A Case Study on Karachi Stock Exchange

Working Capital Management and its affect on Firm’s Profitability and Liquidity

Abstract: This paper aims to extend the Rehman and Nasr finding regarding Working capital management and its affect on profitability and liquidity of Pakistani firms. For the purpose of our analyses we have been selected the other food sector and selected the data from 2006-2010 of 18 companies of this sector listed on Karachi Stock Exchange. For this purpose we examine the effect of different variables of working capital management like Average collection period, average payment period, inventory turnover in days, cash conversion cycle, debt ratio, financial asset to total asset ratio, current ratio and net operating profitability. We have used pooled least square regression and common effect model.

Introduction:- In the past, the corporate financial management literature has only focused on the study of long term financial assets however many studies have studied the topics related to investments, mutual funds performance, earning per share, firm’s financial structure and valuation of the firms. Meanwhile, the short-term assets of the firm that have maturity less than a year in the form of current assets are also account for significant proportion of total assets on the balance sheet of a firm.The firm’ performance mainly depends on the way its working capital has been managed. A firm should must managed effectively and efficiently its working capital if it is unable to manage efficiently and effectively of its working capital than this may result in not only reduction in profitability but May also lead to severe result like financial crisis for a firm..
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