacturing firms is used which are listed on Karachi Stock Exchange. The results indicate that the cash conversion cycle, net trade cycle and inventory turnover in days are significantly affecting the performance of the firms. The manufacturing firms are in general facing problems with their collection and payment policies. Moreover, the financial leverage, sales growth and firm size also have significant effect on the firm's profitability. The study also concludes that firms in Pakistan are following conservative working capital management policy and the firms are needed to concentrate and improve their collection and payment policy. The effective policies must be formulated for the individual components of working capital. Furthermore, efficient Management and financing of working capital (current assets and current liabilities) can increase the operating profitability of manufacturing firms. For efficient working capital management, specialized persons in the fields of finance should be hired by the firms for expert advice on working capital management in the manufacturing sector.

2014

Working Capital Management has an underlying impression on a firm's output performance. However, for larger firms, working capital does not usually constitute a sizeable fraction of their total assets. It is, therefore, perceived that an efficient management of working capital might not be an issue of marked concern for larger corporations. With this conjecture, this study moves on to determine the potential effect of working capital management on the profit performance of large-sized companies listed in Karachi Stock Exchange. To investigate, effect of working capital management was determined on profitability of a sample of 103 Pakistani large corporations listed in Karachi Stock Exchange for a period of six years from 2003 to 2008 which led to a total of 618 firm-year observations. Findings from the analyses suggested that indicators of working capital management had a very remarkable impact on profitability of firms under study.

International Journal of Academic Research in Business and Social Sciences, 2014

The purpose of this paper is to investigate whether working capital management affect the performance of non-financial listed firms in Pakistan. Panel econometric technique namely pooled ordinary least squares is used to estimate the relationship between working capital and firm performance. Data were taken from the annual reports of non-financial firms listed on the Karachi Stock Exchange Pakistan during 2007-2010. Three performance measures namely gross profit margin, return on asset, and return on equity are used to estimate the impact of working capital variables such as average age of inventory, average collection period, and average payment period. Empirical results indicate that average age of inventory is positively related to gross profit margin and return on asset, whereas it is negatively related to return on equity but the relationship is found insignificant. Although the relationship is insignificant but positive sign may be because of increasing sales which leads to higher profit and thus fewer inventories. Average collection period is significantly and positively related to gross profit margin and return on assets. This finding shows that management of receivables has a positive impact on firm performance. Moreover, it confirms the prediction that reduction in average collection period improves the accounts receivable turnover which in turn positively affects the firm's profitability. Although average collection period is positively related to return on equity but the relationship is found insignificant. Average payment period is positively related to gross profit margin and negatively related to return on asset but the relationship is found insignificant. However, average payment period is positively and significantly related to return on equity.

Asia-Pacific Journal of Management Research and Innovation

Working capital is one of the important measures of a firm’s efficiency and represents the total liquid assets available with a firm. It reflects a firms’ ability to meet day-to-day operating expenses and also acts as an indicator of a firm’s short-term financial health. So a firm has to plan the effective utilisation of its working capital in order to maintain equilibrium between liquidity and profitability of the business. Therefore, the present article tries to examine the impact of working capital management on profitability of the firms of Indian steel industry. The study has taken into consideration four independent variables, that is, Current ratio, Quick ratio, Debtors turnover ratio and Finished goods turnover ratio which act as the indicators of working capital use in the industry. Return on total assets represents the profitability of the industry and acts as a dependent variable to develop an empirical model in order to establish relationship between working capital mana...

2013

This paper examines the impact that the running assets management on the profitability of Pakistan cement sector. Moreover, the study outlines the main factors that basically determine the working capital in the financials of Pakistan cement sector. To manage firm' sliquid assets which is working capital management and to reach a desire equilibrium level among profitability and risk, figures was collected from Annual Reports and sample consist of 10 Pakistani cement Companies listed at KSE from 2003-2008. The association between working capital management and profitability is examined with correlation; regression analysis the result proved that there is inverse and positive association between working capital management and profitability in cement industry of Pakistan.