Optimizing Working Capital Management to Enhance Profitability: Evidence from Food & Beverages Industries in Pakistan

Abstract

This study investigates the impact of Working Capital Management (WCM) on the This study investigates the impact of Working Capital Management (WCM) on the profitability of selected food and beverage companies in Pakistan. Given the challenges faced by this sector such as managing perishable inventory, fluctuating demand, and supply chain inefficiencies effective working capital strategies are crucial for financial performance and operational sustainability. The research focuses on four key components of WCM: Inventory Conversion Period (ICP), Receivables Collection Period (RCP), Payables Deferral Period (PDP), and the Cash Conversion Cycle (CCC), and examines their relationship with profitability indicators Return on Assets (ROA) and Return on Equity (ROE). Using a quantitative approach, the study analyzes secondary data from five leading food and beverage firms over a ten-year period (2015–2024). Statistical techniques including descriptive analysis, correlation, and linear regression were applied to evaluate the significance of WCM components on profitability. The results reveal that the Receivables Collection Period (RCP) and Cash Conversion Cycle (CCC) have a significant negative impact on profitability, while the Inventory Conversion Period (ICP) shows a positive association with ROE. However, due to multicollinearity, the Payables Deferral Period (PDP) was excluded from the regression model. These findings highlight the importance of efficient receivables and inventory management in improving firm performance. The study offers practical insights for financial managers in the food and beverage industry, emphasizing the need for integrated and timely working capital strategies to boost profitability and long-term sustainability. It also contributes to the existing body of knowledge by providing sector-specific evidence from an emerging market context.