Abstract:
Efficient working capital plays a vital role in the
profitability of the firm. A lot of studies were conducted in
past to check the effects of efficient working capital on firm’s
profits. Higher profits ultimately results in higher returns for
stock as well as increases the worth for shareholders.
The purpose of conducting this study was to analyze whether the
portfolios constructed on the basis of conventional anomalies
like Beta, firm size, P/E ratio produces better results than the
portfolios constructed on the basis of efficient working
capital.
In this project, we analyzed and compared the effect of Beta and
Efficiency of working capital on stock returns. For this purpose
we used data of 33 companies listed on the Karachi Stock
Exchange.
We constructed seven portfolios of each anomaly and compared
results with that of portfolios constructed on the basis of
working capital measure i.e. Cash conversion cycle.
The results showed that portfolios constructed on the basis of
working capital efficiency outperformed as compared to
portfolios of conventional anomalies. This implies that working
capital efficiency can be a significant anomaly to construct
more lucrative portfolios.
