THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF PAKISTAN TEXTILE INDUSTRY

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.