Working Capital Management Policies and Firms Profitability: Evidence from Pakistan

Abstract

This research was mainly focused on the proposed hypothetical model to explore the association between the working capital management policies and firm profitability of listed companies in Pakistan. Sample population consists of 183 listed companies and data collection was done through convenience sampling technique. In statistical analysis to draw conclusions the analytical tools such as correlation, and regression analysis were used. This research was carried out to study, evaluate, analyze and interpret all the nonfinancial sector’s parameters related to working capital management policies and firm profitability of the firms operating in Pakistan. Main objective of this study was to be aware of the WCM policies and their impact on the profitability of the listed companies of Pakistan. It’s a challenge of the today’s Pakistani economy to forecast and assess the upcoming risks and make preemptive measures to save the firm’s profitability and ultimately save the Pakistan’s economy from big economic shocks. For this purpose five independent variables have been used to demonstrate the working capital management policy dimensions on firm’s profitability. These five independent variables are leverage, sales growth, current assets to total assets ratio, current liabilities to total assets ratio and firm size while the firm profitability has been measured on the basis of ROA. The data for evaluation was collected from 183 listed companies of Pakistan for the period of 2008-2017. This study employed Descriptive statistical analysis, correlation effect of dependent variables on independent variables, regression analysis to evaluate the effect of working capital management policies on the firm profitability of the listed companies. It was found that working capital management policies have significant impact on ROA. This research has been aimed to provide repercussions for firms by throwing light on the potential means of focusing FP. This research will provide practical grounds for other firms to adopt the ways in order to improve FP. The importance and implementation of WCM policies in order to enhance FP.