effect of working capital management on PERFORMANCE OF THE AUTOMOBILE INDUSTRY OF PAKISTAN

Abstract

Purpose: The purpose of this study is to find out whether working capital management effects the performance of automobile industry or not. For every organization, better efficient WCM is important source of success and going concern. The performance of firm was drive from profitability of firm. Working capital management is very important now for managing the current assets and current liabilities. Company may be having great amount of working capital to boost their company value. According to previous research it has proved that there is link of working capital with the company performance. Methodology/sample: This research depends on the 5 year financial statements (2011-2015) of 3 automobile companies to measure their performance. Basically, the performance is calculated in term of the profitability by help of return on equity, return on assets and gross profit margin. Which are considered as dependent variable? The independent variable used to measure the impact on performance from working capital management were days inventory outstanding, cash conversion period, days sales outstanding and days payable outstanding. The information that gathers from company’s financial statement was analyzed with the help of Views through the descriptive test, unit root test, equation of regression model and Co integration. Finding: End Results shows that the bigger days sales outstanding and holding of inventory is linked to lower the performance of the company and It also proved that there is negative relation between performance with days sales outstanding, days inventory outstanding and cash conversion cycle .Study has discovered that there is significant link between days payable outstanding, days sales outstanding, days inventory outstanding and cash conversion cycle. Further study has discovered that there is great relation of return on asset, return on equity with cash conversion cycle, account receivable and days inventory outstanding. As company pay supplier in long period, even collection of the payment is fast from the customer and letting stock stay for less time with the company help company to improve performance. The null hypothesis of gross profit margin is accepted.