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Gauging the Financial Performance of Banks in Pakistan: Application of CAMEL Model

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  • Muhammad, Usman

Abstract

The research is done with a purpose of increasing knowledge about the importance of working capital management. The research investigates impact of working capital management on the profitability of the firms along with the impact of the same on the fixed capital investment of the firm. The research also finds out the interrelationship of fixed capital investment and the profitability because the ultimate goal of the firms is to achieve maximum profitability at the lowest level of risk. The research has thoroughly examined impact of variables involved through ratio analysis and tools like regression and correlation. The data was gathered from Karachi Stock Exchange. The data gathering was archival and panel data was used as a method to extract the needed information. The 20 companies are selected from KSE-30 index because they were considered the best performing stocks in the market. The remaining 10 companies fall in the Banking sector which has a totally different perspective of debt and equity situation, thus, commercial banks are eliminated from the KSE-30 companies in this research. The results of the study shows that the working capital management does not affect the profitability of the firms in isolation, but there is a slight impact of managing the current assets and current liabilities. These should be accompanied by other variables as well to ensure profitability. The fixed capital investment has an extremely low, in fact negligible impact on profitability. The effect of working capital management varies among industries.

Suggested Citation

  • Muhammad, Usman, 2020. "Gauging the Financial Performance of Banks in Pakistan: Application of CAMEL Model," MPRA Paper 116350, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116350
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    References listed on IDEAS

    as
    1. Rizvi, Aoun & Ali, Syed Babar, 2011. "Risk Taking Behavior of Investors of Pakistan," MPRA Paper 64342, University Library of Munich, Germany.
    2. Ali Zaidi, Syed Najaf & Ali, Syed Babar, 2006. "Risk and Scope of Debit Check Card in Competitive Market of Pakistan," MPRA Paper 64456, University Library of Munich, Germany.
    3. J. G. Kallberg & R. W. White & W. T. Ziemba, 1982. "Short Term Financial Planning under Uncertainty," Management Science, INFORMS, vol. 28(6), pages 670-682, June.
    4. Greg Filbeck & Thomas M. Krueger, 2005. "An Analysis of Working Capital Management Results Across Industries," American Journal of Business, Emerald Group Publishing, vol. 20(2), pages 11-20.
    5. Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 328-342, Autumn.
    6. M.Usman Aleem & Marria Purwani & Usman Ali & Syed Babar Ali 5 & Naeem Bhojani, 2018. "Power Of Training And Development On Employee Retention In Pharmaceutical Organization," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 14(2), pages 148-157.
    7. Paul Geroski & Steve Machin & John Van Reenen, 1993. "The Profitability of Innovating Firms," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 198-211, Summer.
    8. Syed Babar Ali & Manzoor A.Khalidi, 2020. "Valuation of Equity Securities, Private Firms, and Startups," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 16(1), pages 125-140.
    9. M.Usman Aleem & Marria Purwani & Usman Ali & Syed Babar Ali 5 & Naeem Bhojani, 2018. "Power Of Training And Development On Employee Retention In Pharmaceutical Organization," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 14(2), pages 14-12.
    10. Syed Babar Ali & Manzoor A.Khalidi, 2020. "Valuation of Equity Securities, Private Firms, and Startups," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 16(1), pages 16-19.
    11. Ali, Madiha & Ali, Syed Babar, 2014. "The Impact of Working Capital Management on Firm Profitability and Fixed Investment in Pakistan," MPRA Paper 64520, University Library of Munich, Germany.
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    More about this item

    Keywords

    Camel Analysis; Bank Performance; Bank;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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