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Profitability and Working Capital Management Nexus: Evidence from Food & Personal Care Products Sector Firms Listed on Pakistan Stock Exchange

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  • Shah, Mumtaz Hussain
  • Khan, Fiaz

Abstract

Working capital management (WCM) usually have an essential role to play in a firm’s overall performance, especially those of manufacturing sector. The key aim of the current research work is to find the empirical association amid profitability and working capital management of the Food & Personal Care Product sector Pakistani firms. Eight companies are selected randomly as a sample from the firms listed on Pakistan Stock Exchange. Secondary data for six years, that is, 2010 - 2016 is gathered from the financial reports of these companies and evaluated through Pearson correlation coefficient and regression analysis techniques, using STATA software. The results prove that Return on Assets (ROA) is negatively correlated with Average Collection Period (ACP) and positively correlated with Inventory Turnover in Days (ITID), Average Payment Period (APP), Current Ratio (CR) and Sales Growth (SG). All the relationships are significant except ITID and SG ones

Suggested Citation

  • Shah, Mumtaz Hussain & Khan, Fiaz, 2018. "Profitability and Working Capital Management Nexus: Evidence from Food & Personal Care Products Sector Firms Listed on Pakistan Stock Exchange," MPRA Paper 107254, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:107254
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    References listed on IDEAS

    as
    1. Shah, Mumtaz Hussain & Khan, Atta Ullah, 2017. "Factors determining capital structure of Pakistani non-financial firms," MPRA Paper 82015, University Library of Munich, Germany.
    2. Shah, Mumtaz Hussain, 2017. "The Significance of WTO’s Trade Related Investment Measures (TRIMs) Agreement For Inward FDI in Sub-Saharan Africa," MPRA Paper 82009, University Library of Munich, Germany.
    3. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    4. Shah, Mumtaz Hussain, 2016. "Financial development and foreign direct investment: The case of Middle East and North African (MENA) developing nations," MPRA Paper 82013, University Library of Munich, Germany.
    5. Mumtaz Hussain Shah & Yahya Khan, 2016. "Trade Liberalisation and FDI Inflows in Emerging Economies," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 8(1), pages 35-52, April.
    6. Mumtaz Hussain Shah, 2017. "Inward FDI in East Asian & Pacific Developing Countries due to WTO Led Liberalisation," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(2), pages 1-20, June.
    7. Anna Bieniasz & Zbigniew Gołaś, 2011. "The Influence of Working Capital Management on the Food Industry Enterprises Profitability," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 5(4), December.
    8. Mumtaz Hussain Shah & Anum Gul Afridi, 2015. "Significance of Good Governance for FDI Inflows in SAARC Countries," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(2), pages 31-52, October.
    9. Shah, Mumtaz Hussain & Khan, Sajjad, 2017. "Factors Effecting Commercial Banks Profitability in Pakistan," MPRA Paper 82016, University Library of Munich, Germany.
    10. Shah, Mumtaz Hussain, 2016. "The Effect of Macroeconomic Stability on Inward FDI in African Developing Countries," MPRA Paper 82014, University Library of Munich, Germany.
    11. Blinder, Alan S & Maccini, Louis J, 1991. "The Resurgence of Inventory Research: What Have We Learned?," Journal of Economic Surveys, Wiley Blackwell, vol. 5(4), pages 291-328.
    12. Shah, Mumtaz Hussain & Ali, Zahid, 2016. "What Drives Foreign Direct Investment to BRICS?," MPRA Paper 107252, University Library of Munich, Germany.
    13. Mumtaz Hussain Shah, 2017. "Political Institutions and the Incidence of FDI in South Asia," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 21-42, March.
    14. Shah, Mumtaz Hussain & Faiz, Mehreen, 2015. "Terrorism and Foreign Direct Investment: An Empirical Analysis of SAARC Countries," MPRA Paper 82008, University Library of Munich, Germany.
    15. Mumtaz Hussain Shah & Saba Qayyum, 2015. "Impact of Double Taxation Treaties on Inward FDI in Latin American and Caribbean Developing Countries," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(1), pages 1-18, April.
    16. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    17. Sabo Muhammad & Rabi¡¯U Saminu Jibril & Usman Sani K/Wambai & Fatima Bello Ibrahim & Tjjani Habibu Ahmad, 2015. "The Effect of Working Capital Management on Corporate Profitability: Evidence from Nigerian Food Product Firms," Applied Finance and Accounting, Redfame publishing, vol. 1(2), pages 55-63, August.
    18. Shahid Ali, 2011. "Working Capital Management and the Profitability of the Manufacturing Sector: A Case Study of Pakistan’s Textile Industry," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 141-178, Jul-Dec.
    19. Haitham Nobanee & Modar Abdullatif & Maryam AlHajjar, 2011. "Cash conversion cycle and firm's performance of Japanese firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 19(2), pages 147-156, July.
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    Cited by:

    1. Shah, Mumtaz Hussain, 2018. "Corruption & Foreign Direct Investment: The Case of South Asia," MPRA Paper 107253, University Library of Munich, Germany.
    2. Shah, Mumtaz Hussain & Azam, Ayesha, 2018. "Financial Development and Investors Location Choice in The Arab World," MPRA Paper 107245, University Library of Munich, Germany.
    3. Shah, Mumtaz Hussain & Khan, Faisal, 2019. "Telecommunication Infrastructure Development and FDI into Asian Developing Nations," MPRA Paper 107255, University Library of Munich, Germany.

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    More about this item

    Keywords

    Working Capital; Profitability; Food & Personal Care Products; ROA; ACP; APP; ITID; CR; SG; KSE;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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