Impact of Working Capital Management on Profitability: An empirical study of Automobile sector in Pakistan

Abstract

Profitability is main aim of the organizations for both big and small, maximum profitability can be achieved by the proper management especially management of corporate finance. Working capital is vital part of corporate finance and management of working capital is being a fundamental part in managing daily financial needs of the firm hence proper management of working capital not less important than managing fix capital within the organization. The aim of this research is to calculate the existence of relationship between profitability of automobile sector in Pakistan and management of working capital within firms listed in automobile industry listed firms in Pakistan stock exchange. To evaluate this relationship in this study eight years relevant data from 2006 to 2013 of the twelve listed firms in Pakistan stock exchange in Pakistan have been collected. Secondary data was used under analysis and data was retrieved from the Financial Statement Analysis of non-financial firms listed in Karachi Stock Exchange published by State Bank of Pakistan. Secondary data was tested by using SPSS 20 version with the descriptive statistics and Quantitative tools especially regression and Pearson’s correlation. The result shows that there is strong significant and positive relation of working capital ratio and net profit margin in automobile sector in Pakistan. Furthermore results also represented significant and positive relation of sales growth and profitability while inventory turnover in days and size of firm have significant and negative relationship with profitability and it also represented that average collection period has weak significant and negative relation with profitability of the listed firms in automobile sector at Pakistan stock exchange. Regression result also show that 40.3% variations in the profitability occur with the variables that are used in current study.