Working Capital Management and Profitability Evidence from Firms Listed on Karachi Stock Exchange

Abstract

Efficient working capital management is an essential component of overall corporate strategy to boost shareholders value. The aim of our study is to examine the relationship between working capital management and profitability of Pakistani firms listed on Karachi Stock Exchange for a period of 6 years during 2008-2013. Correlations analysis using panel data and panel least square was conceded to check the impact of working capital management on profitability. The study found considerable negative relationship between the measure of profitability and Average Payment Period, Average Collection period, Inventory turnover in days, Cash conversion cycle and Debt while positive relationship was found between ROA and Size, GDPGR and Sales growth of Pakistani firms. The study suggests that shareholders wealth can be maximize by well-organized management of working capital. The study suggest that managers can improve the profitability and value of their firms by dropping accounts receivable days, accounts payable days, inventory turnover in days and also make substantial efforts towards maintaining an optimal cash conversion cycle level.

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