Abstract:
This study is an attempt to investigate, the nature of relationship between working capital
management and profitability of automobile companies of Pakistan. For this purpose six
automobile companies has been selected and the analysis covers a time period from year 2008
to 2013 (six years). Selection of variables is influenced from previous researches,which
includescurrent ratio, Average collection period, Inventory turnover in days, Average payment
period, Cash conversion cycle and Net operating profitability. Descriptive and quantitative
analysis used. Quantitative analysis includes Pearson’s correlation and regression
analysis.Results indicate that there is a that there is a positive significant relation between
liquidity and profitability, a negative significant relation between number of days accounts
receivable and profitability, a negative significant relation between Inventory turnover in days
and profitability, a direct insignificant relation between number of day’s accounts payables and
profitability and there is a negative significant relation between cash conversion cycle and
profitability. It means that as the cash conversion cycle increases it will lead to decreasing
profitability of the companies and the managers can create value for shareholders by means of
decreasing cash conversion cycle. We also find that there is positive relationship between
liquidity and profitability in automobile companies of Pakistan.
