Abstract:
This study examines the critical relationship between Working Capital Management and financial
performance, specifically focusing on Return on Assets (ROA) of the automobile industry in
Pakistan. The research examines the impact of working capital management components,
including receivable collection period, inventory conversion period, accounts payable period and
cash conversion cycle on the financial performance of Pakistani automobile manufacturers. Unlike
most research, this study focus on the single industry to better capture the impact of WCM on
firm s profitability. It also add the Covid-19 dimension to stress the importance of proper working
capital management, especially in the period of economic distress. For further analysis, the study
employs panel data regression analysis, incorporating control variables such as firm leverage,
current ratio and sales growth. The findings of this research are expected to provide valuable
insights into the critical success factors for Pakistani automobile manufacturers. Sales growth and
account receivables days have positive impact on ROA whereas firm leverage have negative
impact on ROA which means increasing debt will raise interest payment and reduce profitability.
Inventory days also have negative impact on ROA which means that increase in days will reduce
the return. Current ratio also have a negative impact on ROA. By understanding the nuanced
impact of WCM strategies on financial performance, industry stakeholders, including
management, investors, and policymakers, can make informed decisions regarding inventory
management, credit policies, and capital structure. Furthermore, this study contributes to the
existing body of knowledge on the financial performance of the automobile industry in an
emerging market context, particularly within the unique economic and business
environment of
Pakistan
