THE INTER-LINKAGES OF

WORKING CAPITAL AND

PROFITABILITY IN PAKISTAN
(2001-2010)

Ordinary least square (OLS) analysis reveals

that both positive and negative association
between selected independent and dependent
variables.

Out of six independent variables, four variables

namely, quick ratio (QR), days inventory
outstanding (DIO), debt equity ratio (DER) and
return on equity (ROE) positive association and
remaining variables including current ratio
(CR), and days sale outstanding (DSO) show a
negative association with return on assets (ROA)

 On the basis of t-statistic, it is clear that

among independent variables, current ratio
(CR), quick ratio (QR), days sale outstanding
(DSO), days inventory outstanding (DIO) and
return on equity (ROE) are significantly
associated with return on assets (ROA),
whereas only one independent variables debt
equity ratio (DER) is insignificantly associated
with return on assets (ROA).

In the case of return on equity (ROE), debt

equity ratio (DER) and return on assets (ROA)
are significant associated with return on equity
(ROE),

The Relationship Between Working Capital

Management And Profitability Evidence From The
United States
The finding indicates that slow collection of
accounts receivables is correlated with low
profitability.
Managers can improve profitability by reducing the
credit period granted to their customers.
Regarding the average days of accounts payable
previous studies reported negative correlation of this
variable and the profitability of the firm . We found no
statistically significant relationship between these
variables

 Examining the relationship between the

average number of Days the inventory is held
andthe profitability,Researchers found that the
relationship is negative. We found no significant
relationship in our sample.
Previous theoretical research predicts negative
relationship between cash conversion cycle and
corporate profitability . We found a positive
relationship
between cash conversion cycle and gross
operating profit.Finally, we found no significant
relationship between firm size and its gross
operating profit ratio
.

How does working capital management

affect
the profitability of Spanish SMEs?
firms have an optimal working capital level that
balances costs and benefits and maximizes their
profitability.
a robustness check demonstrates that firms
profitability decreases when they move away
from their optimal working capital.
It analyses a possible quadratic relation between these
variables.

 findings have potentially important implications

for managers and in the literature on working
capital management.
they indicate that managers should aim to keep
as close to the optimal cycle as possible and
try to avoid any deviation (either positive or
negative) in order to maximize firms
profitability.
On the other hand, we find that the relationship
between working capital and profitability is
concave rather than linear.