IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY AND VALUE OF FIRM: A STUDY OF MANUFACTURING SECTOR OF PAKISTAN
Download| Volume 14 Issue 2 2018 | |
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| Author(s): |
Munawar Shabbir
Umer Iftikhar
Ahtesham Ali Raja
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| Abstract | Manufacturing is the third-largest sector of Pakistan's economy. The manufacturing firms convert raw materials to finished goods that are useful for people. The whole process (raw material to end product) requires a huge amount of working capital. Any anomaly in working capital management directly affects on performance, profitability, and value of the firm. The present study explores the impact of working capital management on profitability as well as on the value of the firm. The study collects a random sample of 30 manufacturing firms registered on the Pakistan Stock Exchange for twelve years (2005 to 2016). The regression models were estimated using the Generalized Method of Moments. The results showed profitability and value of firms decrease with an increase in receivables and inventory turnover because delay in receivables or sale of inventory enhances financing needs for working capital. Liquidity contributes largely to increase profitability as compared to the value of the firm. However, some variables showed partial results for both models for example profitability increased with the rise in growth and cash conversion cycle. Value of firm was decreased with delay in accounts payable turnover because it cased distrust of supplier and investors. We expected size will increase profitability and value but contrary results expressed a decline in both. The research findings suggest firms in Pakistan should focus on efficient working capital management for better profitability and value addition of firms. |
| Keywords | Accounts receivable turnover, accounts payable turnover, finished goods, Raw materials. |
| Year | 2018 |
| Volume | 14 |
| Issue | 2 |
| Type | Short Report |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | IBT Journal of Business Studies | Publisher Name | ILMA University | Jel Classification | G32, L6 | DOI | http://dx.doi.org/10.46745/ilma.jbs.2018.14.02.01 | ISSN no (E, Electronic) | 2409-6520 | ISSN no (P, Print) | 2416-8393 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Type of Review | Double Blind Peer Reviewed | Format | Paper Link | http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/14.2/1.pdf | Page | 1-12 | References | Agha, H, “Impact of working capital management on profitability.” European Scientific Journal,
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