Open AccessImpact of working capital management on profitability: Evidence from Pakistan oil sector
Author(s) -
M. Yousaf Raza,
Muhammad Athar Bashir,
Khalid Latif,
Touqeer Sultan Shah,
Mushtaq Ahmed
Publication year - 2015
Publication title -
international journal of accounting and financial reporting
Language(s) - English
Resource type - Journals
ISSN - 2162-3082
DOI - 10.5296/ijafr.v5i1.7825
Subject(s) - working capital , current asset , accounts receivable , accounts payable , fixed asset , return on capital employed , business , current liability , finance , assets under management , return on assets , current ratio , cash conversion cycle , gross profit , weighted average return on assets , earnings before interest and taxes , balance sheet , capital expenditure , profitability index , economics , cash flow , profit (economics) , operating cash flow , financial capital , production (economics) , capital formation , microeconomics , payment
This study explores the impact of working capital management on the profitability of the firms in the oil sector of Pakistan. For the purpose of testing this relationship data from the annual reports of the sample companies is used from the period 2006 to 2010. Cash conversion cycles (CCC), average receivable, Average inventory, average payable, and current ratio are used as a measure of working capital management, while gross operating profit is used as a measure of profitability of the firm. There are three major issues in financial management that are capital budgeting, capital structure, and working capital management. So working capital management is one of the three major issues in financial management. A commercial firm consists of two types of assets, which are fixed assets and current assets. Current assets of a firm consist of cash, bank balance, account receivable, raw material, work in process, and finished goods. While fixed assets of the business require capital expenditure and these are used in increasing the production of the business, the Current assets are used in utilizing the fixed assets in day to day transactions. Hence Current assets are regarded as lifeblood for any business firm, the play vital role in the daily operations of the business. Current assets and current liabilities regarded as are very important component of total assets and they need to be carefully managed for the long term success of the business. In this paper working capital management provide us profit by using average payable and gross operating profit but other variables in hypothesis shows negative relationships with each other.