EFFECT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY: EVIDENCE FROM KARACHI CEMENT INDUSTRY

Abstract

Purpose: To investigate the impact of working capital policy on Karachi cement firms’ profitability. Design / Methodology / Approach: E-views software has been used to explore the impact of WCM on profitability of cement firms. Descriptive Statistics, Correlation and Regression Analysis is used in this study. To examine the impact, E-views regression analysis - Panel Least Square Method is used on 10 years’ data from 2008-2017 of Karachi cement companies that are listed on Pakistan Slock Exchange. WCM policies are analysed through Investment and financing policies that are considered independent variables along with firms' size, sales growth and financial debts. Profitability is measured through Net Operating Profitability, ROA and ROE. To analyse the impact of each individual, fifteen hypotheses are developed. Findings: The study's objective is to examine the impact of WCM and Karachi cement firms' profitability. Profitability is measured through NOP, ROA and ROE. The developed models are significant. The study concluded that FDR has significant negative impact on NOP, ROA and ROE. While Financial Policy of cement firms has significant positive effect on ROA and ROE. IP and sales growth has insignificant positive impact on profitability measures. While the firms' size has insignificant negative effect on cement firms' profitability. Practical Implications: The investors who are interested in investing cement firms of Karachi would have benefit of the study and managers would be more likely to manage Working Capital.