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.

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.

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.

No Declaration
I, Ghulam Haider, Roll No. 04, Registration No. MSBA-011R12-4 of Business
Administration 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

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

Approval

External Examiner: ____________________________________

Internal Examiner: ____________________________________

Chairman:

____________________________________

Dean:

____________________________________

Date of Viva Voce:

____________________________________

Table of Contents
Chapter 1. INTRODUCTION

1.1

What is Working Capital

1

1.2

Definition of Working Capital

1.3

2
Main Research Question

1.4

3
Problem Statement

1.5

3
Objectives of the study

1.6

4
Scope of Study

1.7

5
Scheme of Study
5

Chapter 2. LITERATURE REVIEW

2.1 Summary of Literature Review

21

2.2 Research Gap Identified

22

2.2 Distinction of this Study

22

Chapter 3. RESEARCH METHODOLOGY

3.1 Types of Data

23
23

3.2 Sample
23
3.3 Sample

Size

23
3.4 Companies included into the sample

24

3.5 Selected Variables

24
7

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

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

8

73

8.2 Future Research

75

Selected References

76

List of Tables
Table 1 Descriptive Statistics

62

Table 2 Correlation Matrix

64

Table 3 Regression Analysis

68

10

Acronyms
ACP: 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
11