RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILTY OF AUTOMOBILE COMPANIES OF PAKISTAN

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.