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Impact Of Working Capital Management On Profitability And Value Of Firm: A Study Of Manufacturing Sector Of Pakistan

Author

Listed:
  • Munawar Shabbir

    (PhD Scholar, LMS, FCS, National Defense University, Pakistan)

  • Umer Iftikhar

    (Assistant Professor, PhD, LMS, FCS, National Defense University, Pakistan)

  • Ahtesham Ali Raja

    (Mphil Scholar, LMS, FCS, National Defense University, Pakistan)

Abstract

Manufacturing is third largest sector of Pakistans economy.The manufacturing firms convert raw material to finished goods that is useful for people.The whole process raw material to end product requires huge amount of working capital.Any anomaly in working capital management directly effects on performance, profitability and value of firm.The present study explores impact of working capital management on profitability as well as on value of firm.The study collects random sample of 30 manufacturing firms registered on Pakistan Stock Exchange for twelve years 2005 to 2016.The regression models were estimated using Generalized Method of Moments.The results showed profitability and value of firms decrease with increase in receivable and inventory turnover because delay in receivables or sale of inventory enhance financing needs for working capital.Liquidity contribute largely in increase profitability as compared to value of firm.However, some variables showed partial results for both models for example profitability increased with 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 decline in both.The reseach findings suggest firms in Pakistan should focus on efficient working capital management for better profitability and value addition of firm.

Suggested Citation

  • Munawar Shabbir & Umer Iftikhar & Ahtesham Ali Raja, 2018. "Impact Of Working Capital Management On Profitability And Value Of Firm: A Study Of Manufacturing Sector Of Pakistan," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 14(2), pages 1-12.
    • Handle: RePEc:aib:ibtjbs:v:14:y:2018:i:2:p:1-12
    DOI: https://doi.org/10.46745/ilma.ibtjbs.2018.142.1
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    References listed on IDEAS

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    3. Enqvist, Julius & Graham, Michael & Nikkinen, Jussi, 2014. "The impact of working capital management on firm profitability in different business cycles: Evidence from Finland," Research in International Business and Finance, Elsevier, vol. 32(C), pages 36-49.
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    Cited by:

    1. Qaiser Abbas & Riaz Ahmed & Muhammed Asif & Abid Mehmood, 2022. "The Impact of Investment Decisions on Firm Profitability of Non-Financial Sectors in Pakistan: Mediating Role of Sales Growth," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(4), pages 527-543, December.

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