Impact of Working Capital on the Firm’s Profitability in FMCG Sector of Pakistan

Impact of Working Capital on the Firm’s Profitability in FMCG Sector of Pakistan: A Cross Sectional Data Analysis of Pakistan Country

Thesis Submitted to
The Superior College, Lahore
In Partial fulfillment of the
Requirement for the Degree of

Master of Commerce

By
MOHSIN ALI
Roll No: MCOE-S16-029
Session: 2016 to 2018

The Superior College (Department of Economics ; Commerce), Lahore.
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Impact of Working Capital on the Firm’s Profitability in FMCG Sector of Pakistan: A Cross Sectional Data Analysis of Pakistan Country

By
MOHSIN ALI
Roll No: MCOE-S16-029
Session: 2016 to 2018
Thesis Submitted to: August 7, 2018
The Superior College, Lahore
In partial fulfillment of the
Requirements for the degree of
Master of Commerce

Approved By:

__________________
MUBASHAR ALI
Research Supervisor

Thesis Submitted to

The Superior College
Department of Economics & Commerce, Lahore, Pakistan

DECLARATION TO BE FILLED BY THE STUDENT AT THE
TIME OF SUBMISSION OF THESIS TO THE SUPERVISOR AND/OR
FOR EXTERNAL EVALUATION

Section 1: Particular of the Student
1.1 Full Name Mohsin Ali
1.2 Father’s Name Abid Hussain
1.3 Roll. Number MCOE-S16-029
1.4 Program M.Com (Finance)

Section 2: Particular of the Thesis
2.1 Title Impact of working capital on the firm’s profitability in FMCG sector of Pakistan.
2.2 Supervisor’s Name Mubashar Ali
2.3 Date of Completion August 7, 2018

The Superior College
Department of Economics ; Commerce, Lahore, Pakistan
SUPERVISOR’S CERTIFICATE ON
THESIS SUBMITTED BY A STUDENT

Section 1: Particulars of the Supervisor
1.1 Full Name Mubashar Ali
1.2 Address The Superior College, Department of Economics & Commerce

Section 2: Particulars of the Student
2.1 Full Name Mohsin Ali
2.2 Father’s Name Abid Hussain
2.3 Program Master’s of Commerce

Section 3: Particulars of the Thesis
3.1 Title Impact of working capital on the firm’s profitability in FMCG sector of Pakistan.
3.2 Date of Completion August 7, 2018

I certify that:
a. The above named student has completed the cited thesis under my guidance and supervision.
b. I am satisfied with quality of the student’s research work, and
c. I consider it worthy of submission for external evaluation.

4.1 Supervisor’s Full Signature
4.2 Date

?
Declaration of Originality

I Mr. Mohsin Ali hereby solemnly declare that this project:
a) is my original work, except where otherwise acknowledged in the text
b) has not been published earlier and
c) shall not be submitted by me in future for obtaining any degree from this or other university or institution
d) has been incorporated HEC Plagiarism Policy
e) In case of violation of HEC Plagiarism Policy, I shall be liable to punishable action under the plagiarism rules of HEC.

3.1 Student’s Full Signature
3.2 Date August 7, 2018

?
DEDICATION

This proposal is devoted to my instructor SIR MUBASHIR ALI,
who showed me that the best information he needs to realize is the thing that he
has learned for his. This theory is likewise devoted to my dad, who showed me that the best sort of information to have is what is found out for its own purpose. It is additionally
devoted to my mom, who showed me that even the biggest
assignment can be expert on the off chance that it is
completed with extra special care.?
ABSTRACT

The principle point of this examination is to research the connection between working capital administration (WCM) and association’s gainfulness in the FMCG segment of Pakistan. WCM assumes an essential part in association’s money related administration choices. An ideal (WCM) is relied upon to contribute emphatically to the production of company’s esteem and improvement of its productivity. Profit for resources (ROA) is utilized as reliant variable while diverse autonomous factors are additionally utilized. Current proportion, normal time of stock and normal gathering time of the firm are utilized autonomous factors. These factors are additionally used to explore their impact on productivity (net salary). An example size of 10 noteworthy FMCG organizations in Pakistan has been chosen from accounting report examination of state bank of Pakistan for a time of seven years, from 2011 to 2017. The connection between (WCM) proficiency and productivity is analyzed utilizing measurable investigation, unit roots examination and relapse investigation. The outcomes demonstrate a solid positive critical connection amongst (WCM) and association’s benefit in Pakistan’s FMCG segment.

Keywords: Working Capital, Financial Performance, FMCG Sector, Return on Assets, Current Ratio, Average Age of Inventory, Average Collection Period. ?
ACKNOWLEDGEMENT

All gestures of recognition to The Allah Almighty who has made this universe of learning for us. He is The Charitable, The Lenient. He offered man with scholarly power and understanding, and gave him profound knowledge, empowering him to find his “Self” know his Maker through His miracles, and overcome nature. By the entirety of His Detachment Hazrat Muhammad (SAW) who is an everlasting light of direction and learning for entire humanity.

Numerous people have been strong and instrumental in helping me with this work, and I owe them an obligation of appreciation. I am profoundly appreciative to my exploration manager, Sir Mubashar Ali, whose constant direction; input, exhortation and consolations have been genuinely extraordinary. It would not be an embellishment to state that on the off chance that he had not been there, I might not have achieved the end goal. I have learnt a gigantic sum from him about directing examination and additionally considering new issues. I would acknowledge Sir Moazzam Ali, who’s showing approach and do-it disposition enlivened me enormously and enable me to out at each progression of my life. I might likewise want to express profound gratitude to Prof. Chaudhary Abdul Rehman, Administrator, who dependably has opened his ways to encourage us and used to invest a great deal of energy for sharing and examining about the new thoughts in look into. At last, it would not be legitimized in the event that I don’t specify the help of my colleagues. A portion of my companions who have assumed a crucial part in the finishing of this work. These companions have been extremely reassuring and pleasing for me.?
Table of Contents
Chapter 1 11
INTRODUCTION 11
1.1 Back Ground of The Study: 11
1.2 Statement of the Problem: 14
1.3 Research questions: 15
1.4 Objective of the study: 15
1.5 Study Hypothesis: 16
1.6 Justification for the Study: 16
1.7 Organization of the study: 17
Chapter 2 18
LITERATURE REVIEW 18
Chapter 3 33
Research Methodology 33
3.1 Introductory Paragraph: 33
3.2 Data Set: 33
3.3 Framework Model of the Study: 34
3.4 Variable Description: 34
3.5 Types of Data: 35
3.5 Source of Data: 35
3.6 Data Analysis Techniques: 35
Chapter 4 36
Analysis 36
Introductory Paragraph: 36
1- DESCRIPTIVE ANALYSIS TEST 36
Interpretation 36
Mean: 36
Median: 37
Maximum: 37
Minimum: 37
Standard Deviation: 37
Skewness: 38
2- UNIT ROOT TESTS 38
a) Taking dependent variable ROA: 38
Interpretation 39
b) Taking Independent variable C_R: 39
Interpretation 40
c) Taking Independent variable AAI: 40
Interpretation 41
d) Taking Independent variable ACP: 41
Interpretation 42
3- REGRESSION ANALYSIS 42
Interpretation 43
4- ERROR CORRECTION MODEL 43
Interpretation 44
Chapter 5 45
Conclusion, Discussion ; Recommendations 45
Conclusion ; Discussion 45
Recommendations 47
References 48

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Chapter 1
INTRODUCTION

1.1 Back Ground of the Study:
Managing working capital is very important for a company to maintain its performance. As it affects the profitability of the company, “working capital management explicitly affects both the profitability and the desired level of liquidity of a company. Working capital is the difference between current and current liabilities, current assets, cash on hand, prepaid expenses, marketable securities, short-term investments, etc. current liabilities then. Working capital management is the most important part of the company’s short-term financial issues. Businesses of all sizes must strictly manage their working capital according to their profitability (Ali Pur, 2011).
Working capital management plays a key role in the recovery of the financial performance of the company, through working capital, companies take advantage of opportunities. Decisions on working capital and short-term financing are called working capital management. Working capital management allows a company to have sufficient cash to meet its short-term obligations and operating expenses (Peterson and Rajan, 2012). Kaddumi and Ramadan (2012) studied the purpose of managing working capital as a determinant of a company’s current financial resources in order to balance the profitability of the business with the risk associated with that profitability. each company; This is an important part of business investment to manage the running of the business.
Rehman (2017) conducted a research on working capital, as it is necessary for each company; This is an important part of business investment to manage the operations of the business. The importance of effectively managing a company’s working capital can not be denied. Profitability and an adequate level of liquidity must be maintained for the survival of a company, since the field of working capital management is taken into account by researchers because of its relevance and its central role in the success of its business. an operating company. To corroborate this assertion, asserts that a company is as solid as its unencumbered capital, as liquid as its working capital and as dynamic and viable as its management decisions, working capital is the center of existence of any business (Samiloglu, 2010). ). WCM is one of the most important decisions made by the finance manager. It directly affects profitability and is considered one of the most important parts of financial decision-making (Haq et al 2011). Net working capital is the excess of current assets over a company’s current liabilities. It determines the strength of the company and its liquidity position means more working capital than the liquidity of the company. WCM could be permanent or temporary; The first is the amount of short-term assets that the company must have for a longer period to offset its short-term liabilities, and later the excess of current assets to cover short-term seasonal liabilities (Van Horn 2005).
An investment in working capital creates a link between risk and return. The firm’s decision to contribute to higher returns will also increase risk factors and attempts to minimize risk will also lead to lower returns. Raheman and Nasr (2011) stated that efficiency in short-term financial decisions is the most important component since a large portion of the firm’s assets are fixed assets. Samiloglu and Dermigunes (2012) discussed working capital management in relation to the financial health of companies. They also suggest that an inappropriate working capital management procedure could lead to bankruptcy. Similarly, ignoring liquidity to generate larger profits can lead to damaging results. Therefore, it is important for a company to create a balance between profitability and liquidity. In addition, Gitman (1974) stated that the cash conversion cycle was a major element of working capital management. The business planning, including what it needs to invest for receivables and inventories, the amount of credit to be accepted from the seller, are situations that are reflected in the business’s cash-flow cycle, which also indicates average number of days between accounts receivable receivable. Previous studies have used the cash conversion cycle as a basis for the company’s profitability. Similarly, studies of working capital management and corporate profitability indicate that aggressive working capital strategies lead to profitability; Jose et al., (1996); Shin and Soenen, (1998); Wang (2002); Deloof, (2003). Working capital management is necessary to achieve an optimal level of profitability and liquidity. The increase in current assets ratio reduces liquidity mismatch, implying that all major working capital stakeholders, including inventories, securities, cash and accounts receivable, have a strong influence on the management of the asset. business. ). Several researchers Afza & Nazir (2010); Samiloglu & Dermigunes, (2011); Ali and Ali (2012) and Padachi (2016) examined the statistical relationship between working capital management and business profitability, and the study’s findings recognize the importance of this relationship for a modern enterprise.
Joseph Mbawuni and Mercy Hawa Mbawuni and Simon Gyasi Nimako (4) studied “The Impact of Working Capital Management on the Profitability of Petroleum Retailers: Anecdotal Evidence from Ghana”. They found that there was a favorable net working capital for companies and a favorable capital-to-network ratio compared to total assets. The most important WCM component that determines business profitability, measured in terms of ROA, is average pay days (ADP). The remaining components of the WCM, the cash conversion cycle (CCC), the average daily inventory (ADI) and the average number of debt days (ADR) have no significant relationship with profitability. They found that WCM practices among the five selected PRFs supported WCM’s conservative strategy, rather than an aggressive WCM strategy. Singhania, M., Sharma, N. and Yagnesh Rohit, J. Decision analyzed the relationship between a firm’s working capital management strategies and its profitability. They tried to understand the impact of global macroeconomic conditions on this relationship. The cash conversion cycle was used as a measure of working capital management, while gross operating profit is used as an indicator of the profitability of the business. They revealed that a company’s cash-flow cycle was negatively correlated with its profitability. They have shown that working capital strategies should be formulated taking into account global macroeconomic conditions. They emphasized the importance of effective working capital management practices to improve business profitability. Managing working capital is very important for a company to maintain its performance. As it affects the profitability of the company, “working capital management explicitly affects both the profitability and the desired level of liquidity of a company. Working capital is the difference between current assets and current liabilities, current assets, prepaid expenses, marketable securities, short-term investments, short-term borrowings, current liabilities so. Working capital management is the most important part of the company’s short-term financial issues. Businesses of all sizes must strictly manage their working capital according to their profitability (Alipuor, 2011).
Working capital management plays a key role in the recovery of the financial performance of the company, through working capital, companies take advantage of opportunities. Decisions on working capital and short-term financing are called working capital management. Working capital management allows a company to have sufficient cash to meet short-term obligations and operating expenses (Peterson and Rajan, 2002). Kaddumi and Ramadan (2012) studied the purpose of managing working capital as a determinant of a company’s current financial resources in order to balance the profitability of the business with the risk associated with that profitability. each company; This is an important part of business investment to manage the running of the business.
Working capital management is an important area of finance. The job of financial manager is to create value for shareholders. However, the process of creating value requires the financial manager’s unwavering attention to long-term and short-term investment and financing decisions. The importance of working capital can be gauged by the fact that (particularly) in capital budgeting decisions, capital budgeting analysts must take into account changes in current assets and liabilities because of proposed capital expenditures. . .
Many studies have analyzed the effects of working capital on performance, but their results are inconsistent. Most importantly, the results of previous empirical studies on the relationship between working capital and performance rely on a cumulative sample of non-financial firms rather than exploring the impact using data from a particular economic group. . To fill this gap, this article examines the effect of working capital on the performance of textile companies listed on Pakistan Stock Exchange Limited (PSX). The main reason for choosing the textile industry is that it is Pakistan’s largest manufacturing industry and a major contributor to GDP, providing jobs to the workforce and using a 40% debt available for manufacturing sector. More importantly, the textile industry can be divided into three groups, namely textile composite, textile spinning and textile weaving. We expect the results of this study to inform managers’ views on the effects of the current ratio, net working capital, the cash conversion cycle and its components on the company’s performance.
1.2 Statement of the Problem:
The research focuses on the impact of working capital management on the performance of companies in the field of consumer products. Prior to this research, Pakistan’s FMCG is largely neglected in the sugar sector, which is an important part of Pakistan’s economy. The objective of this study is to study the impact of working capital management on the performance of the company in almost all consumer goods in Pakistan. Data collected from consumer goods manufacturing companies listed on the Lahore Stock Exchange in Pakistan. This sector is selected because working capital management is essential to improve day-to-day operations, which will increase the profitability of this sector. In this study, WCM has a positive or negative impact on the profitability of the company. More variables are used in this study to measure WCM and business profitability. The main objective is to discover the effect of working capital management (WCM) on the profitability of companies in all food sectors, as significant investments have been made in this sector and this sector is also neglected. in the past. . It is therefore very important to know how the various indicators of working capital affect the profitability of this sector and to know the fundamental disadvantage of not managing the working capital effectively.
This problem deals in following:
? To find the extent of link between WCM and FP (profitability) in FMCG.
? To inspect the level of WCM and FP (profitability) in food sector of Pakistan listed at Lahore stock exchange.
1.3 Research questions:
? What is the significance effect of WCM on FP?
? What is the nature of link between WCM and FP in food sector?
? How is the profitability of companies in food sector and how well working capital is managed in food sector over the period of 2011-2017?
? Does there any relationship exist between inventory turnover and Profitability of Food Sector?
? Does there any relationship exist between Average Collection Period and Profitability of Food Sector?
? Does there any relationship exist between Current Ratio and Profitability of Food Sector?
1.4 Objective of the study:
The following objectives are accomplished by this study:
? To explore the impact of Current Ratios on the profitability of FMCG sector of Pakistan.
? To ascertain the impact of Account payable turnover on the profitability of FMCG sector of Pakistan.
? To evaluate the impact of inventory turnover on the profitability of FMCG sector of Pakistan.

In addition, the study should establish the relationship between working capital management and corporate performance, taking into account the return on assets and return on equity. All previous work on other factors, but there is no proper study on the ROA, the current ratio, the Quick ratio, the debt-equity ratio of the food sector. In recent years, a downward trend can be observed in the food sector ROA. The purpose of the study is to find the relationship between the profitability of the company with the current ratio, the ROA, the average collection periods and the average age of stocks in the food sector in Pakistan.
1.5 Study Hypothesis:
The hypotheses of this study are as follows:
H11: There is a significant impact of ROA on the profitability of FMCG sector.
H10: There is an insignificant impact of ROA on the profitability of FMCG sector.
H21: There is significant impact of current ratio on the performance of FMCG sector.
H20: There is an insignificant impact of current ratio on the performance of FMCG sector.
H31: There is a significant relationship between average age of inventory and profitability of
FMCG sector.
H30: There is an insignificant relationship between average age of inventory and profitability of FMCG sector.
H41: There is a significant relationship between average collection periods.
H40: There is an insignificant relationship between average collection periods.
1.6 Justification for the Study:
The topic on which the research is being carried out that the impact of working capital on the firm’s performance in FMCG sector of Pakistan. Why we select this topic? The selected topic for research taken out after the observation that before this research the FMCG sector neglected to carried out for research purpose due to sugar sector. Sugar sector have many important in Pakistan so the main purpose of this study to investigate the FMCG sector of Pakistan to know the performance of this sector. Working capital playing very important role in business operations and to boost up the organization. In the financial affairs of companies, the management of working capital is a very important factor, which has a direct positive effect on profitability as a as well as the liquidity of the company. Liquidity and profitability are both different faces of the same coin. An optimal level of liquidity guarantees a company to meet their short-term debts and good flow management can be promised by a profitable company. Liquidity shows the company’s ability to meet short-term obligations. Correct optimization of the work the capital balance means minimizing the need for working capital and achieve the maximum possible income (Ganesan, 2007). There is a strong linear relationship between the profitability of the company and its working capital Efficiency. The company’s ability to generate profits can be called the profitability of this company. Profit is determined by deducting expenses revenues incurred to generate these revenues.
The amount of profit can be a good measure of a company’s performance, so we can use profitability as a measure of a company’s financial performance, like, profitability is the promise for a company to stay a business in the business world. Good working capital management ensures that the the company has increased its profitability. Effective management of working capital is very important because of its significant effect on the profitability of the business and thus the existence of a company on the market. If a company understates its investment in current assets, the resulting funds may be invested in profitable projects, so that it can increase business growth opportunities and the shareholders come back. However, management can also face cash problems due to underinvestment in working capital. Financial capacity managers to effectively manage their receivables, their inventories, and the debts have a significant impact on the success of the company and on profitability too. The study attempts to improve the knowledge of companies by identifying the ways in which pharmaceutical companies manage working capital to increase profitability.
1.7 Organization of the study:
The organization on which we are going to discuss in our study is given below:
? Chapter 1 (Introduction)
? Chapter 2 (Literature Review)
? Chapter 3 (Data & Methodology)
? Chapter 4 (Analysis)
? Chapter 5 (Conclusion, Discussion & Recommendations)?
Chapter 2
LITERATURE REVIEW

Various studies have analyzed the relationship between working capital management and the profitability of companies in various markets. The results are quite mixed, but the majority of studies conclude that WCM has a negative relationship with the profitability of the company. The studies reviewed used a variety of variables to analyze the relationship, with different methods such as linear regression and regression of panel data. This section presents the chronology of the main studies related to this study to assess and identify research gaps. Gul, Khan, Rehman, Khan, Khan and Khan (2013) studied the influence of working capital management (WCM) on the performance of small and medium-sized enterprises (SMEs) in Pakistan. The duration of the study was seven years, from 2006 to 2012. The data used in this study come from the SMEDA, the Karachi Stock Exchange, the tax offices, the company itself, and the business week. Bloom. The study-dependent variable was Asset Return (ROA), which was used as an indicator of profitability. The independent variables were the number of days of client account (PCA), the number of inventory days (INV), the fund conversion cycle (CCC) and the number of days of account payable (APP). In addition to these variables, other variables were used, including firm size (SIZE), throughput ratio (DR), and growth (GROWTH). Regression analysis was used to determine the relationship between WCM and SME performance in Pakistan. The results suggest that APP, GROWTH and SIZE have a positive association with profitability, while ACP, INV, CCC and DR have an inverse relationship with profitability.
Oladipupo and Okafor (2013) examined the implications of a company’s working capital management practice on its profitability and distribution ratio. The study examined the extent of the effects of working capital management on the profitability and dividend distribution ratio. Financial data were obtained from 10 consumer companies listed on the Pakistan Stock Exchange over 7 years (2011 to 2017). Using both the Pearson moment correlation technique and the Ordinary Least Squares (OLS) regression technique, they found that the reduction in the business cycle and the debt ratio favored high corporate profitability. Although the level of leverage has a significant negative impact on corporate profitability, the impacts of working capital management on corporate profitability appear to be statistically insignificant at a level of confidence of 5%.
On the other hand, they observed that the dividend payout ratio was positively influenced by profitability and the net business cycle, but negatively by the earnings growth rate. Almazari (2013) studied the relationship between working capital management and the profitability of Pakistan’s enterprises.
The results of the study showed that the current FMCG ratio was the most important measure of liquidity that had an impact on profitability. FMCs must therefore find a compromise between these two objectives. It has also been found that the size of the company increases, profitability increases. In addition, when debt financing increased, profitability declined. Linear regression tests confirmed a high degree of association between working capital management and profitability.
Akoto, Awunyo-Vitor and Angmor (2013) analyzed the relationship between working capital management practices and the profitability of listed manufacturing companies in Ghana. The study used data collected from the annual reports of the 10 major consumer goods companies listed in Ghana covering the period 2011-2017. Using a time series methodology and regression analysis, the study found a significant negative relationship between profitability days and accounts receivable. However, the liquidity cycle, the short-term asset ratio, the size and the turnover rate of current corporate assets have a very positive influence on profitability. The study suggests that managers can create value for their shareholders by creating incentives to reduce their accounts to 30 days. It is further recommended that local laws that protect indigenous businesses and restrict the activities of importers are of paramount importance to promote increased demand for manufactured goods in the short and long term in Ghana. Many researchers have studied the management of working capital on profitability. Few reviews have been collected to study this study. Monica Singhania, Piyush Mehta (1) conducted research on “Working Capital Management and Business Profitability: Evidence from Emerging Asian Countries”. According to her, excessive working capital can affect the profits and health of an organization and analyzed the impact of working capital management on the profitability of companies in a sample of non-financial corporations in Asia from East Asia. It reveals that the study has a non-linear relationship between a company’s profitability and WCM for 11 economies in the Asia-Pacific region.
Leonidas Ngendakumana, Nelson Jager and Francis Condo (2) studied “The Impact of Working Capital Management on the Profitability of the Smart Bags Limited Manufacturing Company in Zimbabwe”. They attempted to study the relationship between measures of working capital management efficiency and profitability. The study is based on secondary data. Their study revealed the significant and insignificant relationship between the dependent variable (profitability) and the independent variables. They found a low negative correlation between the average recovery period and profitability, as well as between the cash conversion cycle and profitability. They also revealed a strong negative relationship between the debt ratio and profitability, as well as between the aggressiveness of the working capital financing policy and the profitability of the company. Shikha Bhatia and Aman Srivastava (3) explored the relationship between working capital management and the company’s performance in an emerging market. They found a negative relationship between working capital management and corporate performance, requiring the need to effectively manage working capital to improve profitability. Joseph Mbawuni and Mercy Hawa Mbawuni and Simon Gyasi Nimako (4) studied “The Impact of Working Capital Management on the Profitability of Petroleum Retailers: Anecdotal Evidence from Ghana”. They found that there was a favorable net working capital for companies and a favorable capital-to-network ratio compared to total assets. The most important WCM component that determines business profitability, measured in terms of ROA, is average pay days (ADP). The remaining components of the WCM, the cash conversion cycle (CCC), the average daily inventory (ADI) and the average number of debt days (ADR) have no significant relationship with profitability. They found that WCM practices among the five selected PRFs supported WCM’s conservative strategy, rather than an aggressive WCM strategy.
Singhania, M., Sharma, N. and Yagnesh Rohit, J. Decision (5) analyzed the relationship between a firm’s working capital management strategies and its profitability. They tried to understand the impact of global macroeconomic conditions on this relationship. The cash conversion cycle was used as a measure of working capital management, while gross operating profit is used as an indicator of the profitability of the business. They revealed that a company’s cash-flow cycle was negatively correlated with its profitability. They have shown that working capital strategies should be formulated taking into account global macroeconomic conditions. They emphasized the importance of effective working capital management practices to improve business profitability.
NtuiPonsian, KiemiChrispina, GwatakoTago and Halim Mkiibi (6) studied the effect of working capital management on corporate profitability. They examined the statistical significance of working capital management and the profitability of the business. They found that there is a positive relationship between the cash cycle and the profitability of the company. This means that as the cash conversion cycle increases, the profitability of the business increases and managers can create a positive shareholder value by increasing the liquidity conversion cycle to a reasonable level. and profitability showing that as liquidity declines, profitability also increases; Third, there is a very significant negative relationship between the average collection period and profitability, which indicates that a decrease in the number of days a business receives a payment from sales positively affects the profitability of the business; Fourth, there is a very significant positive relationship between average payment time and profitability. This implies that the longer a company takes to pay its creditors, the more profitable it is. and fifth, there is a very significant negative relationship between inventory turnover in days and profitability, indicating that firms that maintain sufficiently low inventory levels reduce the cost of inventory storage, which translates into higher profitability.
Irfan Ahmed (2013) examines the impact of working capital management (WCM) on corporate performance using data from the financial statements of 253 non-financial companies listed on the Karachi Stock Exchange (KSE). The data were analyzed by Logistic Or-dinary Least Square (OLS) regression and Pearson correlation. The result seems to be that the current asset versus the total turnover has a negative relationship with profitability, while WCM has a positive relationship with the company’s performance. However, the logical result suggests that the profitability of the firm is strongly determined by the current ratio, the ratio asset / total assets / total turnover.
Muhammad Usama (2012) explored the effect of risk management on the liquidity and profitability of the company in the case of 18 food companies listed on KSE. The periods 2006-2010 were covered in this study. And to analyze the pooled data, the lowest regression and the common effect model were used. A positive relationship exists between WCM on profitability and corporate liquidity. In addition, it has also been observed that the size of the enterprise and the cash conversion cycle have a significant positive effect while the ratio of financial assets to total assets and firm size have a positive relationship. Samra Kiran, Shahid Jan Kakakhel, and Farzana Shaheen (2015) studied the impact of corporate social responsibility (CSR) on corporate profitability for 10 oil and gas companies listed on the KSE market. The study covered an 8-year period from 2006 to 2013. In addition, correlation and regression tests were used to analyze the data. According to him, CSR activities have a negligible impact on corporate profitability and a negative correlation between total assets and CSR, and it was recommended to establish a positive correlation between net profit and CSR. Magpayo (2009) examined the effect of leverage on business performance and WCM using 110 randomly selected companies among the top 1,000 Filipino companies in the business world. and multiple regressions. The study showed that there is a direct relationship between the leverage policy and the size of the company’s WCM and profitability. In addition, the data study indicates that firm size and WCM have a positive effect on the company’s net income, while net income has a negative effect on leverage and ROE has a negligible positive effect on leverage.
Sayeda Tahmina Quayyum (2011) examines the effectiveness and efficiency of working capital management by maintaining liquidity on profitability. For this reason, the cement sector listed on a Dhaka stock exchange was selected to analyze data from 2005 to 2009 through the People Correlation Model. The study shows a significant relationship between WCM and Rentability as well as the liquidity indices.
Mehdi Elhaei Sahar and Mohammad Reza Yalali (2014) studied the effect of R & D spending on the profitability and value of corporate stocks in the Iranian capital market. The sample contains 86 companies from the Tehran Stock Exchange covering the 5-year period 2005-2008. To obtain the result, a regression model was used and it was observed that if companies wanted to make additional profits in the future, they had to dedicate R & D activities to the current years. Therefore, this proves that there is a direct relationship between R & D spending and profitability.
Dr. Muhammad Azam (2011) explored the impact of WCM on the company’s performance. 21 non-financial institutions (KSE-30) were selected and data were taken from 2011-2017. The result obtained using the Canonical correlation shows a positive impact of the WCM on the profitability of the company and it was suggested that, thanks to the reduction in the size of the stocks, the NTC and CCC managers could increase the value of the shareholder.
Sumaira Tufail (2013) identified the impacts of risk management policies on profitability.117 Textile companies were selected by KSE and data were taken from 2005-2010. The result obtained by analyzing the data using a regression model shows that WCM policies have a negative impact on profitability. In addition, size and liquidity have a positive relationship with the company’s profitability, but a negative correlation between debt and equity and profitability has been observed.
Data was collected from the 2011-2017 financial reports of 10 sample companies. The results analyze by correlation and by regression method and we find that there is an opposite and positive link between the management of working capital and the performance of the company.
Agyemang Badu Ebenezer and Michael Kwame Asiedu (2013) studied the relationship between profitability and WCM of manufacturing companies in the Accra metropolis listed on the Ghana Stock Exchange for the period 2007-2011. , inventory days and accounts payable on the profitability of manufacturing companies. The study suggested that a good policy should be adopted by companies for the management of WCM components.
Barot Haresh (2012) conducted an empirical study that identifies the relationship between business profitability and WC components. For this study, a sample of CNX pharmaceutical companies listed on the National Stock Exchange of India was selected and covers the 5-year period from 2005 to 2010. This study showed that there is a negative relationship between economic profitability and business profitability, as well as a positive relationship between AP and profitability.
B Bagchi and B Khamrui (2012) aim to observe the variables essential to the profitability of the company by managing the WCM. In India, 10 rapidly evolving consumer goods companies were selected to test the problem of grouped OLS regression and Pearson correlation were used by collecting data from the Indian Economic Monitoring Center (ICEM) 2011 -2017.The study examined the existence of a negative relationship between profitability and debt. In addition, it has also been shown that a strong negative relationship exists between business profitability and WCM.
Akinyomi Oladele John and Olagunju Adebayo (2013) analyzed the effect of firm size on profitability. Five beverage companies were selected in Nigeria’s manufacturing sector and panel data was used to analyze the 2005-2012 annual reports. The data analysis concluded that total sales and total assets have a positive relationship with the size of a Nigerian firm.
Rehman and Nasr (2007) explored the effect of WCM on fitness for work.94 Non-financial corporations in Pakistan were considered as a sample for the period 1999-2004. The study shows that the profitability of CCC is decreasing. Finally, it was recommended that shareholder value improve the CCC minimum level.
Agrim Aggarwal and Rahul Chaudhary (2015), in their research article, aimed to study the effect of working capital on the profitability of Indian companies. The companies selected as a sample were listed on the Bombay Stock Exchange and the sample size was 364 companies selected on the basis of certain criteria. The study was based on data from April 2010 to March 2014. To complete the study, the gross operating profit ratio was the dependent variable and the average inventory conversion period, the cash conversion cycle, the independent variables. The results obtained using regression and correlation analysis showed a negative correlation between the gross recovery period of operating profits and accounts receivable, the cash conversion period and the inventory conversion period. This shows that the fast cash conversion period, the rapid inventory conversion period, the reduced debt collection period and the longer payment period of creditors are favorable in Indian companies and the type of industry also affects the profitability.
Vandana Kotak and Abhay Panda’s research on the impact of working capital on liquidity and profitability in India’s cotton industry (2015) indicates that a company’s working capital management policy depends on its size and age. New businesses need to maintain large stocks to prevent the stock from running out and also spend a lot of money on lucrative discounts to attract customers. On the other hand, larger, older firms can buy commodities on credit and benefit from favorable credit conditions. By applying the two-way ANNOVA technique, they found the value of the “F” ratios of companies of different sizes and old which showed that there was a significant difference in the working capital management policy of different sizes and sizes. elderly societies. By considering the correlation between current and fast ratios and the gross profit ratio measuring overall profitability, they also showed that the higher liquidity or liquid assets, the lower the profitability. Good liquidity increases profitability to a certain extent, beyond profitability.
Hina Agha’s research focus (2014) was to determine whether there was a relationship between profitability and working capital management. Return on Assets (ROAs) was taken as a dependent variable and the creditors’ turnover ratio, debtor turnover rate, inventory turnover ratio and current ratio were taken as independent variables. A correlation matrix was used to show the relationship between dependent and independent variables. This shows a positive relationship between ROA and ITO, ROA and DTO and a moderate relationship between ROA and CTO. For example, by increasing inventory turnover and debtor turnover and lowering credit turnover, the company can increase profitability.
Dr. Asha Sharma’s (2014) analysis of working capital management and its effects on the profitability of the Indian steel industry. Pearson’s correlation analysis is used to find the relationship between two variables: gross working capital and fixed assets, gross working capital and sales, gross working capital and total assets to measure effectiveness. The ratio of gross working capital to EBIT was used to measure profitability. She concluded that, while there is good coordination and management of working capital, business efficiency can improve. This shows that the efficient use of assets can improve earning capacity and profitability.
Dr. Arega Seyoum’s research paper, Tadele Tesfay and Tadesse (2016) aimed to examine and analyze the impact of working capital management on the profitability of Addis Ababa-based food processing companies. from 2009 to 2013. the cash conversion cycle, as a measure of working capital management, has a negative impact on the return on assets. A negative relationship between the debt recovery period, a strong negative relationship between the inventory conversion period, the deferral period and profitability was also noted. Jyoti Mahato and Udaykumar Jagannathan (2016) have studied the impact of working capital management on the profitability of the Indian telecommunications sector. The return on assets, the average collection period, the inventory conversion period, the average collection period, the cash conversion cycle, the debt ratio, the current ratio and the size of the company were taken as variables. Statistical tools such as regression analysis, multiple regression analysis, correlation analysis, T-test, F-test and analysis of variance (ANOVA) and descriptive analysis are used. The result of the study shows that there is a significant relationship between profitability and working capital management. The correlation analysis shows that the ROA has a negative relationship with the ACP, ICP, CCC and Current ratios.
Sumaira Tufail studied (2013) the impact of working capital management on the profitability of the textile sector in Pakistan. Data for six years (2005-2010) from 117 out of 164 textile companies in Pakistan were selected for the study. The panel data methodology was used in this study since the study consisted of observations of a time series. A significant positive relationship has been found between the working capital financing policy and profitability. The study also revealed a negative relationship between profitability and the degree of aggressiveness of the working capital financing policy. The study also revealed a significant relationship between liquidity and profitability.
Debasish Sur and Sk Mujibar Rahaman (December 2014) analyzed the profitability of the 18 selected companies in the textile industry in India during the period 2002-03 to 2011-12. The study showed that fixed asset management, inventory management and corporate debt management contributed significantly to improving their overall profitability over the period studied. The Indian textile industry should therefore, in addition to the efficient management of fixed assets, inventories and receivables, also focus on the management of cash and loans and advances to strengthen their earning capacity. In addition, under the current conditions of the competitive global marketplace, firms should periodically review and reorient their strategies to achieve their value maximization goal in the post-liberalization regime.
Angahar and Alematu (2014) examined the link between WCM and financial performance and found that the profitability of cement companies was strongly influenced by two factors: the cash conversion cycle and inventories for several days. To reduce storage costs, profitability will increase, as will the maximum shareholder return. Agha (2014) found that the way pharmaceutical companies treat their working capital to improve financial performance in different ways and explored that working capital management had a significant impact on financial performance. Payable ratios and minimizing the ratio of accounts receivable, inventory turnover.
Ponsian et al. (2014) found that working capital management affected the performance of manufacturing firms and suggested that the profitability of these firms ultimately improved the proper management of current assets by these firms. Kulkanya (2012) examined the relationship between WCM and performance and found that only two procedures, minimizing loan turnover and reducing inventory turnover, can improve returns.
Charitou et al (2012) empirically examined the influence of WCM in an emerging market on companies’ financial performance and found that better use of capital leads to value creation.
Qazi1 et al (2011) examined the performance of companies influenced by traditional financial asset management policies and found a positive trend in working capital on financial performance empirically.
Alavinasab and Davoudi (2013) examined the association between financial performance and working capital management of firms and maintain a significant relationship between the working capital components and the financial performance of firms and suggest that firms the techniques that reduce the efficiency of corporate assets. Ganesamoorthy and Rajavathana (2013) verified the relationship between the financial performance of car manufacturers and WCM and found that working capital management was little associated with the financial performance of Tata Motors Ltd. and Mahindra and Mahindra Ltd. the profitability of the textile sector is influenced by the management of the working capital and the results show that due to the lack of funds, the Pakistani companies apply conservative policies in the management of working capital. Working capital management In addition, performance can be improved by least-cost financing and effective management. Makori and Jagongo (2013) determined that there is a significant relationship between performance and working capital (accounts receivable turnover, inventory turnover, creditors’ turnover and the conversion cycle) and that value creation requires a reduction the recovery period and conclude that the overall performance of the manufacturing and construction sectors, which is strongly influenced by working capital management and performance, is negatively impacted by the liquidity cycle.
Awan et al (2014) studied the role of WCM in determining the relationship between profitability and liquidity, in the relative liquidity of the cement industry’s relative liquidity and in the working capital performance of cement companies and in financial performance and suggests that CFOs can create value by reducing the average payment period and inventory days and reducing the cash flow cycle. Rehman (2010) has determined the impact of working capital management on profitability and has identified various factors that influence its effectiveness and finds that performance is strongly influenced by WCM and plays a significant role in creating value for the companies. shareholders The net business cycle and the cash conversion cycle also have a negative impact on a company’s performance, which also suggests effective management of working capital. Taghizadeh et al (2012) studied the influence of different components of cash conversion cycles on the financial performance of companies and found that short-term fund management for the business was working capital. The firm requires an effective working capital management policy for harmonious business activities. Akoto et al (2013) examined the association between the financial performance of manufacturing firms and working capital management practices and said that by decreasing the collection period, executives can improve value for their shareholders and conclude that to improve financial performance Ghanas manufacturing managers need to establish prudent policies for working capital management and executives can increase the ability to generate profits by decreasing the average recovery period and the value of their business. Warning.
Agrim (2015) evaluated the effect on the performance of working capital management and found that to obtain higher profits, quick payments from the debtor’s rapid conversion cycle are favorable. Operating profits are also influenced by the type of industry.
Adeleke et al (2013) examined the influence of the working capital profitability of the various listed industries in Nigeria and stated that profitability was influenced to a greater extent if the firm was less conservative in its conversion cycle. The selection of the appropriate cash conversion level via their financial performance should allow companies to reassess the trends in their working capital that will not hinder their financial performance. Again, as the literature has shown that business profitability is greatly influenced by the business environment of organizations, the government should facilitate business environments that favor working capital.
Raheman and Nasr (2007) studied the association between corporate profitability and WCM and highlighted the relationship between two profitability and liquidity objectives of Pakistani companies and found that the financial performance of these companies will ultimately improve. whether these companies pay adequate attention to the management of their accounts receivable, liquid assets and inventories.
Dinku (2013) examined the effect on the financial performance of micro and small enterprises and the WCM and found a significant association between business performance and the payment period. However, the recovery period and the inventory turnover have a negative impact on performance, and the profitability of the company is also improved by shortening the cash conversion cycle.
Pouraghajan and Emamgholipourarchi (2012) have examined the relationship between performance and WCM empirically, and the relationship between cash return cycle profitability and Total Debt to Total Assets (DTAR) ratio can improve the financial performance of the firm.
Huynh Phuong Dong and tyh-tay-su (2010) documented a study to determine the relationship between working capital management and profitability. They considered gross operating profitability as a dependent variable and the ratio of accounts receivable in days, the ratio of accounts payable in days, inventory turnover in days, and the cash conversion cycle. Firm size, debt ratio and fixed assets relative to total assets are control variables. They found that there is a negative relationship between account receivable in days and inventory in days and profitability. But there is a positive relationship between the account payable in days and profitability. Vedavingayag and Gamesan (2007) analyzed the effectiveness of working capital using the variables: They found that there is a negative relationship between working capital management and profitability and liquidity. Amarjit Gill et al (2010) examined the relationship between working capital management and profitability in the United States by taking a sample of 88 companies listed on the New York Stock Exchange. To this end, they took into account these variables. Profitability is a dependent variable and the account receivable in days, the account payable in days, the number of inventory turnover days, and the cash conversion cycle are independent variables. Firm size, fixed assets ratio and financial debt ratio are control variables. Their study showed that there is a significant relationship between the cash conversion cycle and profitability. Management can create value for businesses by properly managing the cash conversion cycle.
Nor Esi Azhar Binti Mohamed and Noriza Binti Mohd Saad (2010) conducted a study on working capital management and its impact on market valuation and profitability. Profitability depends on the dependent variable. The independent variables include working capital components, the conversion cycle, the current ratio, the asset / total ratio and the debt / asset ratio. The study reveals that of five components selected for the study, CATAR shows a significant relationship with Tobin Q. ROA and ROIC, while three components (CCC, CACLR and CLTAR) illustrate significant negative relationships with Tobin Q, ROA and ROIC. , while DR is significant negative with only ROA but insignificant with ROIC but positively significant with Tobin Q.
Mian Sajad Nazir and Talat Afza (2009) have documented a study that suggests aggressive or conservative working capital management is better. They used different variables such as the return on the assets of the business, the return on equity of the business, the value of the business, the total of the current assets compared to the total assets . They found that a new measure of profitability, that is Tobin q to estimate the relationship between working capital management and business returns in Pakistan, the present study should constitute an important contribution in the financial literature. In addition, theoretical discussions on risk management and working capital have also been empirically tested in an emerging market in Pakistan. Although the results of this study contradict some previous studies on the subject, this phenomenon can be attributed to incoherent and unstable economic conditions in Pakistan. The reasons for this contradiction can be explored further in future research and this topic is left for the future.
The seminal article of Abdul Rehman & Nasr. Mareh (2007) showed the impact of working capital management on profitability. They used different variables; Net operating profitability, which is a measure of profitability, depends on variables. The average recovery period (ACP), the inventory turnover in days (ITIN), the average payment period, the cash conversion cycle and the current ratio are independent variables of size, debt ratio and debt ratio. financial assets compared to the total. They showed that there is a negative relationship between the net operating profitability and the average recovery period, inventory turnover in days, the average payment period and the cash conversion cycle.
Talat Afza et al. (2010) conducted a study of the management of working capital and the performance of manufacturing enterprises in Pakistan for a period from 1998 to 2007 by taking panel data from 204 companies listed on the Kuwait Stock Exchange. They took into account these variables. Net operating profitability is a dependent variable. Average recovery period, inventory The turnover in days, the average payment period, the cash conversion cycle and the net trading cycle of the company are independent variables. Gross turnover Ratio, current assets / total assets Ratio, current liabilities and total debt ratio. Company size, sales growth and current ratio are controlled variables. The results show that for the entire manufacturing sector, working capital management has a significant impact on profitability and plays a key role in creating shareholder value, as a cash conversion cycle and a longer business cycle. have a negative impact on profitability. Gross turnover from working capital and current assets from total assets also have a significant positive impact on profitability.
(Delop M, 2003) found a significant negative relationship between the operating result and the number of debtor account days, the number of inventory days and the number of days of account payable by studying 1009 Belgian companies for one year. 1992-1996 period. (Nasir, 2007) examined the profitability of Pakistani firms in the short term. According to their study, most of the company’s investments are in current assets. Because working capital has a direct impact on the overall profitability of Pakistani companies. Using panel data and ordinary least squares methods, they found a negative relationship between profitability and liquidity cycle, loan turnover, inventory turnover, and number of days to pay. In addition, they explained that managers can create value for their shareholders by reducing receivables turnover, inventory turnover and the cash conversion cycle. The negative relationship between accounts payable and profitability indicates that late payments reduce the value of the business. The studies by Schwartz (1974) and Deloop ; Jegers (1996) explain that high profits increase the company’s ability to lend more money to its clients and that low profitability reduces the allocation of money to Accounts. Pedro (2007) examined the fact that working capital is very important for low capital companies. Short-term investments are the main source of profit for small-cap companies. In addition, they explained that working capital components directly affect the return on assets. They concluded that a timely investment in current assets increases the profitability of the business. Loannis (2006) examined the cycle of gross margin and cash conversion of different companies. The study confirmed that the company is interested in the operating profit of the companies and found a significant negative relationship between the operating result and the cash conversion cycle. It was added that managers can further improve the overall value of the business by keeping the cash conversion cycle and its components at an optimal level. Afza (2008) examined 268 public companies listed on the Karachi Stock Exchange. Using regression analysis and descriptive statistics, their findings conclude that there is a significant difference in industry investment in current assets and funding decisions. The same effect remained constant for six years using rank correlation.
According to Deloof (2003), Working Capital Management (WCM) needs to maintain the optimal balance between working capital of the components, ie cash, receivables, inventories and debts. advantage in business. According to Harris (2005), WCM is a simple and easy-to-implement concept to ensure the company’s ability to fund differences between short-term assets and short-term liabilities. However, working capital can be described as a surplus of current assets over current liabilities. Despite the WCM possibly achieved in several ways (Robert Alan Hill, 2013). In addition, theoretically, Miller and Orr (1966) proposed a new cash management model. Like Miller and Orr, the cash management companies have left their cash balance in two upper and lower limits. Companies buy and sell the securities market only if the cash balance is at the lower or higher limit. The cost of transaction theory is used to describe a number of different behaviors. Many times, this involves transactions accounted for not only in apparent cases of sale, but also in purchases, despite daily emotional interactions and the informal exchange of gifts (Williamson, 1975). In addition, the economic order quantity (QEC) is the order quantity by minimizing the number of stocks and the ordering costs for the year. EOQ considers that the annual demand is uniform throughout the year, sets the ordering costs regardless of the number of units ordered, sets a deadline, continues prices and applies only to the case of the product ( Brigham, et al. 1999). The cash conversion cycle (CCC) provided a critical theoretical framework for working capital management. Thus, the working capital means that the funds were working in the short term. Apart from this, Nimarathasan (2010) argued that the relationship between working capital management affecting profits as most companies had huge cash invested in working capital and even large numbers of short-term debts. term.
The study by Mathuva (2009) examined the effect of the components of working capital management on corporate profits by using a sample of 30 Nairobi Stock Exchange (NSE) listed companies for the years 1993 to 2008. The study found a significant negative relationship companies need to collect customer funds and their profits, there is a positive correlation between the time needed to convert inventory into sales and profitability, and a positive correlation exists between the time needed to pay creditors and profits. Apart from this, Mohamod and Soad (2010) have attempted a study of empirical evidence concerning the management of working capital and have an impact on the performance of listed companies in Malaysia from the point of view of market valuation and the profitability. The results show a significant negative association between working capital variables and company performance. However, Alipour (2011) indicates a correlation between working capital management and profitability in Iran. Another researcher, Ray (2012), examines the correlation between working capital and profitability components for Indian firms and finds a strong negative correlation between working capital size, number of client days and the cycle. conversion. financial indebtedness ratio of corporate profits. Finally, Zubair and Muhammad (2013) conducted a study to examine the effect of working capital management on profitability and found a significant negative correlation between MROs and profitability.
According to Riyanto (2001), the return on assets also makes it possible to measure the efficiency of the company in order to maximize profits through the exploitation of its assets. Return on assets is often used as a technique to determine the rate of return on total assets after deduction of expenses and taxes and is considered a potential measure to assess the profitability of the business (Heikal et al, 2001). Inventory turnover days that measure the average period in which inventory held prior to sale or applied to the operations of companies were highly positive and correlated with the return on assets.?
Chapter 3
Research Methodology

3.1 Introductory Paragraph:
This segment gives somewhere to the example, the connected variable and approach to schematize the result of the examination. A large part of the assumptions of the working capital administration for the most part provide a negative or positive relationship between the currency transformation cycle and its segments, which implies that when the probability is significant, the risk of problems monetary is also high. This survey was conducted to test, as an observation, the effect of working capital on the return of the benefits of the consumer goods industry to Pakistan. For this reason, 10 registered organizations were taken in the FMCG area as an example for the period 2011-2017. Annual information was used in this review. Information was collected from Karachi Stock Trade and the annual money proclamations of the organizations, the Asset Reporting Survey distributed by the State Bank of Pakistan. The main motivation for this review is to determine the effect of the administration of working capital on the earnings of all subsistence segments. The examination is performed using auxiliary information, which is derived from the State Bank of Pakistan (SBP) Asset Reporting Survey and the Karachi Trade Production. In the livelihood zone, companies are involved in daily activities and the money is supposed to perform this task.
3.2 Data Set:
The overall population measure for this survey includes 10 organizations in Pakistan’s consumer goods sector on the SBP website in reviewing accounting reports. The example simply incorporates the 10 FMCGs of Pakistan. All other areas are not included in the example because the flow and water flow questions explore the relationship between WCM and the productivity of livelihood organizations in Pakistan. The basic arbitrary test strategy is used to take the example of the size of 10 companies from each other company. An arbitrary review is a very useful strategy because it refrains from inspecting errors by giving an equivalent choice of choice to each organization. The investigation period is five years from 2011 to 2017? Organizations with missing or remote information have been removed from the review.
To deal with such problems, several techniques can be used. The type of survey was the correlation because the researcher tries to explore the relationship between the dependent variable (Profit or ROA) and different independent variables such as the current ratio, the average age of the inventory, the collection period average.

3.3 Framework Model of the Study:

3.4 Variable Description:

Variables Abbreviation Computation of variables
Dependent Variables
Return On Assets ROA Net income/Total assets
Independent Variables
Current Ratio C.R Current Assets / Current Liabilities
Account Payables Turnover in days APTO Acc. payables/(CGS/360)
Inventory Turnover in days INV.TO Inventory/(Sales/360)

?
3.5 Types of Data:
Secondary data is used for this study.

3.5 Source of Data:
The secondary data were collected from the annual reports of the selected companies. This source is the best reliability of financial statement data because these reports are legally audited, published and easily accessible to the researcher.

3.6 Data Analysis Techniques:
The information collected from the financial explanations of all the organizations in the Pakistan Supply Zone has been entered into the e-views programming to apply the test to the information. At this point, various devices and techniques have been connected to the information with the ultimate aim of measurably evaluating and studying this exploration. These methods are the Statistical Test, the Unit Root Test, the Regression Test, and the Regression Line Error Correction Model. The regression is used to predict the values of the quantitative outcome variable using several other predictive variables. Simple regression shows the collective effect of independent variables on the dependent variable. The correlation coefficient explains the relationship between two variables. It shows the change in a variable due to any change in the other variables. In this survey, only part of the factors are chosen apart from these components, there are a number of factors to decipher the company’s performance. Tax execution can also be affected by the tax assessment, the nation’s financial statements and many other controllable or unpredictable factors.?
Chapter 4
Analysis
Introductory Paragraph:
I took my secondary data from the annual financial reports audited from the consumer products sectors in Pakistan and I applied various tests on the E-views 9 software to check the meaning and authenticity of the data. We select 10 companies in the FMCG sector of Pakistan. And we selected some variables for this study to check their importance using these variables like ROA (Return on Assets), CR (Current Ratio), ACP (Average Collection Period) and AAI (Average Age of Inventory ) data of these variables. Using and applying these countries and variables in the E-views 9 software, some of the different results are given below in each table. Each table showing different tests that you can see below:
1- DESCRIPTIVE ANALYSIS TEST
ROA C_R AAI ACP
Mean 8.078143 1.061857 23.26157 31.67971
Median 7.655000 1.060000 16.94500 29.19500
Maximum 10.81000 1.090000 39.51000 38.60000
Minimum 7.050000 1.020000 13.50000 27.09000
Std. Dev. 1.087561 0.015538 9.792165 4.401315
Skewness 0.904328 0.528201 0.502374 0.120232

Interpretation
Mean:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at mean is 8.078143. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at mean is 1.061857. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at mean is 23.26157. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at mean is 31.67971.
Median:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at median is 7.655000. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at median is 1.060000. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at median is 16.94500. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at median is 29.19500.
Maximum:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at maximum is 10.81000. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at maximum is 1.090000. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at maximum is 39.51000. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at maximum is 38.60000.
Minimum:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at minimum is 7.050000. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at minimum is 1.020000. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at minimum is 13.50000. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at minimum is 27.09000.
Standard Deviation:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at Standard Deviation is 1.087561. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at Standard Deviation is 0.015538. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at Standard Deviation is 9.792165. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at Standard Deviation is 4.401315.
Skewness:
This is the descriptive analysis at E-Views 9, variable is Return on Assets. The value of Return on Assets at Skewness is 0.904328. This is the descriptive analysis at E-Views 9, variable is Current Ratio. The value of Current Ratio at Skewness is 0.528201. This is the descriptive analysis at E-Views 9, variable is Average age of inventory. The value of Average age of inventory at Skewness is 0.502374. This is the descriptive analysis at E-Views 9, variable is Average collection period. The value of Average collection period at Skewness is 0.120232.
2- UNIT ROOT TESTS
a) Taking dependent variable ROA:
Panel unit root test: Summary
Series: ROA
Date: 08/03/18 Time: 10:50
Sample: 2011 2017
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test

Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -8.12372 0.0000 10 50

Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -0.87432 0.1910 10 50
ADF – Fisher Chi-square 30.0428 0.0692 10 50
PP – Fisher Chi-square 61.4849 0.0000 10 60

** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
Interpretation
Applied a Unit root test in E-view 9, Using variable Return on Assets found that In Levin, Lin & Chu t* the value of statistic is -8.12372 and Probability is 0.0000
And In Im, Pesaran and Shin W-stat the value of statistic is -0.87432 and probability is 0.1910
Comparing the probability value of both found that the first value is stationary because this is less than 0.05 and 2nd value is not Stationary because this is not less than 0.05.
So these values are significant at Level.
b) Taking Independent variable C_R:
Panel unit root test: Summary
Series: C_R
Date: 08/03/18 Time: 10:55
Sample: 2011 2017
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test

Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -9.89776 0.0000 10 50

Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -2.15784 0.0155 10 50
ADF – Fisher Chi-square 37.1741 0.0112 10 50
PP – Fisher Chi-square 46.3534 0.0007 10 60

** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.

Interpretation
Applied a Unit root test in E-view 9, Using variable Current Ratio found that In Levin, Lin
& Chu t* the value of statistic is -9.89776 and Probability is 0.0000
And In Im, Pesaran and Shin W-stat the value of statistic is -2.15784 and probability is 0.0155
Comparing the probability value of both found that these values are Stationary because this is less than 0.05.
So these values are significant at Level.
c) Taking Independent variable AAI:
Panel unit root test: Summary
Series: AAI
Date: 08/03/18 Time: 10:57
Sample: 2011 2017
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test

Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -24.1221 0.0000 10 50

Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -6.94178 0.0000 10 50
ADF – Fisher Chi-square 62.1481 0.0000 10 50
PP – Fisher Chi-square 82.3925 0.0000 10 60

** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.

Interpretation
Applied a Unit root test in E-view 9, Using variable Average age of Inventory found that In Levin, Lin & Chu t* the value of statistic is -24.1221 and Probability is 0.0000
And In Im, Pesaran and Shin W-stat the value of statistic is -6.94178 and probability is 0.0000
Comparing the probability value of both found that these values are Stationary because this is less than 0.05.
So these values are significant at Level.
d) Taking Independent variable ACP:
Panel unit root test: Summary
Series: ACP
Date: 08/03/18 Time: 10:59
Sample: 2011 2017
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test

Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -19.4785 0.0000 10 50

Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -2.87260 0.0020 10 50
ADF – Fisher Chi-square 38.5426 0.0076 10 50
PP – Fisher Chi-square 76.9867 0.0000 10 60

** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.

Interpretation
Applied a Unit root test in E-view 9, Using variable Average collection period found that In Levin, Lin & Chu t* the value of statistic is -19.4785 and Probability is 0.0000
And In Im, Pesaran and Shin W-stat the value of statistic is -2.87260 and probability is 0.0020
Comparing the probability value of both found that these values are Stationary because this is less than 0.05.
So these values are significant at Level.
3- REGRESSION ANALYSIS
Dependent Variable: ROA
Method: Panel Least Squares
Date: 08/03/18 Time: 11:05
Sample: 2011 2017
Periods included: 7
Cross-sections included: 10
Total panel (balanced) observations: 70

Variable Coefficient Std. Error t-Statistic Prob.

C_R -25.05195 6.145731 -4.076317 0.0001
ACP 0.071060 0.050245 1.414265 0.1620
AAI 0.092547 0.026333 3.514442 0.0008
C 30.27578 6.949856 4.356317 0.0000

R-squared 0.811107 Mean dependent var 8.078143
Adjusted R-squared 0.802521 S.D. dependent var 1.087561
S.E. of regression 0.483297 Akaike info criterion 1.439076
Sum squared resid 15.41604 Schwarz criterion 1.567562
Log likelihood -46.36766 Hannan-Quinn criter. 1.490112
F-statistic 94.46791 Durbin-Watson stat 0.775513
Prob(F-statistic) 0.000000

Interpretation
Regression test in E-views 9 software using Dependent variable ROA and Independent variables C_R, ACP and AAI. Comparing Probability values with P/ Significant values (0.05) found that in such Independent variables, C_R and AAI having association with ROA while the average collection period (Independent variable) having no association with ROA (Dependent variables) comparing the P/ significance value 0.05.
4- ERROR CORRECTION MODEL
Dependent Variable: D(ROA)
Method: Panel Least Squares
Date: 08/03/18 Time: 11:14
Sample (adjusted): 2011 2017
Periods included: 7
Cross-sections included: 10
Total panel (balanced) observations: 70

Variable Coefficient Std. Error t-Statistic Prob.

D(C_R) -4.565200 3.497110 -1.305421 0.1975
D(ACP) 0.263622 0.040844 6.454358 0.0000
D(AAI) -0.035459 0.020895 -1.696983 0.0957
C -7.521810 7.362725 -1.021607 0.3117
ROA(-1) 0.047305 0.098770 0.478944 0.6340
C_R(-1) 5.945095 6.140793 0.968131 0.3375
ACP(-1) 0.054755 0.052981 1.033472 0.3062
AAI(-1) -0.037195 0.033547 -1.108738 0.2726

R-squared 0.947429 Mean dependent var -0.091500
Adjusted R-squared 0.940352 S.D. dependent var 0.977196
S.E. of regression 0.238660 Akaike info criterion 0.096009
Sum squared resid 2.961838 Schwarz criterion 0.375255
Log likelihood 5.119724 Hannan-Quinn criter. 0.205238
F-statistic 133.8769 Durbin-Watson stat 3.382668
Prob(F-statistic) 0.000000

Interpretation
Error correction model in E-view 9 software to verify the short term and long term relationship between dependent and independent variables. We use ROA (Return on Assets) as the dependent variable and Current Ratio, Average Age of Inventory, and Average Collection Period as independent variables. In this test the coefficient values tells us about the short term and long term relationship between variables. The values of coefficient which have negative values shows the long term relationship among the dependent and independent variables while the positive values of independent variables shows the positive relationship among the specific dependent and independent variables.
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Chapter 5
Conclusion, Discussion & Recommendations

Conclusion & Discussion
In this study, an attempt is made to cover as many important dimensions as possible. But covering all dimensions and including all the variables is simply impossible. Thus, the results estimated from this study should be evaluated keeping in mind that there may be many other variables in addition to the variables mentioned above, which may explain the correlation between profitability and management of the economy. Working capital to the extent of effective working capital management. Another limitation of the proposed study is that the data used is only 7 years because of the limitation of the lack of data availability. This study has implications for the consumer products sector only. The results of this study are useful for financial managers in the consumer staples sector as they provide information on short-term capital management and also inform management policies. This information is useful for maintaining healthy competition and improving one’s own organization. Working capital management plays an important role in the firm financial management decision. When working capital is inappropriately managed, allocate more than enough, management will become ineffective and reduce the benefits of short-term investments. On the other hand, if the working capital is too low, the company may miss many profitable investment opportunities or suffer a liquidity crisis in the short term, leading to deterioration in corporate credit. This study indicates a negative relationship between profitability and the cash conversion cycle, which has been used to measure the effectiveness of working capital management. Therefore, it appears that operational profitability determines how managers or owners will act in terms of working capital management of the company. We observed that lower profitability is associated with an increase in the number of days of accounts payable. The above could lead to the conclusion that less profitable companies are waiting longer to pay their bills by taking advantage of the credit period granted by their suppliers. The negative relationship between accounts receivable and corporate profitability suggests that the least profitable companies will reduce their trade receivables in order to reduce their cash deficit in the cash conversion cycle. Similarly, the negative relationship between the number of inventory days and the profitability of companies suggests that, in the event of a sudden drop in sales accompanied by mismanagement of stocks, this would lead to an excess of capital at the expense of profitable operations. As a result, managers can generate profits for their businesses by properly managing the cash conversion cycle and keeping each component (accounts receivable, accounts payable, inventory) at an optimal level.
Work capital management has a significant impact on corporate profitability and plays a key role in creating value for shareholders, as a longer conversion cycle has a negative impact on a company’s profitability. The negative association of the average recovery period with the return on assets, a measure of profitability, helps management set a credit policy for the sector in general for Kenyan manufacturing and construction companies. The study recommends a longer credit period for companies to achieve higher profitability. There is a positive association between turnover in days and return on assets in the manufacturing and construction sectors in Kenya, which implies that firms that maintain sufficiently high inventory levels reduce the costs of potential interruptions in business. Production process due to the scarcity of products. Similarly, there is a positive relationship between the accounts payment period and the return on assets of manufacturing and construction companies in Kenya. The study recommends that the longer the accounts payable, the better the profitability due to the good reputation created by the suppliers and that the suppliers do not interrupt the deliveries to the company, which leads to a good functioning during the year and better profitability.
This study includes 10 consumer goods companies in Pakistan for a seven-year period from 2011 to 2017. It explores the role of effective working capital management in profitability through two key management policies of the fund. Political turnover. The investment policy concerns the management of the current assets of the company and the financing policy mainly concerns the management of current liabilities. In an aggressive working capital investment policy, more resources are invested in fixed assets than current assets to gain more profits. A prudent investment policy in working capital is contrary to this one. In an aggressive policy of working capital financing, current liabilities are used more than long-term debts and vice versa for a cautious financing policy. The results of this study show that the prudent investment policy of the working capital leads to increased profitability, just as a cautious financing policy also leads to greater profitability. In addition, the results show a positive correlation between the investment policy and the working capital financing policy. This positive relationship shows that companies that follow an aggressive working capital investment policy also opt for an aggressive financing policy. Similarly, companies pursuing a prudent investment policy prefer a conservative financing policy for working capital management.

Recommendations
Finally, it is recommended that managers try to create a good synchronization between the assets and the liabilities of the company.

? Based on the findings of this study, it is suggested that specific inventory management standards be followed to reduce inventory turnover days to increase profitability.
? If the company’s efficient inventory management, inventory turnover can have a significant impact on the FMCG sector.

This study can be extended in terms of the empirical model, with some other variables also included in the model used in this study. These other variables may be the cash conversion cycle, current assets, return on equity and gross profit, and so on. Future research may also be carried out for other sectors such as the textile sector, the cement sector, the telecommunications sector, etc.

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