IMPACT OF WORKING CAPITAL ON THE PROFITABILITY A CASE STUDY OF TEXTILE INDUSTRY OF PAKISTAN

Abstract

Purpose The aim of this study is to evaluate the impact of working capital and its components on the profitability of the textile companies listed in the Karachi stock exchange (KSE). This study provides an intense awareness of the working capital for the selected textile companies which has a significant influence on their profitability. Methodology This research study is explanatory, cause and effect and descriptive. This study involved use of secondary data and the data is collected from the annual reports and financial statements of the textile companies for the period of ten-years 2006-20137 To analyze the data, Descriptive statistics, Regression, ANOVA and coefficient tested were applied by using SPSS software. The independent variables working capital, number of days’ inventory, number of days’ account receivable, number of days’ account payable and cash conversion cycle are tested in order to check their impact and relationship on the dependent variable profitability. Profitability is measured by Net income, Return on assets and Return on equity. Findings The comparative results and analysis ofthis research study clearly proposed that the profitability of textile companies is influenced by the changes made in the working capital. The result ofthe descriptive statics and regression analysis shows that the working capital has a significant impact on the profitability, while the other independent variables such as components have insignificant impact on the profitability ofthe textile companies. Practical Implications The outcomes of this research study might help to the managers and financial experts of the textile companies in order to efficiently manage the working capital which will directly affect the profitability ofthe company.