Abstract:
Purpose- The main aim of this study was to investigate the relationship between
working capital management and profitability of Pakistan Textile Composite Industry.
Methodology/sample- In this study, sample of 6 Textile composite firms are used which
are listed in Pakistan Stock Exchange (PSX) formerly known as Karachi Stock Exchange
(KSE) for the period of 2007 - 2016 (ten years). This study examines the effect of
working capital management on the profitability of Textile composite firms in the
Pakistan by using multiple regression analysis. The profitability is measured in terms of
Return on Assets (ROA) (dependent variable). Whereas, the working capital is
determined by the cash conversion cycle (days in accounts payables, days in accounts
receivables, and inventory conversion period).Additionally, the traditional measures,
financial debt ratio are used as solvency indicators, current ratio as liquidity indicators,
firm's size is measured by logarithm of sales (independent variables
Findings- Findings were tested at 0.05 level of significance. Results showed that the
cash conversion cycle has no significant impact on profitability (ROA). But financial
debt ratio has significant negative impact on profitability (ROA). Current ratio have a
highly significant positive impact on profitability (ROA) and firm's size has no
significant impact on profitability (ROA)
Practical Implications- Furthermore, managers can create profitability for the firms by
handling correctly the current ratio and financial debt ratio and they must consider
other strategies and tools to improve their firm's profitability included working capital.
