Umair thesis

IMPACT OF WORKING CAPITAL MANAGEMENT OF FIRM’S
PERFORMANCE: A STUDY ON MANUFACTURING SECTOR OF
PAKISTAN
BBA (FINANCE) - THESIS
SUBMITTED BY
UMAIR IQBAL
REG # 3162-1001070
SUPERVISED BY
SIR SAIF ULLAH
NEWPORTS INSTITUTE OF COMMUNICATION AND ECONOMICS
MALIR BRANCH
DATED: JANUARY 14, 2018

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Approval
IMPACT OF WORKING CAPITAL MANAGEMENT ON FIRM’S
PERFORMANCE:
A STUDY ON
MANUFACTURING SECTOR OF PAKISTAN
BY
UMAIR IQBAL
REGISTRATION NO # 3162-1001070
Mr.Saif ullah Date
Thesis Supervisor

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Acknowledgement
Firstly I am thankful to Allah who gives me courage and blessing in the competition of this
research paper and without his blessing it was impossible.
After, That I am thankful to my parents and teacher who always motivates and trust on me
that I can be able to complete this research paper. I want to express my warm thanks to Mr.
Saif ullah for their support and valuable advice to me in the making of this thesis.
I am using this opportunity to express my gratitude to everyone who supported me throughout
the course of this BBA project. I am thankful for their aspiring guidance, invaluably
constructive criticism and friendly advice during the project work. I am sincerely grateful to
them for sharing their truthful and illuminating views on a number of issues related to the
project.
Umair Iqbal

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Abstract
In Pakistan, manufacturing sector is the second most important sector after agriculture. It is
important in terms of contribution to gross domestic product, employment and foreign
exchange earnings. In the last decade, the manufacturing sector has been struggling to thrive
and some key firms in the sector have closed operations. This is due to unfavorable working
conditions. These problems compel companies to maintain either excessive or inadequate
working capital levels. Both levels are undesirable. Therefore, the purpose of this research
was to determine the effects of working capital management on profitability of manufacturing
firms in Pakistan. The study had five objectives that is, to determine whether credit policy
influences profitability of manufacturing firms in Pakistan establish the degree to which
accounts payable practices influence profitability of manufacturing firms in Pakistan. Examine
how inventory control practices influence profitability of manufacturing firms in Pakistan,
establish whether liquidity management practices influence profitability of manufacturing
firms in Pakistan and investigate whether working capital levels influence profitability of
manufacturing firms in Pakistan. The study employed a correlation research design. A
questionnaire was used to collect primary data for the independent variables and a record
survey sheet was used to collect secondary data for the dependent variable (profitability). The
target population was 216 manufacturing firms in Karachi industrial area and its environs.
These firms were registered with Pakistani association of manufacturers. Both descriptive and
quantitative analyses were used. In descriptive analysis, percentages of the responses and the
mean were computed. Under quantitativeanalysis, Karl Pearson’s correlation, regression and
ANOVA analyses were used. The results of the study showed that there was positive linear
relationship between viii all independent variables (credit policy, accounts payable practices,
inventory control practices, liquidity management practices and working capital levels) and
the dependent variable (profitability) and all the models were significant. The null hypotheses
in this study were rejected.

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Table of Contents
Approval ii
Acknowledgement iii
Abstract iv
Table of Contents v
List of Tables vi
List of Figures vii
Chapter One
Introduction
1.1 Brief introduction of thesis / Preamble 8
1.2 Background of the study 8
1.3 Concept of Research problem 9
1.4 The Problem 10
1.5 Research Question 10
1.6 Significance/Justification of Study 10
1.7 Scope and Limitation of Study 11
1.8 Assumptions 12
1.9 Definition of Keywords 12
Chapter Two
Literatures Review
2.1 Management Performance of firms 13
2.2 Working Capital 15
2.3 Impact of Working Capital on Manufacturing Sector 17
2.4 Theoretical Framework 19
2.5 Hypothesis 20
Chapter Three
Research Methodology
3.1 Research Design 21
3.2 Population/Frame of reference 21
3.3 Sample and Sampling Method 21
3.4 Variables 22
3.5 Plan of Analysis 22

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Chapter Four
4.1 Descriptive Statistics 22
4.2 Relationship among variables 23
4.3 Impact of Working Capital on Manufacturing Sector 26
Chapter Five 29
Conclusion 29
5.1 Conclusion 29
5.2 Recommendations/ Suggestion 32
5.3 Area of further Research 32
References 33
Appendix I 34
Appendix II 35
Turnitin Original Report 36

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List of Tables
S.NO PAGES
Table 1. Descriptive Statistics 24
Table 2. Variable Statistics 25
Table 3. Regression 27
List of Figures
S.NO PAGES
Table 1. Theoretical frame work 20
Table 2. Conceptual frame work 22
Table 3. Descriptive Statistic 24

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Chapter No 1
Introduction
1.1 Brief introduction of thesis
If we see that in an organization if we identify those factors that can cause a major risk on
working capital management of the policy of working capital management standard if the
current assets are lower than the total assets or if we see that the current liabilities are higher
than the total liability there we can see an effect in the firm’s performance while there will be
low result and low negativity and there will be a decrease in the stocks of the firm which will
then lead to a great challenge that the organization has to face. So there will be necessary for
the organization to understand working capital management so the organizations don’t reach
the lack of performance due to the working capital management.
1.2 Background of Study
There are given researcher that purpose there result that shows that there is a relationship
between the working capital management and the profitability of a firm by most of them tells
us about a negative relationship between them. The study shows us about the variety of
variables and different methodology for the analysis of it. Some of the studies are mostly
related to the study that is been related and also presented in the order to access the research
gap that is between the working capital management and the firm’s profitability. In the year
(2003) Delores examined the correlation of the working capital management there are been
1009 and non-financial organization that are being taken from the year 1992 to 1996.The result
such as shows a relationship that has been negative between the Gross Profits and the Average
Period of Receivables, the Cash Conversion Cycle in order that it effect the performance of the
organization. The Return On Equity and the Return On Assets, the Accounts payable and
accounts periods which are lower than the profitability and which are been greater than the
period it will also effect the profitability of the firm.

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1.3 (a) Concept of firms Performance
It will also affect the performance of the firm. It was also been suggested that it the managers
can create a value of stock holder and hence reduce the performance the time and the inventory
of and take it to minimum level.
Example greater sales could reach to greater profit. In addition to that a positive relationship
is been found between the time of payment and the organization profitability and a negative
relationship is found in the organization time period of payment and the organization
profitability which can lead to the greater impact of firms performance. To see the effect of
positive relationship and negative relationship there are been 30 firms had been taken from the
period of 1993 to 2008 in this OLS and the fixed effect regression has been taken place. In The
Royal Britain also known as England in the Currents are known as the Current Accounts.
Current Liability are therefore known as the debt and compulsion that a company has to pay
in the passage of time of one year which are also shown in the company balance sheet which
has short term debts which a country has to give in a year or less than a year also it has accounts
payable which are the money been taken place by other companies also had accrued liabilities
which is an expense that the company has incurred but yet not paid that comes in the short term
liabilities or long term liabilities which are therefore recorded as in the financial statement of
the company.
There are bills that are the liabilities that the company has to pay and which are due on the
creditors and on the suppliers and hence they have a short passage of time period. Normally,
companies can with draw cash or other assets to pay their current liabilities. And if the value
comes less of current assets is way more less than the current liabilities it shows a negative
result in the performance of an organization. The management of an organization effects on
the current assets and current liabilities which therefore effect the performance that is been
made by the organization. There are other factors that can convert into cash such as the Cash
equivalent, accounts receivables, marketable securities, prepaid expenses and other liquids that
can easily convert into cash. For example if the organization current assets don’t exceed the
current liabilities then a company may get bank corrupted and it has to pay to firstly the
shareholders then to its customer and then to banks and at last if there is being any part of its
assets is being left it can have it but it most cases of that there is no assets that has been left for
the company own use as all of it get paid to the shareholders, customers and bank that it has

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to pay to. So if there is slow production in the company it can get into bank corrupt so therefore
in order to ignore that it has to do effect production and management so it can get saved from
bank corrupt.
Money that is gets owned by the customer and which it has to pay it cannot use that money to
pay their obligations. The current assets are accounts that can easily converted into cash or
cash equivalent in which it includes currency, coins, check that are been received but not yet
deposit, saving accounts and petty cash and other liquid assets that can easily convert into cash
they have a maturity time period of three months or less when they are being purchased by the
United State of America (U.S.A).All these securities can be turned into cash or cash equivalent
which is shown in the company balance sheet which is therefore listed in the company assets
and its change is donated as the statement of cash flows.
1.4 The Problem
Although working capital management itself focuses onto the proper utilization of current
assets & current liabilities; on the other hand this proper handling pays off on many other
venues such as the one which is this research which focus financial charges.
“This research investigates that whether or not the proper management working capital
shall impact the financial charges result in shape of benefit cost of the firm or nonimpact
& focusing the manufacturing industry of pharm and taking the listed companies by the
KSE of Pakistan”.
1.5 ResearchQuestions
The main research question to be analyzed in this paper is:
1. Is there evidence for country effects in the relation between working capital
management?
2. Management and corporate profitability differs between different countries?
3. Capital management and profitability are country unique results, or can be expanded
to other?
4. Countries have different relations between working capital management and
profitability?
5. Effects and without country effects to see if there is evidence that firms from different?

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The purpose of the study is to see the non-financial organization profitability and the effect.
Which has been listening in the Karachi Stock Exchange (KSE)?
1.6 Significance/JustificationofStudy
Working capital comprises of not only current portion of balance sheet but it also takes into
account the short term expenditures & liquidity requirements. And even it does not end here
and it impacts the long term needs of financing. This raises a query to inquire about. Effectively
managed working capital reduces your need of borrowing and this ultimately reduces the
borrowing cost & taking the profitability at a higher side without employing more assets and
taking more risks in the manufacturing sector of Pakistan.
On the above grounds this paper takes into account the working capital on the different sectors
of Pakistan & by the analysis of their financial statements trying to hence to establish a direct
relationship between effective that is being taking place on working capital & by borrowing
cost of the debts. Thesis tells us that the conclusions of this paper shall bring another dimension
to the aspects of looking at working capital. The aspect will be managing the WC for the sake
of a long term vision. The stakeholder & beneficiary of this research’s outcome are the firms
of which are doing business in the Pakistani economic environment, putting focus onto the
manufacturing sector which are having more requirements to manage the under one year (short
term) as well as more than one year (long term) items of which are being located of the financial
statement of the organization.
1.7 Scope and Limitation of Study
The scope is very much limited as this study is for pure academic purpose and serves only for
pure/basic research. This cannot be generalized for all the manufacturing industries around the
world. For generalization a further comprehensive study is required & this also opens the door
for future research. The research will take into account the companies’ perspective as well; as
to know how they carry out working capital planning in their firm and not the Investor’s
perspective too.

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1.8 Assumptions
 The firms that are belong from a manufacturing sector that assembles cement using land,
labor, and capital which are known to be considering as important parts.
 Hence all the fertilizer which is assembling from the manufacturing sector are therefore
being use in the construction of stairs, pillars etc and also been export to other regions.
 When the manufacturing sector make the cement it is then transported using heavy vehicles
which suck as trucks which are been running on highway from one city to another.
 There is no negotiation being taken place as the cost of the manufacturing of the cement is
fixed and being sold at the same price.
 Organization which is from manufacturing sector produces cement which are being sold at
the cost of $98.
 Each manufacturing firm occupies a 1.5 acre land.
1.9 Definitions of key terms
To understand the concept in the working capital management there are being different
definitions that can been found out such as one researcher that the Working Capital
management is known as the current assets of an organization which is then the final end of
the segment of financial resources of business management that can effect on the change of
one kind to another kind during the day to day finishing of business management process which
takes place. It can be defined as.
Working Capital=Current Assets-Current
LiabilitiesLiabilities

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Chapter 2
Literature Review
2.1 Performance of the firm of manufacturing Sector
Abdul Rahman (2010) compiled that manufacturing is the second largest sector of the economy
of Pakistan after agriculture sector and it accounts for 19.1% of GDP. Working capital
management efficiency is vital especially for manufacturing firms, where a major part of assets
is composed of current assets. It directly affects the profitability and liquidity of firms. In the
contribution of manufacturing sector, the second largest sector of the economy plays a
significant role in the economic growth of Pakistan. In this perspective, the main objectives of
the study is to empirically analyze the impact of working capital management on performance
of manufacturing firms listed at Karachi Stock Exchange using panel data. The findings
indicate that firm managers/executives can enhance performance of the firms by reducing the
number of days in inventories, may be dealt individually and an optimal / effective policy is
formulated for these components. Furthermore, efficient Management and financing of
working capital (current assets and current liabilities) can increase the operating profitability
of manufacturing firms.
Wobshet Mengesha (2014) compiled that management of working capital refers to
management of current assets and current liabilities. Firms may have an optimal level of
working capital that maximizes their value. Prior evidence has determined the relationship
between working capital and performance. Working capital plays a vital role in the company’s
operations and requires the efficient management. The management of working capital
concerns the management of cash, inventories, accounts receivable and accounts payable.
Nazir and Afza (2009) compiled that the main objective of working capital management is to
maintain an optimal balance between each of the working capital components. Business
success heavily depends on the financial executives’ ability to effectively manage receivables,
inventory, and payables. Firms can reduce their financing costs and/or increase the funds
available for expansion projects by minimizing the amount of investment tied up in current
assets. Most of the financial managers’ time and efforts are allocated towards bringing non-
optimal levels of current assets and liabilities back to optimal levels (Lamberson, 1995). An

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optimal level of working capital would be the one in which a balance is achieved between risk
and efficiency. It requires continuous monitoring to maintain proper level in various
components of working capital, i.e., cash receivables, inventory and payables, etc. The short-
term assets and liabilities are important components of total assets and need to be carefully
analyzed. Management of these short-term assets and liabilities warrants a careful investigation
because working capital management plays an important role in a firm’s profitability as well
as its value.
The optimum level of working capital is determined, to a large extent, by the methods adopted
by the management. For this purpose, a study of 132 manufacturing firms from 14 industrial
groups that were listed on Karachi Stock Exchange (KSE) between the periods 2004-2007was
undertaken. The corporate finance literature has traditionally focused on the study of long-term
financial decisions, particularly investments, capital structure, dividends or company valuation
decisions. The study also suggests some policy implications for the managers and prospective
investors in the emerging market of Pakistan. Firms with more aggressive policy towards
working capital may not be able to generate more profit. On the other hand, investors are found
giving more value to the firms that adopt an aggressive approach towards working capital
financing policies. The market value of firms using high level of current liabilities in their
financing is more than the book value. The investors believe that firms with less equity and
less long-term loans would be able to perform better than the others. However, there are various
other factors like agency problem which may play a pivotal role in such cases, and so these
factors may further be explored in future.
Camelia Burja (2011) compiled that the information about company performance, especially
about its profitability, is useful in substantiating managerial decisions regarding potential
changes in the economic resources that the company will be able to control in the future. This
objective aims achieving superior economic results that will increase the company’s
competitiveness and will satisfy the shareholders’ interests. At microeconomic level,
performance is the direct result of managing various economic resources and of their efficient
use within operational, investment and financing activities. To optimize economic results, a
special attention should be given to the proper grounding of managerial decisions. These
should be based on complex information regarding the evolution of all types of activities within

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the company. A synthetic picture of the company’s financial position and its performance is
found in the annual financial statements, which therefore become the main information sources
that allow the qualitative analysis of how resources are used during the process of creating
value. The purpose of this study is the factors that can be so much effective in the profitability
of manufacturing sector. Among the factors with a good action on profitability were found the
efficiency of inventories, debts level, financial leverage, efficiency of capitals. The positive
impacts of them show also, some of the action ways in order to improve the performance.
The proper organization of operating activities should be aimed at the efficient use of current
assets, which usually have the highest share in total assets.
2.2 Working Capital
Abdul Rahman (2010) compiled that the working capital management (WCM) plays a
significant role in better performance of manufacturing firms. The manufacturing firms are in
general facing problems with their collection and payment policies. Moreover, the financial
leverage, sales growth and firm size also have been significant effect on the firm’s profitability.
The study also concludes that firms in Pakistan are following conservative working capital
management policy and the firms are needed to concentrate and improve their collection and
payment policy
Rizwan and Shah (2015) compiled that the working capital management plays a significant
role in better performance of firms worldwide. This paper analyzes the impact of Financial
Charges onto working capital management in the firms of Pakistan for the period 2006 to
2011.A firm’s main business activities consist of identifying optimal investments, arranging
appropriate financing to sustain the investment, and using the selected investments to generate
revenues from which operating expenses, debt obligations, and equity holders’ returns are paid.
These activities are summarized in a firm’s financial statements, which are the set of
documents that collect and organize this information .The firm invests in assets that are used
to produce goods and services that will be sold to customers, and that this production process
has embedded costs, A collective policy of working capital management may help us to revise
/control our financial charges rather than individual focus on Receivable management,
Inventory Management and Payable Management.

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Wobshet Mengesha (2014) compiled that it is necessary for a company to monitor its working
capital properly and maintain its balance at the appropriate level. Shortage of working capital
may lead to lack of liquidity as well as loss of production and sales; on the contrary, excess
balance of working capital could be seen as loss of investment opportunities. The different
analyses have identified critical management practices and are expected to assist managers in
identifying areas where they might improve the financial performance of their operation.. The
working capital needs of an organization change over time as does its internal cash generation
rate‟ Profitability by improving the performance of management of working capital
components. At one given time both the current assets and current liabilities exist in the
business. The current assets and current liabilities are flowing round in a business like an
electric current. However, “The working capital plays the same role in the business as the role
of heart in human body.
Jakpar, Myint & Sadique (2017) compiled that many findings of past studies were revisited
and analyzed to link working capital management with firm’s profitability. However, there is
still ambiguity regarding the appropriate variables which might serve as proxies for working
capital management that would affect firm’s profitability. Working capital in the
manufacturing sector in Malaysia is managed towards attaining profitability. Working capital
management plays a significant role in improved profitability of firms. Firms can achieve
optimal management by working capital by making the trade-off between profitability and
liquidity. The concept of working capital management addresses companies’ managing of their
short-term capital and the goal of the management of working capital is to promote a satisfying
liquidity, profitability and shareholders’ value. Working capital management is the ability to
control effectively and efficiently the current assets and current liabilities in a manner that
provides the firm with maximum return on its assets and minimizes payments for its liabilities.
Tanveer and Nazir (2016) compiled that the purpose of this study was to empirically explore
the impact of working capital management (WCM) on firms performance of chosen
manufacturing firms listed in Karachi stock exchange (KSE). The quantitative research
methods, correlation matrix and multiple regressions, secondary data and purposive sampling
have been worked out. A random sample of 50 listed non-financial companies on Pakistani
Stock Market was selected for the period ranging from year 2005 to 2014..The working capital

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management (WCM) is one of the contentious issues in short term financial management and
it is key as well as tricky financial decision for any company because it has an influence on
return and liquidity of a firm. The firms are demanding to have most advantageous level of
WC so as to maximize their worth. The core purpose of all firms is to be lucrative and having
enough money to pay its short terms obligations and best possible WC decision will enhance
the company’s performance.
2.3 Impact of working capital Manufacturing Sector in Pakistan
Irfan Ahmed (2007) compiled that the working capital management is the most important
factor that effect the performance of the firm. It also effect the profitability and is one of the
most important factor .Net working capital tells about the strength of the company. To know
how it impact on manufacturing sector 253 companies that are listed in Karachi stock exchange
(KSE) have been taken. (The study used secondary data taken from Balance Sheet Analysis of
Stock Listed Companies on KSE published by State Bank of Pakistan) The study used
secondary data taken from Balance Sheet Analysis of Stock Listed Companies on KSE
published by State Bank of Pakistan.
Ali and Shahid (2015) compiled that the aim of this study is to examine the impact of working
Capital Management on firm’s performance for manufacturing companies in Pakistan listed in
KSE. A panel data has been used in this study for 10 sample companies that cover the period
of 7 years from 2008 to 2014. Return on Equity (ROE) and Return on Assets (ROA) are
selected as dependent variables for profitability while for working capital management,
(WCM) plays a key role in financial management as its effects conversion cycle with firm’s
profitability. While, on firms performance, risk and thus on its value. It is im- Tryfonids (2006)
It is important to all firms whether they are small and large in size. It deserves an attempt to
manufacturing sector in Pakistan listed in KSE -100”.
Kesseven Padachi (2006) compiled that a well designed and implemented working capital
management is expected to contribute positively to the creation of a firm’s value. A firm is
required to maintain a balance between liquidity and profitability while conducting its day to
day operations. Liquidity is a precondition to ensure that firms are able to meet its short-term
obligations and its continued flow that can be guaranteed from a profitable venture. The

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different analyses have identified critical management practices and are expected to assist
managers in identifying areas where they might improve the financial performance of their
operation of a firm. The results have provided owner-managers with information regarding the
basic financial management practices used by their peers and their peers attitudes toward these
practices.. This study has come at an opportune time where the Mauritian government is
deploying resources to help the SME sector so that the latter can positively contribute to the
Mauritian economy. This analysis has been constrained by the sample size and the nature of
the data, which could have well affected the results. Further studies will aim at increasing the
sample size for still better and consistent panel estimates.
Tanveer Bagh and Nazir(2016)compiled that the manufacturing sector contributes about
13.2% to gross domestic product of Pakistan. It is considered as the second largest sector of
the economy of Pakistan. It is at large scale plays a pivotal role and contributes about 13.8%
of overall employed or working labor force of Pakistan. The purpose of our study was to gauge
the impact of WCM on the FP. The study sample data was 50 firms from seven sub sectors of
manufacturing sectors of Pakistan.

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2.4 Theoretical Framework
Independent Variable Depandent Variable
In the above diagram there are two types of variables been discuss such as the Dependent
Variable and Independent Variable and in Independent variable it consists of Current Assets,
Current Liability, Current Ratio, Cash Conversion Cycle, Inventory turnover, Accounts
Payable, Working Capital, Profit before Taxation, Profit After Taxation which play a major
role in the Return on Assets, Return on Equity and performance of a firm. A manufacturing
company can perform well if it consider these 9 basic things and if not it cannot perform well.
INDEPENDENT VARIABLES DEPENDENT VARIABLES
Current Assets
Firm’s Performance
Return on Equity
Return on AssetsCurrent Liability
Current Ratio
Cash Conversion Cycle
Inventory Turnover
Working Capital
Management
Working Capital
Management
Accounts Payable
Working Capital
Profit Before Tax
Profit After Tax

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2.5 Hypothesis
The hypotheses are derived based on our objectives. The hypotheses are stipulated to examine
the relationship between working capital management and firm’s performance in term of
profitability (ROA).
H1: There is a relationship between current Assets (CA) and Return on Assets (ROA).
H2: There is a relationship between Current Liability (CL) and Return on Assets (ROA).
H3: There is a relationship between Inventory Turnover (IT) and Return on Equity (ROE).
H4: There is a relationship between Working Capital (WC) and Return on Equity (ROE).
H5: There is a relationship between Accounts Payable (AP) and Firm’s Performance (FP).
H6: There is a relationship between Profit Before tax (PBT) and Return on Equity (ROE).

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Chapter 3
3.1 Research Design
This study design shows us about performance in manufacturing sector in Pakistan and for that
I have taken the textile sector. The basic problem in that sector is “Time Management “and for
that they have to stick on their time schedule, The second other problem that it is facing is that
there is lack of manager behavior which effects on the productivity of employees.
3.2 Population/Fame of reference
The data that has been taken for the survey is of 24% of Gross Domestic Product (GDP).As
we can see that in the production of cement by the largest sector we can see the ratio of about
73% of the export of merchandising and the rest that is being left we can see it can be taken
from the labor force.
3.3 Sample and Sampling Methods
The study was done to know the effect taken place by the Working Capital Management on
Firms Performance which are been listed in Karachi Stock Exchange. The total of 50
manufacturing companies that are been taken under consideration. Whose data has been taken
from the companies from the last 10 years from the year 2007 to 2017 that have been listed in
Karachi Stock Exchange. The sampling method which is used in the research article is
secondary base which consist of the annual report of the company, records such as files have
been go through, profit and loss account, balance sheet which has been taking into
consideration and hence which was very helpful in the completion of this article.

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3.4 Variables
Following variables are taken play which is shown as under which represent the Working
Capital Management.
 Current Assets over Total Assets.
 Current Assets over Total Sales.
 Inventory Turnover.
 Current liabilities to Total Assets.
 Current Liability to Total Assets.
 Return on Total Assets.
 Ratio of Current Assets to Total Assets.
There are two variables ROE and ROA that has been used that mainly focus on organization
performance and profitability.
3.5 Plan of Analysis
In Plan of Analysis there are different types of analysis been used such as descriptive Analysis
and inferential analysis and in inferential Analysis there are two parts been discuss such as co
relational and regression analysis. The descriptive analysis tells us about the mean, medium
and standard deviation and correlation analysis define two variables upon the performance of
a firm and to know that there are different types of survey that has been conducted.

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Chapter 4
Results and Discussion
4.1 Descriptive Statistics
Descriptive statistics are used to describe the basic features of the data in a study. The mean,
median, minimum and maximum values with skewness and kurtosis are define below in Table
1.
Table 1: Descriptive Statistics of Variables for Manufacturing Sector
FP CA CL CR ROA ROE AP IT WC CCC PBT PAT
Mean 0.54 7.40 1.17 4.33 0.02 0.16 1.35 70.7 29.1 0.09 02.0 1.14
Median 0.55 4.25 9.89 3.92 0.02 0.15 1.35 73.9 27.5 0.01 07.9 1.15
Maximum 0.58 4.76 4.51 4.02 0.03 0.31 1.70 92.9 52.3 0.05 0.19 1.58
Minimum 0.55 3.24 2.54 1.03 0.02 0.10 1.00 46.5 1.23 0.28 0.47 7.69
Std. Dev. 0.02 2.42 9.52 4.42 0.03 0.05 2.96 1.38 1.64 0.70 0.20 2.23
Skewness 0.32 9.21 2.24 6.00 0.92 1.25 2.56 0.06 0.22 0.95 0.01 0.57
Kurtosis 2.27 9.53 7.21 4.90 2.37 3.61 1.61 2.07 3.74 2.80 1.41 2.93
Jarque-Bera 8.66 7.19 3.42 2.10 3.23 5.96 1.79 7.84 2.23 3.21 1.44 1.09
Probability 0.13 0.15 0.17 0.18 0.19 0.20 0.21 0.22 0.23 0.25 0.26 0.27
Sum 1.59 8.08 2.54 9.63 6.35 3.47 2.35 1.52 6.26 8.51 1.73 2.43
Sum Sq. Dev. 0.12 3.95 1.95 4.21 0.02 0.29 1.34 4.12 3.33 1.74 0.09 1.07
Observations 216 216 216 216 216 216 216 216 216 216 216 216
The data is taken from the year of 2007 till 2015.There are 216 firms that were been observed
and implementation is on 50 firms, As if we see the analysis been done on mean, median,
minimum and maximum values with skewness and kurtosis and on other variables been
defined above in the table 1.

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4.2 Relation among Variable
The direction of a correlation is either positive or negative. In a negative correlation, the
variables move in inverse, or opposite, directions. In other words, as one variable increases,
the other variable decreases.
Table 2: Relationship among variables on Performance of Manufacturing Sector (2007-2015)
Correlation table of ROE
Relationship among of all variables included in the analysis is presented in Table 2 which is
calculated based on data of 50 firms with 216 firm’s year observations. The table is shown
below
Table 3: Relationship among variables of Performance of Manufacturing Sector (2007-2015)
Correlation table of ROA
ROA CA CL CR CCC IT AP WC PBT PAT
ROA 1
CA -0.230 1
CL -0.224 0.065 1
CR -0.003 0.832 -0.321 1
WC 0.572 -0.271 -0.240 0.039 1
IT 0.252 -0.093 0.049 -0.217 0.108 1
CCC 0.593 -0.211 -0.054 -0.219 0.192 0.726 1
AP 3.371 -0.019 -0.011 0.027 1.867 0.543 -0.053 1
PBT -0.228 -0.171 -0.046 -0.121 0.451 0.216 0.0452 0.534 1
PAT -0.186 0.204 0.2169 -0.065 -0.486 0.406 0.0759 0.342 -0.549 1
ROE CA CL CR CCC IT AP WC PBT PAT
ROE 1
CA 0.115 1
CL 0.156 0.065 1
CR -0.063 0.832 -0.321 1
IT -0.360 -0.093 0.049 -0.217 1
AP -0.428 -0.019 -0.011 0.027 0.133 1
WC -0.461 -0.271 -0.240 0.039 0.108 1.863 1
CCC -0.466 -0.211 -0.054 -0.219 0.726 -0.047 0.192 1
PBT 0.444 -0.171 -0.046 -0.121 0.216 -0.531 0.451 0.045 1
PAT -0.208 0.204 0.216 -0.065 0.406 0.324 -0.486 0.075 -0.549 1

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In table 3, a highly significant relation is found between ROA and number of days accounts
receivable (p-value = 0.032), which implies that an increase in the number of days accounts
receivable by 1 day is associated with a decrease in profitability by 0.04%. The coefficient for
accounts payable days is negative and confirms the negative correlation between profitability
and the number of days accounts payable. Unlike the previous work of Deloof (2003), the
result is not significant for the FEM, but is significant at 0.1 level for the pooled OLS.
Table 4: Relationship among variables on Corporate Performance of Manufacturing Sector
(2007-2015)
Correlation table of FP
FP CA CL CR CCC IT WC PBT PAT
FP 1
CA -0.252 1
CL -0.260 0.832 1
CR -0.071 0.065 -0.321 1
CCC 0.846 -0.211 -0.219 -0.054 1
IT 0.663 -0.093 -0.217 0.049 0.726 1
WC 0.378 -0.271 0.039 -0.240 0.192 0.108 1
PBT 0.373 -0.171 -0.121 -0.046 0.045 0.216 0.451 1
PAT -0.088 0.204 -0.065 0.216 0.075 0.406 -0.486 -0.549 1
In table 4, the determinants of FP where “ A” are estimated using Pooled OLS instead of the
FP, and include 5 year dummies and 5 industry dummies as independent variables. ROA
estimation ignores firm specific differences in profitability. The results confirm the
relationship between profitability and the working capital measurement. Except for inventory
days, the coefficients of accounts receivable, accounts payable and CCC are significant

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4.4 Impact of Working Capital on Manufacturing Sector
Regression Analysis is basically used to measure the relationship between dependent and
independent variables. In this study Regression analysis contains two dependent variables. In
Impact of Working Capital Management on Performance of manufacturing sector.
Table 5: RegressionAnalysis of ROE
Variable Coefficient Std. Error t-Statistic Prob.
Constant (C ) -0.253 0.023 -9.631 5.351
Current Assets (CA) 3.598 1.085 3.312 4.321
Current Liabilities (CL ) -6.272 2.262 -2.775 3.567
Cash Conversion Cycle (CCC) -0.003 0.001 -3.655 0.589
Return on Equity (ROA) 0.789 0.044 1.307 0.456
Working Capital (WC) -1.123 2.966 -4.027 0.569
Accounts Payable (AP) 0.023 0.007 5.456 0.234
Profit Before Tax (PBT) 1.269 0.147 8.345 0.568
Profit After Tax (PAT) 6.223 1.615 3.889 0.329
Adjusted R-squared 8.569 Akaike info criterion 0.167
Log likelihood 2.225 Mean dependent var 0.057
F-statistic 3.200 Hannan-Quinn criter. -4.753
Prob (F-statistic) 0 Durbin-Watsonstat -4.616
Table 6: Regression Analysis of ROA

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Table 7: RegressionAnalysis of FP
Constant (C ) 0.038 0.002 1.299 0.234
Current Assets (CA) -1.204 1.495 -0.067 0.420
Current Liabilities (CL ) 1.826 6.601 0.751 0.783
Cash Conversion Cycle (CCC) 0.007 0.001 4.552 0.987
Inventory turnover (IT) 1.545 1.189 1.079 0.954
Working Capital (WC) 0.054 6.013 2.691 0.897
Return on Assets (ROA) -2.078 2.614 0.007 0.589
Profit Before Tax (PBT) -0.178 0.005 -3.557 0.456
Profit After Tax (PAT) -1.159 6.163 -1.725 0.568
Adjusted R-squared 0.425 Mean dependent var 0.029
Log likelihood 1.181 S.D. dependent var 0.003
F-statistic 4.185 Hannan-Quinn criter. -1.132
Prob (F-statistic) 0 Durbin-Watson stat 3.687

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Chapter 5
Constant (C ) 1.374 5.326 0.256 0.797
Current Assets (CA) -1.794 1.106 -0.016 0.987
Current Liabilities (CL ) 3.045 0.025 0.056 0.954
Cash Conversion Cycle (CCC) 0.151 0.020 1.354 0.897
Return on Equity (ROA) -1.998 1.402 1.427 0.589
Working Capital (WC) -0.001 8.356 1.544 0.456
Return on Assets (ROA) 4.253 1.180 3.585 0.568
Profit Before Tax (PBT) 1.616 0.068 2.665 0.325
Profit After Tax (PAT) 7.624 7.511 2.115 0.357
Adjusted R-squared 0.802 Mean dependent var 0.544
Log likelihood 677.7 S.D. dependent var 0.023
F-statistic 1.581 Durbin-Watson stat -6.191
Prob (F-statistic) 0 Hannan-Quinn criter. -6.135

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Conclusion
5.1 Conclusion
The contribution of manufacturing sector, the second largest sector of the economy, plays a
significant role in the economic growth of Pakistan. In this perspective, the main objectives of
the study is to empirically analyze the impact of working capital management on performance
of manufacturing firms listed at Karachi Stock Exchange using panel data. Furthermore, the
objective is also to find out the degree of aggressiveness in investment and financing policies
of working capital for manufacturing sector. The results shows that for overall manufacturing
sector, Working Capital Management has a significant impact on profitability of the firms and
plays a key role in value creation for shareholders as longer Cash Conversion Cycle and Net
Trade Cycle have negative impact on Net Operating Profitability of a firm. The Cash
Conversion Cycle and Net Trade Cycle offer easy and useful way to check working capital
management efficiency. For value creation of shareholders, firms must try to keep these
numbers of days to minimum level.
The negative association of Average Collection Period with Net Operating Profitability has
not been validated using fixed effect model. This shows problems with the collection policy in
general for the firms in manufacturing sector. There exists negative association between
Inventory Turnover in Days and Net Operating Profitability for the manufacturing sector as a
whole, which implies that keeping lesser inventories will increase profitability. Similar to
Average Collection Period, the positive association of Average Payment Period with Net
Operating Profitability is not proven in case of fixed effect model for the manufacturing sector
in general which also shows the problems with the payment policy of firm. The Gross Working
Capital Turnover Ratio and Current Assets to Total Assets also has the significant positive
impact on profitability. The Current Assets to Total Assets Ratio shows that firms in general
have lower degree of aggressiveness in working capital investment policy and Net Operating
Profitability.
The negative sign of Current Liabilities to Total Assets Ratio indicates lower degree of
aggressiveness in working capital financing policy and Net Operating Profitability. Leverage
is negatively associated with Profitability which implies that increase in debt financing; affect
the performance of a firm measured by profitability. Regarding the size and profitability,

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increase in size (measured in terms of natural logarithm of sales), leads to an increase in the
profitability of the firm. Sales Growth has positive association with profitability since growth,
as an indicator of firm’s business opportunities, is a very important factor which allows firm
to enjoy more profits. Theoretically, it is found that there exist a negative relationship between
liquidity and profitability of the firms; therefore, the measures of liquidity, Current Ratio
should have negative association with the profitability.
However, empirical researchers have found both positive and negative association between
current ratio and profitability. Similarly, in our research negative relationship is not proven
between current ratio and net operating profitability. Furthermore, we also found that CCCand
NTC measures the liquidity different form conventional Current Ratio. Several policy
implications can be drawn from the above findings of the study which include that working
capital management should be the concern of all the manufacturing sectors firms and need to
be given due importance. The collection and payment policies of the firms in manufacturing
sectors, in general, need to be thoroughly reviewed. It is generally argued that firms need to
accelerate their cash collections and slowdown their payments. This can only be possible with
some professional advice and supervision.
The findings indicate that firm managers/executives can enhance performance of the firms by
reducing the number of days in inventories, Cash Conversion Cycle and Net Trade Cycle to a
reasonable minimum. This is only possible if the components of Cash Conversion Cycle and
Net Trade Cycle (ACP, ITID and APP) may be dealt individually and an optimal / effective
policy is formulated for these components. Furthermore, efficient Management and financing
of working capital (current assets and current liabilities) can increase the operating profitability
of manufacturing firms. For efficient working capital management, specialized persons in the
fields of finance should be hired by the firms for expert advice in the manufacturing sector
because there are number of firms where there is only one department and one person who is
looking after all financial activities of firms including handling of accounts etc. Management
of working capital refers to management of current assets and current liabilities. Firms may
have an optimal level of working capital that maximizes their value. Prior evidence has
determined the relationship between working capital and performance.
Thus, this study examined the impact of working capital management on firms' performance
by using audited financial statements of a sample of 11 metal manufacturing private limited
companies in Addis Ababa, Ethiopia for the period of 2008 to 2012. The performance was

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measured in terms of profitability by return on total assets, and return on investment capital as
dependent financial performance (profitability) variables. The working capital was determined
by the Cash conversion period, Accounts receivable period, inventory conversion period and
accounts payable period are used as independent working capital variables. Moreover, the
traditional measures, current ratio are used as liquidity indicators, firm size as measured by
logarithm of sales, firm growth rate as measured by change in annual sales and financial
leverage as control variables. The data was analyzed using SPSS (version 20.0), estimation
equation by both correlation analysis and pooled panel data regression models of cross-
sectional and time series data were used for analysis.
Results indicate that longer accounts receivable and inventory holding periods are associated
with lower profitability. The results also show that there exists significant negative relationship
between cash conversion cycle and profitability measures of the sampled firms. No significant
relationship between cash conversion cycle, account receivable period, inventory conversion
period and account payable period with return on investment capital has been observed. On the
other hand, findings show that a highly significant negative relationship between account
receivable period, inventory conversion period and account payable period with return on
asset.
The results conclude that cash conversion cycle has significant negative relationship with
return on asset. In general paying suppliers longer and collecting payments from customers
earlier, and keeping product in stock less time, are all associated with an increase in the firms
performance. Managers, therefore, can increase firms‟ profitability by improving the day to
day performance of working capital component that are been used in an organization.
5.2 Recommendation/suggestions
On the grounds of above mentioned research results following recommendations may be
offered. This study recommends that managers should have best line of actions in order to

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appropriately control to the WCM, i.e. ACP, APP, CCC, and ITO. In this way companies may
get greater profit. This recommendation is in line with (Almazari, 2014). When the CCC
increases to the desired level the firm’s FP will be decreased. Whenever such like
circumstances is prevailing the manager should take step and may have to reduce CCCas much
as they can to the minimum level. The ACP has positive impact on FP signifying that the
facility of credit swells the sale volume which, in turn raise the monetary performance of firms.
The ACP has negative relationship with FP means that these firms take more time period to
collect their receivables which may lead them to undesired situation so they have to cut ACP
more to the reasonable minimum time to get higher profit. Qureshi (2014) reported that
companies should be quick in the matters of A/R collection as well as proficient in
reinvestments of these collections into short span of time securities for instance marketable
securities.
5.3 Area of further research
The manufacturing companies should put up such type of receivable collection period and APP
course of actions, which in turn offer support to them. In addition, the end result also
recommends that the business leaders may give big boost to FP of the manufacturing firms
listed in KSE by reasonably maintain ITO and recover account receivable to reasonable time
as they can. The study has another policy recommendation is that ITO may be improved by
appropriately injecting international portfolio investments in KSE. The foreign private
investments and Greenfield investments may have another good way in order to give raise to
sales of inventor. But it can only be possible when political stability and better infrastructure
will be ensured in Pakistan. This study only revolves around some of the manufacturing firms
and unfavorable political and industrial conditions can also affect the results. Future
researchers may generalize the research on other sectors in place of these seven sectors. They
can also increase the sample size and number of years. There has been less work done on
impact of WCM on EPS and future researches may work on the same proxy as well as can add
more proxies of WCM and FP to analyze their corresponding affects.
References

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Abdul, Qayyum and Ahmed, (2010) PhD Scholar, Department of Management Sciences,
COMSATS Islamabad & Asst. Professor, University Institute of Management Sciences
PMAS-Arid Agri. University Rawalpindi
Ali and Nazir, (2007) Professor & Dean, Faculty of Management Sciences, COMSATS
Lahore, Pakistan
Afza, T. and M. S. Nazir, (2008). Working Capital Approaches and Firm’s Returns. Pakistan
Journal of Commerce and Social Sciences, 25-36.
Blinder and Macinni, (1991). Taking Stock: A critical Assessment of Recent Research on
Inventories. Journal of Economic Perspectives. 5(1), 73-96.
Buchmann, P., Roos, A., Jung, U & Wörtler, M. (2008). Cash for Growth: The Neglected
Power of Working-Capital Management. The Boston Consulting Group, May 2008.
Camelia Burja (2011) Corporate Financial Management. 4th edit. Prentice Hall. Essex.
Carpenter, M. D. & Johnson, K. H. (1983). The Association Between Working Capital Policy
and Operating Risk. Financial Review, 18(3), pp. 106-106.
Czyzewski, A.B., and D.W. Hicks, (1992). Hold Onto Your Cash. Management Accounting.
27-30. Working Capital Management Affects profitability of Belgian Firms? Journal
of Business Finance & Accounting. 30(3) & (4), 0306-686X.
Economic Survey of Pakistan, (2006-07). Finance Division, Government of Pakistan.
Eljelly, M.A. (2004). Liquidity – Profitability Tradeoff: An empirical investigation in an
emerging market. International Journal of Commerce & Management. 14(2).
Filbeck, G. and T. M. Krueger, (2005). An Analysis of Working Capital Management results
across Industries. American Journal of Business. 20(2), 11-18.
Garcia-Teruel, P.J. and Martinez-Solano, P. (2007). Effects of Working Capital Management
on SME Profitability. International Journal of Managerial Finance. 3(2), 164-177.
Mian Sajid Nazir and Talat Afza (2009) Working Capital Management Policies of Firms:
Empirical Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences,
1 (1), pp. 25-36.
Appendices I

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Appendix: Listed manufacturing companies
S.NO Company Status
1 Attock Cement Limited Not Trading
2 Bestway Cement Limited Trading
3 Cherat Cement Limited Not Trading
4 Dandot Cement Limited Trading
5 Fecto Cement Limited Not Trading
6 Javedan Corporation Limited Trading
7 Kohat cement Limited Not Trading
8 Luck cement Limited Trading
9 Maple leaf cement factory Limited Not Trading
10 Power cement Limited Trading
11 System Limited Corporation Not Trading
12 Thatta cement company Limited Trading
13 Xeal pak company cement Limited Not Trading
Appendices II

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Dependent Variable Definition Symbols Expected Signs
Return on Equity Measures how much the shareholders earned
for their investment in the company.
ROE
Return on Assets Measures the ability of firm to utilize its assets
to create profits
ROA
Independent Variables
Current Asset Cash and other assets that are expected to be
converted to cash within a year.
CA Positive
Current Liabilities Company's obligations that are due within one
year, appearing on the company's balance sheet.
CL Negative
Current Ratio Company's ability to pay short-term and long-
term obligations.
CR Negative
Cash Conversion Cycle Measures how fast a company can
convert cash on into inventory.
CCC Positive
Inventory Turnover Indicates the liquidity of the inventory. ITO Positive
Accounts Payable Money owed by a business to its suppliers
shown as a liability.
AP Negative
Working Capital A company's efficiency and its short-
term financial health.
WC Positive
Negative

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Thesis by Umair Iqbal
Turnitin Original Report
%6 %4 %1 %4
Similarity Index Internet Sources Publications Student Papers
Primary sources
1 The Journal of Business Research VOL 3, NO 5 (September 2011) %1
Internet Source
2 Submitted to Rose Hill Jr. High School (March 2016) %1
Student Paper
3 Factors influencing the company Profitability %1
Publications
4 International Journal of Business and Economics Research (2013) %1
Internet Sources
5 Submitted to Higher Education Commission of Pakistan %1
Student Paper
6

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Submitted to University Malaysia Sarawak %1
Student Paper
7 http://www.cbos.gov.sd/sites/default/files/issue61web.pdf %1
Internet Source
8 http://www.cass.city.ac.uk/conferences/mmf2004/files/.pdf %1
Internet Source
9 http://prr.hec.gov.pk/Thesis/1560s.pdf %1
Internet Source
10 http://www.uofaweb.ualberta.ca/economics2/pdf %1
Internet Source
Student Paper
Student Paper
13 http://www.ukessays.com/financecompanies %1
Internet Source

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