Working capital on Profitability

1. The Impact of Working Capital
Management on Profitability of
Fertilizer Industry of Pakistan
SHAFIQ UR REHMAN
CO. ADVISOR, PROF REHMAT ULLAH,
GOVT. COLLEGE OF COMMERCE QUETTA

2. INTRODUCTION
Background
of the Study
Problem
Statement
Objective of
the Study
Significance
of the Study

3. Background of the Study
 Fertilizer will be characterized as a compound or regular substance wont to make soil or land more
 ripe manure should be applied to all or any type of harvest creation framework to acknowledge yield
 levels which make the problem of trimming beneficial.( Fertilizer Def Dr jitendra pamecha 3 July 2020)
 Fertilizer is a critical componention for the cutting edge ranch innovation for accomplishing the enormous
creation is the harvest.( Pakistani Def fertilizer Quddus,Siddiqi and Riaz 2008).
 association segment of Pakistan in this study discovered some major inorganic compost are utilized to import
from worldwide market creation of inorganic manure emphatically affects the horticulture area and import of
inorganic compost irrelevantly affects farming area of Pakistan Gort of Pakistan deter the effect of compost
and energize introducing the new creation units of manure an enormous amount of inorganic manure is
delivered in Pakistan the interest of inorganic manure will likewise be expanded the development of inorganic
manure is expanded by 3.8 million tones from 1990- 2010d , The number of inhabitants on the planet has
been expanding has been expanding from the 60s at around 2% per annum while food creation is expanding
with 1.5 per annum in the world as per this there will be a strain the Pakistan farming in following couple of
year.( M . Bilal Tariq Rizwan Fareed Rabia Mia Naeem uddim Waqar Hassan Miss Sehrish Khan Dec 2016)

4.  Working capital management is the most common way of funding effective money management and
controlling net current assests inside the boundaries of the strategy. Working capital management is a basic
corporate monetary choice since it straight for wardly affects the organizations productivity while directing
consistently business exercises a firm ought to endeavor to boost it s liquity and benefit.Working capital
management can bring about a liquity and emergency and a lessening in productivity. ( Abdul Rahman and Dr
Parameshwara Jun - March 2022).
1. Working Capital Management
2. Profitability
Profitability is what is going on in which a substance is producing a profit. Profitability emerges when the total
measure of income is more prominent than the total measure of costs in a detailing period assuming that an
element is recording it's deals under the gathering premise of bookkeeping it is very conceivable that the
productivity condition won,t be matched by the incomes produced by the association since some gathering
premise exchange for example devaluation don,t include incomes.( Accounting Tool April 23 2022)

5. Problem Statement
The paper target concentrating on effect of working capital administration on profitability of fertilizer fabricating
companies recorded in Pakistan trade.
Objective of the Study
 To determine how working capital management affects the profitability of Pakistani fertilizer enterprises.
Significance of the Study
The review would assist understudy with grasping the terms and essentially separate among them such profitability
and profit worlord capital working administration however extensively it would help individuals participated in
systematic chief investor as well as stackholder.

6. LITERATURE REVIEW
Definition Associations
Empirical
Model
Hypothesis

7. Definition
• The measurement of the time it takes for a corporation to convert
cash that is invested in its operations into cash received as the
result of its operations
• 𝑪𝒂𝒔𝒉 𝑪𝒐𝒏𝒗𝒆𝒓𝒔𝒊𝒐𝒏 𝑪𝒚𝒄𝒍𝒆 = 𝑨𝑪𝑷 + 𝑰𝑪𝑷 − 𝑨𝑷𝑷
Cash Conversion Cycle (CCC)
• It refers to the time, on average, it takes for a
company to collect payments due from customers or
clients. Whereas, the ACP is a metric that indicates
the average number of days that a firm takes to
collect & convert its AR into cas.
• 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑪𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝑨𝒄𝒄𝒐𝒖𝒏𝒕 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
𝑿 𝟑𝟔𝟓
Average Collection Period (ACP)
• The average payment period is referring to the
average period which is taken by a firm to pay its
liabilities for goods purchased on credit from the
company's suppliers.
• 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑷𝒂𝒚𝒎𝒆𝒏𝒕 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆
𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆
𝑿 𝟑𝟔𝟓
Average Payment Period (APP)
• Determined by the ICP how long it will take for
converting inventory into sales, a time from the
purchase of new stock to the sale of the actual product
• 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑪𝒐𝒏𝒗𝒆𝒓𝒔𝒊𝒐𝒏 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝑺𝒐𝒍𝒅
× 𝟑𝟔𝟓
Inventory Conversion Period (ICP)
• Profit is a still up in the air by how much pay or income
well beyond the costs or the business where it works a
companys goals is dependably to create a gain.
Profit
• The relationship between costs and revenues arising
from using assets of a firm - both fixed and current - in
production activities.
Profitability
• The term Return on Assets implies to a financial
ratio that reveals how profitable a corporation is in
connection to its total assets.
• 𝑹𝑶𝑬 =
𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆
𝑺𝒉𝒂𝒓𝒆 𝑯𝒐𝒍𝒅𝒆𝒓′𝒔 𝑬𝒒𝒖𝒊𝒕𝒚
× 𝟏𝟎𝟎
Return on Asset (ROA)

8. ASSOCIATION BETWEEN
ACP and ROA
• Has analyzed the inluence of WCM parts on profitability the Nairobi Stock
Trade (NSE). His outcome shows that there is a negative relationship between
Average Collection Period and. Profitability. (T A N R Jayarathne 27 February
2014).

9. ASSOCIATION BETWEEN
ICP and ROA
• The motivation behind this study is to look at the impact of working capital
administration on the benefit of recorded assembling firms in Ghana. The review utilized
auxiliary information gathered from seven (7) producing firms recorded on the Ghana
Stock Trade for a time of a decade (2005-2014). The benefit as reliant variable was
estimated with regards to net working benefit. The functioning not set in stone by
Records Receivables Period, Records Payables per Period, Stock . Additional proportion
current proportion utilized as liquidity marker and firm size as estimated by logarithm of
deals are utilized as control factors. Information was dissected utilizing the Fixed Effects
model of the Board information relapse and Inventory Conversion Cycle (ICP) days
adversely Negative Affected the benefit . The concentrate on suggested that assembling
firms ought to take on productive and viable approaches to dealing with these
component of working capital management.(Jacob Akomeah , Siaw Frimpong , 26 June
2019.)

10. ASSOCIATION BETWEEN
APP and ROA
• This study intended to examine the nexus between working capital
administration and the monetary presentation of firms. We utilized an example
of 12 recorded food and refreshment organizations in South Africa during the
period 2007 to 2016. This study gathered optional information from the iress
McGregor data sets for the Johannesburg Stock Trade (JSE) recorded
companiesFurthermore, the review tracked down a positive relationship
between the Average Payment Period (Application) and benefit. The discoveries
of this article recommend that monetary directors of firms need to embrace
forceful working capital administration approaches to make investor
abundance through improving the monetary execution of the firm.( Lindelwa
Makoni, Zimasa Mabandla 2019).

11. ASSOCIATION BETWEEN
CCC and ROA
• The examination researches the effect of working capital administration on monetary
execution by utilizing the information gathered from recorded firms on Ho chi Minh stock
Trade HOSE .The example in involved 68 public from over the time of a long time from
2014 to 2016 . Utilizing the variable Cash Conversation Cycle CCC as estimation for
Working Capital Management the examination likewise takes the accompanying factors
on to to though .Development income liqutlity Hazard and influence which are
demonstrated to affect firm execution other than working capital management
.Concerning estimation of monetary execution the factors include Return on Assests ROA
That what the outcomes infer Working Capital Management positively influences the
monetary execution of firm in the example . Consequently our review give another
knowledge to administrators on the best way to work on the monetary execution with
working capital management.( Hong - Lan Le, Kieu- Trang Le, Nigoc Le, Khaah Du , Dung
Tran, 31 August 2017 / 2018)

12. Conceptual Model
Working Capital Management
ACP
APP
ICP
CCC
Profitability
ROA
Dependent Variables
Independent Variables

13.  This research endeavors to understand the correlation between working capital management and the financial performance of Fertilizer
companies in pakistan. To achieve this goal, an empirical model is employed that utilizes the following equation:
 ROAit = α0 + α1 (ACPit) + α2 (ICPit) + α3 (APPit) + α4 (CCCit) + 𝜺it
 Where:
 ROAit Represents the return on asset as the dependent variable, which is used as a measure of the profitability of the company.
 α0 Represents the constant of the model.
 ACPit Represents the average collection period as an independent variable.
 ICPit Represents the inventory conversion period as an independent variable.
 APPit Represents the average payment period as an independent variable.
 CCCit Represents the cash conversion cycle as an independent variable.
 α1, α2, α3, α4 Represent the coefficients of the independent variables.
 𝜺it Represents the error term.
 This model helps us to understand the effect of different aspects of working capital management on the profitability of the firms in the
Fertilizer sector.
Empirical Model

14. H1
There is a significant negative impact of ACP on the ROA of the
Fertilizer Industries of Pakistan.
Accepted
H2
There is a significant negative impact of ICP on the ROA of the Fertilizer
Industries of Pakistan.
Accepted
H3
There is a significant positive impact of APP on the ROA of Fertilizer
Industries of Pakistan.
Accepted
H4
There is a significant positive impact of CCC on the ROA of the
Fertilizer Industries of Pakistan.
Accepted
Hypothesis

15. METHODOLOGY
Research
Design
Sample
Size
Statistical
Tools
Software

16. Research Design
This study delvod in to the relationship between's four critical part of working capital
administration to be specific Average Payment Period Inventory Conversion Period
Average Collection Period and Cash Conversion Cycle and the effect on the productivity
(ROA) Return on Resources of assembling firms in Pakistan.
Sample Size
This study Inspects the monetary exhibition Six (6 ) firm from the Drug Areas that are
recorded on the Pakistan Stock Trade( PSX) over a time of five years from 2017 to 2021.
Simple size alludes to the quantity of members or perceptions remembered for a review. This
number is generally addressed by n. The size of an example impacts two factual properties: 1)
the accuracy of our evaluations and 2) the force of the review to reach inferences.

17. Statistical Tools
Data analysis tools assist specialists with figuring out the information gathered. It empowers them to report results
and make understandings. How the information is broke down relies upon the objectives of the task and the sort of
information gathered. A few examinations center around subjective information, others on quantitative information,
and numerous on both (blended strategies studies); instances of these can be found in a NAGT-GER Division
facilitated assortment of introductions on Techniques for Leading GER. The Scientific Apparatus assortment
remembers models for these areas, as well as unique sorts of logical device utilized for information explicit
applications and information perceptions. Quantitative and Subjective strategies both utilize rational, inductive, and
adductive cycles to comprehend an interaction or peculiarity, simply in various ways utilizing various
information.Research analysis tools are characterized as a progression of graphs, guides, and charts intended to
gather, decipher, and present information for a large number of utilizations and enterprises.The model will be
utilized to look at the relationship between's Functioning Capital Administration and productivity of drug
organizations in Pakistan . by considering the board information design of the example.
Software
 In this research thesis Eviews 9 was used.

18. RESULTS
Result Table 1 Table 2 Table 3 Table 4 Table 5

19. Result
Dependent Variable: ROA
Method: Panel Least Squares
Date: 05/28/23 Time: 04:03
Sample: 2017 2021
R-squared 0.704014 Mean dependent var 16.19267
Adjusted R-squared 0.656657 S.D. dependent var 10.77516
F-statistic 14.86590 Durbin-Watson stat 2.158588
Prob(F-statistic) 0.000002
Variable Coefficient Std. Error t-Statistic Prob.
C -26.72459 15.69385 -1.702870 0.1010
ACP 0.376667 0.080421 4.683719 0.0001
ICP 0.198967 0.141162 1.409495 0.1710
APP 0.586728 0.137202 4.276368 0.0002
CCC -0.316331 0.119453 -2.648172 0.0138
Periods included: 5
Cross-sections included: 6
Total panel (balanced) observations: 30

20.  Table 1 outlines that the mean worth, which mirrors the focal inclination of the information, is
22.76667. The scope of the information, or the contrast between the most noteworthy and least
qualities, is 15.00000 to 29.00000, and the standard deviation, a proportion of how fanned out the
information is, is 3.359837. The skewness of the information, or how much it is lopsided, is -
0.110469, which is under nothing, it is adversely slanted to demonstrate that the information. The
kurtosis, or how much the information is topped, is 2.835842, implying that the circulation of the
information is leptokurtic, or more crested than a typical conveyance.
0
1
2
3
4
5
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Series: ROA
Sample 2017 2021
Observations 30
Mean 22.76667
Median 23.00000
Maximum 29.00000
Minimum 15.00000
Std. Dev. 3.359837
Skewness -0.110469
Kurtosis 2.835842
Jarque-Bera 0.094701
Probability 0.953753

21.  Table 2 Overall, it requires around 55 days for organizations in the example to gather cash from their clients
for deals. The standard deviation in the normal assortment period (ACP) is roughly 8 days, and the most
extreme number of days taken by any organization in the example to gather its receivables is 70 days. The
skewness of the information, or how much it is unbalanced, is - 0.393546, which is under nothing, it is
adversely slanted to demonstrate that the information. The kurtosis, or how much the information is crested, is
2.853124, implying that the dissemination of the information is leptokurtic, or more topped than a typical
dispersion.
0
1
2
3
4
5
6
7
35 40 45 50 55 60 65 70
Series: ACP
Sample 2017 2021
Observations 30
Mean 55.20000
Median 56.00000
Maximum 70.00000
Minimum 36.00000
Std. Dev. 7.707587
Skewness -0.393546
Kurtosis 2.853124
Jarque-Bera 0.801359
Probability 0.669865

22.  Table 3 overall, it requires roughly 26 days for the organizations in the example to sell their stock. The
standard deviation in the stock transformation period (ICP) is roughly 4 days, and the greatest number of days
taken to sell stock is 33 days. The skewness of the information, or how much it is uneven, is 0.359884, which is
more noteworthy than nothing, it is decidedly slanted to demonstrate that the information. The kurtosis, or how
much the information is topped, is 2.458489, implying that the dispersion of the information is leptokurtic, or
more crested than a typical circulation.
0
1
2
3
4
5
6
19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Series: ICP
Sample 2017 2021
Observations 30
Mean 25.63333
Median 25.00000
Maximum 33.00000
Minimum 19.00000
Std. Dev. 3.508446
Skewness 0.359884
Kurtosis 2.458489
Jarque-Bera 1.014125
Probability 0.602262

23.  In this manner, the mean number of days to take care of bills (or the records payable period) would be roughly 79 days, as demonstrated by
the mean of the information in Table 4. The standard deviation would in any case be roughly 11 days, and the greatest number of days it takes
the organization to cover its bills would be 98 days.
 The skewness of the information would in any case be negative, as demonstrated by a worth under nothing (- 0.536470). This demonstrates
that the conveyance of the information is slanted to one side, with a long right tail.
 The kurtosis of the information would in any case be leptokurtic, with a worth of 2.672726. This demonstrates that the conveyance is more
crested than a typical dissemination, with a higher convergence of values close to the mean.
 All things considered, to take care of its bills, with a standard deviation of 11 days. The organization has a greatest installment time of 98
days, and the circulation of installment periods is slanted to one side and more crested than a typical dissemination.
Table 4
0
2
4
6
8
10
12
50 55 60 65 70 75 80 85 90 95 100
Series: APP
Sample 2017 2021
Observations 30
Mean 79.03333
Median 80.50000
Maximum 98.00000
Minimum 50.00000
Std. Dev. 11.07181
Skewness -0.536470
Kurtosis 2.672726
Jarque-Bera 1.572884
Probability 0.455463

24.  Table 5 overall, it requires around 97 days for the organizations in the example to finish the money transformation cycle, which
incorporates the time it takes to gather cash from clients for deals, sell stock, and pay off obligations. The standard deviation in the money
transformation cycle (CCC) is around 9 days, and the most extreme number of days taken to finish the cycle is 116 days. The skewness of the
information, or how much it is lopsided, is 0.703251, which is more noteworthy than nothing, it is decidedly slanted to show that the
information. The kurtosis, or how much the information is topped, is 2.526397, implying that the conveyance of the information is leptokurtic,
or more crested than a typical circulation
Table 5
0
2
4
6
8
10
12
85 90 95 100 105 110 115
Series: CCC
Sample 2017 2021
Observations 30
Mean 97.66667
Median 98.00000
Maximum 116.0000
Minimum 85.00000
Std. Dev. 8.840866
Skewness 0.703251
Kurtosis 2.526397
Jarque-Bera 2.753181
Probability 0.252438

25. CONCLUSION AND
RECOMMENDATION
Conclusion Recommendation Future Gap

26.  The point of the ongoing review is to give observational proof with respect to the effect of Working Capital Administration on the benefit
of drug firm in Pakistan. The review incorporate an example of 6 drug firm recorded on the Pakistan Stock Trade( PSX) for a five year period
2o17 to 2021.
 The intermediaries utilized for Working Capital Administration were the( ACP )(ICP) (APP) and (CCC). Return on Resources was utilized
as a proportion of productivity . The aftereffect of the review uncovered an immaterial Negative relationship between Average Collection Period
(ACP)and Inventory Conversion Period( ICP)in return on Assests .demonstrating increments when these period diminishes.
 These finding are predictable with.previous studies . Ahm yaseen Chowdhary,M Zahedul , Sabiha Sultana and MD Kaysher Hamid 1 Feb
2018 and T.A.N.R Jayarathne 27 Feb 2014.and Muddassar khan , Danial Zahid , Shafique, Zulqarnan Safdar, Kiran Mustafa, Majid Awan ,
Awais Wasim 7 July 2020 , and Jacob Akomeah , and Siaw Frimpong , 26 June 2019.
 On the other hand a Positive and irrelevant relationship was seen between the Average payment Period (APP) Cash Conversion
Cycle(CCC) on Return on Assest recommending that Productivity increments when an expanded in these period The finding are steady with
past examinations. Hong Lon Le, Kie Trang Le, Nigoc Le, Khach Du, Dung Tran 31 August 2017 /2018, and Bab Shah , M Arif Gujar, Najam
uddin sohu 3 March 2018, and Linedelwa Makoni, Zimasa Mabandla 2019, and Rafathannisa Syeda 21 September 2021.
Conclusion

27.  Based on the findings of this study, it is suggested that managers of the Fertilizer firms in Pakistan should focus on improving their average
payment period and cash conversion cycle in order to enhance profitability. Additionally, it is suggested that future research should be
conducted to further examine the relationship between working capital management and profitability in the Fertilizer industry in Pakistan and to
explore other potential drivers of profitability in this sector.
Future Gap
Recommendation
• The consequence of our review have indisputably shown that there exists areas of strength for a between the administration of Working
Capital and the monetary progress of the chose organization.Through this investigation we can without hesitation declare that the execution of
effective systems for Working Capital Administration can essentially improve of the productivity of the firm. Also it is suggested that future
examination ought to be directed to additionally look at the connection between Working Capital Administration and productivity in the
fertilizer business in Pakistan and to investigate other expected drivers of productivity in this area.

28. Thank You