Description
In this proposal i found the wcm effect on the profitabitly of the company.
by muhammad jalal khan
RESEARCH
PROPOSAL
On Working Capital Management
Efect on Proftability
Submitted o! Mi"" Ay"#a
Submitted $y! Mu#ammad %alal k#an
$S COMMERCE &'()A)CE*
+
H
SEMESER
MOR)(),
-.A(/0E0A1AM COLLA,E O' COMMERCE
.)(2ERS(3 O' PESHAWAR
A$LE O' CO)E)S
S.No Topics Page No
SECTION *1*
1: ……………………………….()RO/.C(O)……………………………….. ..2
1.1: …………… P.RPOSE A)/ S(,)('(CA) O' HE
S./3...........................3
SECTION *2*
2: ………………………........ L(ERA.RE RE2(EW..............................................4
2.1: …………………….. CO)CEP.AL 'RAMEWOR4
.........................................5
2.2: ………………………….……H3POHES(S………………..……………….…6
. SECTION *3*
3: ……………………………..….MEHO/OLO,3 ….............................................6
3.1: ………………………...……….. POP.LA(O) O' S./3……………………..….
….6
567! ……………………………………….. SAMPLE O'
S./3…………………………...…….. 7
3.3: ………………………….…RESEARCH MO/EL............................................7
3.4: …………………………....SA(S(CAL OOLS …………..………....….…..
8
SECTION *4*
4: ………………………………….(ME 'RAMES....................................................9
SECTION *5*
1
5: …………………………………...RE'ERE)CES...................................................10
1: INTRODUCTION
In financial affairs of companies, working capital management is a very important factor,
which has a direct positive effect on profitability as well as li!idity of the company.
"i!idity and profitability are both the two different sides of same coin. #ptim!m level
of li!idity g!arantees a firm to meet their short term debts and the proper management
of flow can be promised by a profitable b!siness. "i!idity shows the ability of company
in responding to short$term obligations.
%ccording to &%malend! 'h!nia, (010) *orking capital management &*+,) we mean
profit and li!idity. *orking +apital mainly represents the c!rrent assets of a firm which
is the portion of financial reso!rces of b!siness that changes from one type of reso!rces
to another d!ring the day$to$day e-ec!tion of b!siness &.itman, (00(). +!rrent assets
mainly comprise of cash, prepaid e-penses, short$term investments, acco!nts receivable,
inventory and other c!rrent assets
&.anesan, (007). /roper optimi0ation of working capital balance means minimi0ing the
working capital re!irement and reali0ing ma-im!m possible reven!es. 1here is a strong
linear relationship between profitability of the firm and its working capital efficiency.
1he ability of the company to earn profit can be referred to as the profitability of that
company. /roper *orking capital management ens!res that the company increased its
profitability. If a firm minimi0es its investment in c!rrent assets, the res!lting f!nds can
be invested in val!e creating profitable pro2ects, so it can increase the firm3s growth
opport!nities and shareholders ret!rn.
2
&"amberson, 1994). In view of that, working capital management has become one of the
most important iss!es in the organi0ations where many financial e-ec!tives strive to
identify the basic working capital drivers and the appropriate level of working capital
&%f0a and 5a0ir, (007) its re!irements are having an impact on the market val!ation of
a b!siness, which in erratic times falls !nder even greater analysis by shareholders and
investors and its had been point o!t that an efficient working capital management has
becoming an essential element of the overall corporate strategy to create shareholder
val!e. ,oreover, working capital constit!tes an important so!rce of capital for small and
medi!m scale enterprises as well as high flying firms. In most developing co!ntries, these
categories of firms face limited access to long term capital markets. 1o overcome this
constraint, these firms tend to rely more heavily on owner financing, trade credit and
short term capital bank loans &+hittenden et al, 19986 7acc!rato, 1998).
&,oyer et al., 199() 9ence, working capital position of s!ch firms is not only an internal
firm$specific matter, b!t also an important indicator of risk for creditors. :irms with high
amo!nt of working capital are able to meet their short term obligations easily thereby
decreasing their defa!lt risk and enhancing their borrowing capability. %nd, as increase in
borrowing capability is often perceived as indication of decrease in cost of debt &and also
in cost of capital), it is possible to state that the efficiency in working capital management
affects not 2!st the short term financial performance &profitability) b!t also long$term
financial performance. 1ho!gh efficient management of the working capital is cr!cial for
both profitability and prosperity of any firm.
1.1: PURPOSE ND SI!NI"ICNT O" T#E STUD$
1he p!rpose of o!r st!dy fo!nd to be significantly consistent with the view of the
traditional working capital theory. 1he res!lts s!ggest that working capital management
and performance are positively correlated. *orking capital can be considered as so!rce of
3
e-istence for a financial body and management of working capital is regarded as one of
the most essential part of b!siness management. 1his st!dy aims to find o!t the impact of
working capital policies on profitability. ;et!rn on assets is !sed as a meas!re of
profitability. +!rrent assets to total assets ratio is !sed to comp!te the investment policy
of working capital management and to determine financing policy of working capital
management c!rrent liabilities to total assets ratio is !sed. It will benefit the companies in
the management of their working capital in s!ch an efficient manner so that they can
m!ltiply their profitability. 1he significance of this research provides easy way to
!nderstand abo!t the relationship between components of working capital management
and corporate profitability. 7imilarly, this research will be helpf!l for managers, firm3s
stakeholders s!ch as creditors and investors, professionals, financial analysts, and policy
makers of those selected 7!gar and "eather firms to take strong decision on management
of working capital. 1his research provides a direction that profitability level of the firm
co!ld be enhanced by the good management of working capital.
2: %ITERTURE RE&IE'
*+, is an important component of the overall financial strategy of any firm to create
val!e, having a significant impact on profitability and risk &;ichard < "a!ghlin, 19806
7mith, 19806 "amberson, 1994). It involves planning and controlling c!rrent assets and
c!rrent liabilities, in a manner that eliminates the risk of not meeting short$term
obligations and avoid the e-cessive investment in firm3s assets and activities
&=l2elly.(008). 1he ob2ective of *+, is to maintain the optim!m balance of each
acco!nt, namely> receivables, inventory and payables that infl!ence firm3s performance
&:ilbeck < ?r!eger, (004).
%ccording to @eloof, &(00A) efficient *+, is f!ndamental for ma-imi0ing profitability.
1herefore, ma-imi0ing profit is the main ob2ective for firms6 however, firms need at the
same time to foc!s on li!idity to prevent insolvency &;aheman < 5asr, (007).
4
1his happens beca!se working capital investments are not converted into cash at the
same moment in time or with the same cash flow magnit!de, thereby, firms sho!ld
g!arantee the necessary amo!nts of available f!nds to match firm3s li!idity needs
&;ichard < "a!ghlin, 1980).
&"ong, et al., 199A) *+, is partic!larly important for small firms, with limited access to
long$term capital markets6 once these firms tend to rely heavily on financing from trade
credit and short$term bank loans to finance the needed investments in cash, acco!nts
receivables and inventory
"yro!di and "a0aridis &(000) investigated the relationship of li!idity and cash
conversion cycle for the food ind!stry of .reece. 1hey concl!ded that a considerable
positive relationship e-ists among +ash +onversion +ycle and c!rrent ratio, average age
of inventory and average collection period. %lso they located an inverse relationship
between +++ and average payment period. 1hey concl!ded that there was no statistically
significant relationship between variables !sed for li!idity meas!rement and that !sed
for profitability meas!rement. %lso they s!ggested that cash conversion cycle had no
significant relationship with debt ratio. 1he st!dy f!rther finds a significantly positive
association between profitability and firm si0e. 1he implication is that, profitability of
firms increase when they improve !pon their working capital management. /artic!larly,
holding highly li!id assets is important as it significantly enhances firms3 profitability.
1his is beca!se assets can easily and !ickly be sold off and the reven!e re$invested in
other relatively higher short$term assets and co!pled with the fact that it also prevents
co!rt actions and its associated cost emanating from the firm3s inability to pay its short$
term creditors. 1he findings f!rther imply that a high level of debt !se is !nhealthy for
the financial s!ccess of the firm whereas increases in sales enco!rage firm profitability.
2.1. CONCEPTU% "R(E'OR)
(ndependent 2ariable /ependent
2ariable
5
No o* +a,s -R
No o* +a,s I./e.0o1,
No o* +a,s -P
Cas2 co./e1sio. c,c3e
6
PRO"IT4I%IT$
2.2 #$POT#ESIS
1he st!dy makes a set of testable hypothesis
Bthe 5!ll 9ypotheses &90) vers!s the %lternative ones &91)C to e-amine the relationship
between working capital management and /rofitability.
'ollo8ing are t#e #ypot#e"i".
#5.1: 1here is no significant effect of 5!mber of days %cco!nt receivable on the
profitability of ind!stry.
#1.1: 1here is a significant effect of 5!mber of days %cco!nt receivable on the
/rofitability of ind!stry
#5.2: 1here is no significant effect of 5!mber of days %cco!nt payable on the
profitability
of ind!stry.
#1.2: 1here is a significant effect of 5!mber of days %cco!nt payable on the
profitability of ind!stry.
#5.3: 1here is no significant effect of 5!mber of days Inventory on the profitability of
ind!stry.
#1.3: 1here is a significant effect of 5!mber of days Inventory on the profitability of
ind!stry.
#5.4: 1here is no significant effect of +++ on the profitability of ind!stry.
#1.4: 1here is a significant effect of +++ on the profitability of ind!stry.
3. (ET#ODO%O!$
3.1 POPU%TION O" STUD$
In this research st!dy all non$financial companies listed on ?7= were taken as a target
pop!lation. %ccording to 7tate 'ank analysis report for the year (018, 840 non$financial
companies are listed on ?7= respectively.
7
5676 S(P%E O" STUD$
1his st!dy is based on the secondary data. 1o e-amine the impact of working capital
management on profitability of a company, we st!died A0 &;andom 7ampling) private
companies listed on ?arachi stock e-change o!t of the total 840 companies.
1he st!dy based on secondary data and ann!al report of each company collected
as a so!rce of secondary data.
=-cel has been !sed to process and analy0e the data. @ependent and independent
variables are analy0ed by !sing correlation and linear regression. 7tatistical tools like
;egression analysis have been !sed to analy0e the relationship of *+, and profitability.
A.A RESERC# (ODE%
It is important to note that the ;#% depend !pon I+/6 @+/6 ++/ and +++ the following
model is form!lated to meas!re the impact of working capital management on
profitability.
ROA = ß0+ ß1 (ICP) + ß2 (DCP) + ß3 (CCP) + ß4 (CCC) +e
'2e1eas:
RO D ;et!rn on %ssets.
ICP D Inventory +onversion /eriod.
DCP D @ebtors +onversion /eriod
CCC D +ash +onversion +ycle.
e D error term.
4ase+ o. 02e a6o/e 1eg1essio. 7o+e3
I+/6 @+/ and ++/ are considered as the independent Eariables whereas ;#% are the
dependent Eariables. 1he detail analysis is carried o!t with the help of above variables.
8
A.8. STTISTIC% TOO%S
T,pe o* Ra0ios E8p3a.a0io.s Ca3c93a0io.
Working Capital Ratio"
T2e I./e.0o1, Co./e1sio.
Pe1io+ :ICP;
ICP is 02e 0i7e 1e 365
Cos0 o* Sa3es
De60o1s? Co./e1sio.
Pe1io+
CP;
DCP is 02e 0i7e 1e155
To0a3 sse0s
9
10
4. TI(E "R(E
01) Jan 1
st
–Feb 30
th
2014 INTRODUCTION
02) March 1
st
- Apr! 30
th
2014 "IT#RATUR#
R#$I#%
03) Ma& 1
st
-J'ne 1(th 2014 M#T)ODO"O*+
04) J'!& 1
st
-A', 30
th
2014 TIM# FRAM#
0() -ept 1
st
-0ct 20 2014
R#F#R#NC#-
11
TIM
#
5
RE"ERENCES
1. 429.iaF . :2515;. % st!dy of li!idity trends on private sector steel companies in India, %sian
Fo!rnal #f ,anagement ;esearch, I775 (((9 G A794, pp. H18 $H(8.
(. !i07a.F %. G. :2552;. /rinciples of ,anagerial :inance. Addison-Wesley, 10th edition
A. !a.esa.F &. :2557;. I%n %nalysis of *orking +apital ,anagement =fficiency in
1elecomm!nication =!ipment Ind!stryJ, ;ivier %cademic Fo!rnal, Eol. A, 5o. (, pp 1A.
8. %a76e1so. (. :1HH5;. +hanges in working capital of small firms in relation to changes in
economic activity. Mid-American Journal of Business 10&()> 84$40.
4. *Ia T.F J NaIi1F (.S. :2557;. Is it better to be aggressive or conservative in managing
working capitalK, /aper presented at 7ingapore =conomic ;eview +onference &7=;+) on
%!g!st 0($08, 7ingapore
H. C2i00e.+e.F ".F . a.+ (ic2ae3asF N. :1HHK;F L:inancial ,anagement and *orking +apital
/ractices in M? 7,=s3, ,anchester, ,anchester '!siness 7chool.
7. (o,e1 R.C.F (cg9iga. G.R.F a.+ )1e03oA '.G. :1HH5;F L+ontemporary :inancial ,anagement,
west p!blishing co, +incinati, #hio.
8. S7i02F ). :1HK5;. /rofitability vers!s li!idity tradeoffs in working capital management. In>
;eading on the management of working capital. Smith, K. V. (d.!. St. "aul, M#, West
"u$lishin% firm, &SA, '()-'*+.
9. S2i.F #. #.F J Soe.e.F %. :1HHK;. =fficiency of working capital management and corporate
profitability. ,inancial "ractice and ducation, -, A7$84.
10. De3oo*F (. :2553;. @oes working capital management affect profitability of 'elgian firmsK
Journal of Business ,inance . Accountin%, /0&A?8), 47A$488.
11. Ric2a1+F &. J %a9g23i.F E.F 1HK5. % +ash +onversion +ycle %pproach to "i!idity %nalysis.
,inancial Mana%ement, pp. A($A8.
1(. E3Le33,F .F 2554. "i!idity$/rofitability 1radeoff an =mpirical Investigation in an =merging
,arket. 0nternational Journal of 1ommerce . Mana%ement, Eol!me 186 5o.(, pp. 88$H(.
1A. Ra2e7a.F . J Nas1F (.F 2557. *orking +apital ,anagement %nd /rofitability $ +ase #f
/akistani :irms. 0nternational 2e3ie4 of Business 2esearch "a5ers, Eol!me A6 5o.1, pp. (79$
A00
18. "i36ec=F !. J )19ege1F T. (.F 2555. %n %nalysis of *orking +apital ,anagement ;es!lts
across Ind!stries. Mid-American Journal of Business, Eol!me (0, pp. 11$18.
14. %o.gF (. S.F (a3i0IF I. 4. J Ra/i+F S. .F 1HH3. 1rade +redit, N!ality .!arantees and /rod!ct
,arketability. ,inancial Mana%ement, Eol!me ((6 5o.8, pp. 117$1(7.
1H. %,1o9+iF ).F J %aIa1i+isF G. :2555;. 1he cash conversion cycle and li!idity analysis of the
food ind!stry in .reece. Social Science 2esearch #et4or6 lectronic "a5er 1ollection.
12
doc_345554258.docx
In this proposal i found the wcm effect on the profitabitly of the company.
by muhammad jalal khan
RESEARCH
PROPOSAL
On Working Capital Management
Efect on Proftability
Submitted o! Mi"" Ay"#a
Submitted $y! Mu#ammad %alal k#an
$S COMMERCE &'()A)CE*
+
H
SEMESER
MOR)(),
-.A(/0E0A1AM COLLA,E O' COMMERCE
.)(2ERS(3 O' PESHAWAR
A$LE O' CO)E)S
S.No Topics Page No
SECTION *1*
1: ……………………………….()RO/.C(O)……………………………….. ..2
1.1: …………… P.RPOSE A)/ S(,)('(CA) O' HE
S./3...........................3
SECTION *2*
2: ………………………........ L(ERA.RE RE2(EW..............................................4
2.1: …………………….. CO)CEP.AL 'RAMEWOR4
.........................................5
2.2: ………………………….……H3POHES(S………………..……………….…6
. SECTION *3*
3: ……………………………..….MEHO/OLO,3 ….............................................6
3.1: ………………………...……….. POP.LA(O) O' S./3……………………..….
….6
567! ……………………………………….. SAMPLE O'
S./3…………………………...…….. 7
3.3: ………………………….…RESEARCH MO/EL............................................7
3.4: …………………………....SA(S(CAL OOLS …………..………....….…..
8
SECTION *4*
4: ………………………………….(ME 'RAMES....................................................9
SECTION *5*
1
5: …………………………………...RE'ERE)CES...................................................10
1: INTRODUCTION
In financial affairs of companies, working capital management is a very important factor,
which has a direct positive effect on profitability as well as li!idity of the company.
"i!idity and profitability are both the two different sides of same coin. #ptim!m level
of li!idity g!arantees a firm to meet their short term debts and the proper management
of flow can be promised by a profitable b!siness. "i!idity shows the ability of company
in responding to short$term obligations.
%ccording to &%malend! 'h!nia, (010) *orking capital management &*+,) we mean
profit and li!idity. *orking +apital mainly represents the c!rrent assets of a firm which
is the portion of financial reso!rces of b!siness that changes from one type of reso!rces
to another d!ring the day$to$day e-ec!tion of b!siness &.itman, (00(). +!rrent assets
mainly comprise of cash, prepaid e-penses, short$term investments, acco!nts receivable,
inventory and other c!rrent assets
&.anesan, (007). /roper optimi0ation of working capital balance means minimi0ing the
working capital re!irement and reali0ing ma-im!m possible reven!es. 1here is a strong
linear relationship between profitability of the firm and its working capital efficiency.
1he ability of the company to earn profit can be referred to as the profitability of that
company. /roper *orking capital management ens!res that the company increased its
profitability. If a firm minimi0es its investment in c!rrent assets, the res!lting f!nds can
be invested in val!e creating profitable pro2ects, so it can increase the firm3s growth
opport!nities and shareholders ret!rn.
2
&"amberson, 1994). In view of that, working capital management has become one of the
most important iss!es in the organi0ations where many financial e-ec!tives strive to
identify the basic working capital drivers and the appropriate level of working capital
&%f0a and 5a0ir, (007) its re!irements are having an impact on the market val!ation of
a b!siness, which in erratic times falls !nder even greater analysis by shareholders and
investors and its had been point o!t that an efficient working capital management has
becoming an essential element of the overall corporate strategy to create shareholder
val!e. ,oreover, working capital constit!tes an important so!rce of capital for small and
medi!m scale enterprises as well as high flying firms. In most developing co!ntries, these
categories of firms face limited access to long term capital markets. 1o overcome this
constraint, these firms tend to rely more heavily on owner financing, trade credit and
short term capital bank loans &+hittenden et al, 19986 7acc!rato, 1998).
&,oyer et al., 199() 9ence, working capital position of s!ch firms is not only an internal
firm$specific matter, b!t also an important indicator of risk for creditors. :irms with high
amo!nt of working capital are able to meet their short term obligations easily thereby
decreasing their defa!lt risk and enhancing their borrowing capability. %nd, as increase in
borrowing capability is often perceived as indication of decrease in cost of debt &and also
in cost of capital), it is possible to state that the efficiency in working capital management
affects not 2!st the short term financial performance &profitability) b!t also long$term
financial performance. 1ho!gh efficient management of the working capital is cr!cial for
both profitability and prosperity of any firm.
1.1: PURPOSE ND SI!NI"ICNT O" T#E STUD$
1he p!rpose of o!r st!dy fo!nd to be significantly consistent with the view of the
traditional working capital theory. 1he res!lts s!ggest that working capital management
and performance are positively correlated. *orking capital can be considered as so!rce of
3
e-istence for a financial body and management of working capital is regarded as one of
the most essential part of b!siness management. 1his st!dy aims to find o!t the impact of
working capital policies on profitability. ;et!rn on assets is !sed as a meas!re of
profitability. +!rrent assets to total assets ratio is !sed to comp!te the investment policy
of working capital management and to determine financing policy of working capital
management c!rrent liabilities to total assets ratio is !sed. It will benefit the companies in
the management of their working capital in s!ch an efficient manner so that they can
m!ltiply their profitability. 1he significance of this research provides easy way to
!nderstand abo!t the relationship between components of working capital management
and corporate profitability. 7imilarly, this research will be helpf!l for managers, firm3s
stakeholders s!ch as creditors and investors, professionals, financial analysts, and policy
makers of those selected 7!gar and "eather firms to take strong decision on management
of working capital. 1his research provides a direction that profitability level of the firm
co!ld be enhanced by the good management of working capital.
2: %ITERTURE RE&IE'
*+, is an important component of the overall financial strategy of any firm to create
val!e, having a significant impact on profitability and risk &;ichard < "a!ghlin, 19806
7mith, 19806 "amberson, 1994). It involves planning and controlling c!rrent assets and
c!rrent liabilities, in a manner that eliminates the risk of not meeting short$term
obligations and avoid the e-cessive investment in firm3s assets and activities
&=l2elly.(008). 1he ob2ective of *+, is to maintain the optim!m balance of each
acco!nt, namely> receivables, inventory and payables that infl!ence firm3s performance
&:ilbeck < ?r!eger, (004).
%ccording to @eloof, &(00A) efficient *+, is f!ndamental for ma-imi0ing profitability.
1herefore, ma-imi0ing profit is the main ob2ective for firms6 however, firms need at the
same time to foc!s on li!idity to prevent insolvency &;aheman < 5asr, (007).
4
1his happens beca!se working capital investments are not converted into cash at the
same moment in time or with the same cash flow magnit!de, thereby, firms sho!ld
g!arantee the necessary amo!nts of available f!nds to match firm3s li!idity needs
&;ichard < "a!ghlin, 1980).
&"ong, et al., 199A) *+, is partic!larly important for small firms, with limited access to
long$term capital markets6 once these firms tend to rely heavily on financing from trade
credit and short$term bank loans to finance the needed investments in cash, acco!nts
receivables and inventory
"yro!di and "a0aridis &(000) investigated the relationship of li!idity and cash
conversion cycle for the food ind!stry of .reece. 1hey concl!ded that a considerable
positive relationship e-ists among +ash +onversion +ycle and c!rrent ratio, average age
of inventory and average collection period. %lso they located an inverse relationship
between +++ and average payment period. 1hey concl!ded that there was no statistically
significant relationship between variables !sed for li!idity meas!rement and that !sed
for profitability meas!rement. %lso they s!ggested that cash conversion cycle had no
significant relationship with debt ratio. 1he st!dy f!rther finds a significantly positive
association between profitability and firm si0e. 1he implication is that, profitability of
firms increase when they improve !pon their working capital management. /artic!larly,
holding highly li!id assets is important as it significantly enhances firms3 profitability.
1his is beca!se assets can easily and !ickly be sold off and the reven!e re$invested in
other relatively higher short$term assets and co!pled with the fact that it also prevents
co!rt actions and its associated cost emanating from the firm3s inability to pay its short$
term creditors. 1he findings f!rther imply that a high level of debt !se is !nhealthy for
the financial s!ccess of the firm whereas increases in sales enco!rage firm profitability.
2.1. CONCEPTU% "R(E'OR)
(ndependent 2ariable /ependent
2ariable
5
No o* +a,s -R
No o* +a,s I./e.0o1,
No o* +a,s -P
Cas2 co./e1sio. c,c3e
6
PRO"IT4I%IT$
2.2 #$POT#ESIS
1he st!dy makes a set of testable hypothesis
Bthe 5!ll 9ypotheses &90) vers!s the %lternative ones &91)C to e-amine the relationship
between working capital management and /rofitability.
'ollo8ing are t#e #ypot#e"i".
#5.1: 1here is no significant effect of 5!mber of days %cco!nt receivable on the
profitability of ind!stry.
#1.1: 1here is a significant effect of 5!mber of days %cco!nt receivable on the
/rofitability of ind!stry
#5.2: 1here is no significant effect of 5!mber of days %cco!nt payable on the
profitability
of ind!stry.
#1.2: 1here is a significant effect of 5!mber of days %cco!nt payable on the
profitability of ind!stry.
#5.3: 1here is no significant effect of 5!mber of days Inventory on the profitability of
ind!stry.
#1.3: 1here is a significant effect of 5!mber of days Inventory on the profitability of
ind!stry.
#5.4: 1here is no significant effect of +++ on the profitability of ind!stry.
#1.4: 1here is a significant effect of +++ on the profitability of ind!stry.
3. (ET#ODO%O!$
3.1 POPU%TION O" STUD$
In this research st!dy all non$financial companies listed on ?7= were taken as a target
pop!lation. %ccording to 7tate 'ank analysis report for the year (018, 840 non$financial
companies are listed on ?7= respectively.
7
5676 S(P%E O" STUD$
1his st!dy is based on the secondary data. 1o e-amine the impact of working capital
management on profitability of a company, we st!died A0 &;andom 7ampling) private
companies listed on ?arachi stock e-change o!t of the total 840 companies.
1he st!dy based on secondary data and ann!al report of each company collected
as a so!rce of secondary data.
=-cel has been !sed to process and analy0e the data. @ependent and independent
variables are analy0ed by !sing correlation and linear regression. 7tatistical tools like
;egression analysis have been !sed to analy0e the relationship of *+, and profitability.
A.A RESERC# (ODE%
It is important to note that the ;#% depend !pon I+/6 @+/6 ++/ and +++ the following
model is form!lated to meas!re the impact of working capital management on
profitability.
ROA = ß0+ ß1 (ICP) + ß2 (DCP) + ß3 (CCP) + ß4 (CCC) +e
'2e1eas:
RO D ;et!rn on %ssets.
ICP D Inventory +onversion /eriod.
DCP D @ebtors +onversion /eriod
CCC D +ash +onversion +ycle.
e D error term.
4ase+ o. 02e a6o/e 1eg1essio. 7o+e3
I+/6 @+/ and ++/ are considered as the independent Eariables whereas ;#% are the
dependent Eariables. 1he detail analysis is carried o!t with the help of above variables.
8
A.8. STTISTIC% TOO%S
T,pe o* Ra0ios E8p3a.a0io.s Ca3c93a0io.
Working Capital Ratio"
T2e I./e.0o1, Co./e1sio.
Pe1io+ :ICP;
ICP is 02e 0i7e 1e 365
Cos0 o* Sa3es
De60o1s? Co./e1sio.
Pe1io+
CP;DCP is 02e 0i7e 1e155
To0a3 sse0s
9
10
4. TI(E "R(E
01) Jan 1
st
–Feb 30
th
2014 INTRODUCTION
02) March 1
st
- Apr! 30
th
2014 "IT#RATUR#
R#$I#%
03) Ma& 1
st
-J'ne 1(th 2014 M#T)ODO"O*+
04) J'!& 1
st
-A', 30
th
2014 TIM# FRAM#
0() -ept 1
st
-0ct 20 2014
R#F#R#NC#-
11
TIM
#
5
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