Abstract:
In today s competitive environment, only few companies are able to use Working capital
management as a real competitive tool to leverage profits. The objective of the study, is to
find the relationship between working capital management and profitability.
The study , investigate the Impact of working capital management on profitability of
GlaxoSmithKline (GSK) Pakistan. In light of this objective, both quantitative and qualitative
methods of research were adopted. For Data analysis, only secondary data were taken from the
Annul reports of GSK (2007 to 2011).
Specifically, the study used Descriptive statistic and Correlation Analysis to predict the company’s
working capital condition and for testing hypothesis of the research. Return on Asset was used as a
measure of profitability while Cash Conversion Cycle and its components like (Days sales
outstanding, Days Inventory outstanding and Days payable outstanding) were used as a measure of
working capital management. Other variables like Debt Ratio, Current Ratio, Firm Size and Sales
Growth were used as control variables.
The research shows, there is a significant relationship between working capital management and
profitability. If a company is managing its working capital efficiently, it will have a positive
impact on company’s profitability. Therefore, a negative relationship was found between Cash
Conversion Cycle and profitability. It means that, Managers can increase their share holder’s value
by reducing Cash Conversion Cycle to an optimal level.
The study also finds individually, about the relationship between profitability and CCC
components and interpreted that, a positive relationship was found between Days Inventory
outstanding and Days payable outstanding and profitability while negative relationship was found
between Days sales outstanding and profitability.
The researcher also found a positive relationship between Debt Ratio, Firm size and Sales growth
while negative relation was found between liquidity and profitability.
