Impact of Working Capital on Profitability; A case of selected Auto Manufacturing Sector in Pakistan

Abstract

This study paper is aimed to explore the affect of effective Working CapitalManagement on Profitability on selected auto mobile sector working in Pakistan and also listed in Karachi Stock Exchange. Further this paper has tried to find and nature of relation between Return on Assets and effective Working Capital Management. For this purpose established Liner Regression Analysis data techniques being employed byusing E.Views-6 software. The correlation metrics reveals that all the variables have correlated with profitability. Accounts receivable turnover and debts to equity have significant correlation with ROA. As the profitability and liquidity has inverse relation same like this Cash Conversion Cycle and inventory turnover in time has negative correlation with ROA. The regression analysis results show that accounts receivable turnover and debts to equity has ignificant relation with return on assets or profitability. Other liquidity variables have negative association, which show if inventory and operating cycle quickly convert the material into cash it will affect positive otherwise negative.