Abstract

This Study analyzes the effect of the proper management of working capital on

financial performance of cement sector in Pakistan. The sample period of the study

is five years i-e from 2009 to 2013. The data was taken from published reports of

10 selected cement firms listed on Karachi Stock Exchange. The dependent

variable of the study is Return on Equity (ROE) which is used as a proxy for firm

financial performance. The independent variables are inventory turnover in days,

(CCC) and payable turnover in days. Penal Data methodology has been used to

analyze the impact of Working Capital Management on performance or

profitability of Cement sector. Results derived that Funds allocated by government

in Public Sector Development Program (PSDP) has strong positive relation with

performance and is significant, Gross Working Capital Turnover (GWCT), Quick

Ratio (QR), Average Payment Period (APP) has positive relation with performance

of firm whereas, Cash Conversion Cycle (CCC), Current Ratio (CR), Inventory

Turnover in Days (ITD) and Size of Firm (Size) has positive relation with ROE but

it is insignificant.

Keywords: Cash Conversion Cycle, Gross Working Capital Turnover, Quick

Ratio, Average Payment Period, Inventory Turnover in Days, Size of Firm, Funds

allocated by government in Public Sector Development Program, & Current Ratio.

i

ACKNOWLEDGEMENT

Without the support, cooperation and guidance of

my teachers and friends, this research study would not be

attainable. I would like to take this chance to thank

everyone who have helped and guided me in completing

this research study.

First of all, I would like to express my deepest

gratitude and appreciation to my supervisor, Prof. Dr.

Abdul Ghafoor Awan who has guided me throughout the

duration of this study. I appreciate the valuable time,

guidance and advices he has given me for the completion

of this research study.

Furthermore, I would also like to thank the faculty

members of ISP who have guided me directly and

indirectly with new insights and ideas on the path of

completing this study. Besides, I deeply appreciate the

moral support, understanding and endless love in which my

family have given unconditionally throughout the process.

Lastly, the cooperation and support received from

my all friends whose ideas and suggestions given greatly

enhanced the value of this research study.

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Dedication

I dedicate all my efforts to

Allah Almighty

The creator of the Universe

And

The Holy Prophet (PBUH)

The cause of the creation of this Universe.

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Declaration

I hereby declare that the material used in this thesis “IMPACT OF WORKING

CAPITAL MANAGEMENT ON THE PROFITABILITY OF CEMENT

SECTOR IN PAKISTAN” is my own and has not been copied from others. It is

free from plagiarism. I hereby declare that this dissertation or its any part has not

been submitted to any other university or institute for any other degree.

Date:____________ Pervaiz Shahid

Roll # 14 Session 2012-14

M.S (Business Administration)

Department of Business Administration

INSTITUTE OF SOUTHERN PUNJAB

MULTAN

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Certificate from Supervisor

It is certified that Mr. Pervaiz Shahid has completed his dissertation titled

“IMPACT OF WORKING CAPITAL MANAGEMENT ON THE

PROFITABILITY OF CEMENT SECTOR IN PAKISTAN” under my

supervision.

Prof. Dr. Abdul Ghafoor Awan

Supervisor

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Approval

External Examiner: ____________________________________

Internal Examiner: ____________________________________

Chairman: ____________________________________

Dean: ____________________________________

Date of Viva Voce: ____________________________________

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Table of Contents

Chapter 1. INTRODUCTION 1

1.1 What is Working Capital1

1.2 Definition of Working Capital

2

1.3 Main Research Question

3

1.4 Problem Statement

3

1.5 Objectives of the study

4

1.6 Scope of Study

5

1.7 Scheme of Study

5

Chapter 2. LITERATURE REVIEW 8

2.1 Summary of Literature Review 21

2.2 Research Gap Identified 22

2.2 Distinction of this Study 22

Chapter 3. RESEARCH METHODOLOGY 23

3.1 Types of Data 23

3.2 Sample

23

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3.3 Sample Size

23

3.4 Companies included into the sample 24

3.5 Selected Variables 24

3.5.1Dependent Variable 24

3.5.2 Independent Variables 24

3.6 Hypothesis 27

3.7 Statistical Techniques 28

Chapter 4. CONCEPTUAL FRAMEWORK 29

4.1 Definition of Profitability 29

4.2 Conceptual Model 29

4.3 Components of Working Capital 29

4.3 Importance of Working Capital 31

4.4 Objective of Working Capital 32

4.5 Determinants of Working Capital Needs 32

4.6 Functions of Working Capital Management 33

4.7 Disadvantages of Insufficient Working Capital 35

4.8 Disadvantages of Surplus Working Capital 35

4.9 WCM and Profitability in Cement Sector 36

Chapter 5. PROFILE OF SELECTED COMPANIES 38

Chapter 6. EMPIRICAL ANALYSIS 59

6.1 Descriptive Statistics 62

6.2 Correlation Matrix 64

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6.2 Regression Analysis 68

Chapter 7. FINDINGS AND RESULTS 71

Chapter 8. CONCLUSION AND RECOMMODATIONS 72

8.1 Policy Recommendations & Limitation of the Study 73

8.2 Future Research 75

Selected References 76

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List of Tables

Table – 1 Descriptive Statistics 62

Table – 2 Correlation Matrix 64

Table – 3 Regression Analysis 68

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AcronymsACP: Average Collection Period

APP: Average Payment Period

CCC: Cash Conversion Cycle

COGS: Cost of Goods Sold

CR: Current Ratio

QR: Quick Ratio

GWC: Gross Working Capital

GWCT: Gross Working Capital Turnover

PSDP: Public Sector Development Program

ITD: Inventory Turnover in Days

NWC: Net Working Capital

OLS: Ordinary Least Square

ROA: Return on Asset

SIZE: Size of Firms

WC: Working Capital

NWC: Net Working Capital

GWC: Gross Working Capital

LNSALES: Natural Log of Sales

ROTA: Return on Total Assets

ASE: Athens Stock Exchange

GOP: Gross Operating Profit

KPK: Khyber Pakhtonkhuwa

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