Working Capital Management And Profitability – Case Of Pakistani Firms
Working Capital Management has its effect on liquidity as well on
profitability of the firm. In this research, we have selected a sample of 94
Pakistani firms listed on Karachi Stock Exchange for a period of 6 years
from 1999 – 2004, we have studied the effect of different variables of
working capital management including the Average collection period,
Inventory turnover in days, Average payment period, Cash conversion
cycle and Current ratio on the Net operating profitability of Pakistani firms.
Debt ratio, size of the firm (measured in terms of natural logarithm of
sales) and financial assets to total assets ratio have been used as
control variables. Pearson’s correlation, and regression analysis (Pooled
least square and general least square with cross section weight models)
are used for analysis. The results show that there is a strong negative
relationship between variables of the working capital management and
profitability of the firm. It means that as the cash conversion cycle
increases it will lead to decreasing profitability of the firm, and managers
can create a positive value for the shareholders by reducing the cash
conversion cycle to a possible minimum level. We find that there is a
significant negative relationship between liquidity and profitability. We
also find that there is a positive relationship between size of the firm and
its profitability. There is also a significant negative relationship between
debt used by the firm and its profitability.
Link fshare: http://www.fshare.vn/file/S9LYQLHC2V18