IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY, EVIDENCE FROM KSE 100 INDEX

Abstract

Purpose The thesis will provide an insight to all stake holders regarding working capital management. It intends to validate previous work and provide the current years analysis in the field of working capital. It will highlight impact of working capital on profitability and focuses on the Non-financial companies listed on K.SE-100 Index. The thesis will highlight it’s essentiality by showing the relationship of variables with firm’s profitability. Research Methodology The thesis consists of conceptual framework followed by empirical analysis of data. The study correlates the relationship of working capital variables i.e. CCC, APD, ARD, ITID and CR, LOS with operating profitability of firms. Beside it descriptive statistics, Pearson’s correlation coefficient and multiple regression (OLS) methods are applied at time series and cross sectional data of 30 Non-financial listed companies. It will cover analysis for the period of 2008 till 2012. Findings After applying the equation in E-views software, it concludes that there is direct linkage of firms’ operating profitability with Accounts payable in days, Inventory turnover in days and size of firms, whereas Cash conversion cycle, Accounts receivable in days and Current ratio are negatively correlated with operating profitability of firms. Furthermore Pakistani firms can enhance its operating profitability by reducing receivable period and extending the payable period of companies, keeping in view liquidity of companies. The thesis will broaden the horizon of effective management of working capital in context of Pakistan.