Influence of Working Capital Management and Capital Investment on Profitability in Pakistan's Cement Industry

Abstract

The purpose of this study is to examine the impact of working capital management (WCM) and capital investment on the profitability of the cement industry. Using data from the Pakistani cement industry, this paper employs summary statistics and regression analysis to test the relationship between WCM metrics—which include working capital, current ratio, and quick ratio—and profitability measures such as return on equity (ROE), return on investment (ROI), and gross profit. This analysis proves beneficial for cement companies in various ways. The summary statistics provide insights into areas needing improvement in working capital and efficiency. The correlation matrix reveals potential relationships between WCM and profitability measures, while the regression analysis identifies which WCM metrics (e.g., working capital, current ratio, quick ratio) and capital investment proxies (e.g., sales, profit margin) most influence profitability. This helps companies determine which aspects of WCM to focus on for enhancing ROE and ROI. The research also acknowledges limitations, such as the possibility of other factors affecting profitability not captured by the model developed in this study. Nevertheless, it is evident that by adopting these strategies, cement companies can obtain critical data to improve WCM practices and capital investment decisions, leading to better financial outcomes.