Final Project Rashid Ali

IMPACT OF WORKING CAPITAL
MANAGEMENT ON
PROFITABILITY OF FIRM
Rashid Ali (Col/MBA Executive)

Roll No. AL-539019
Registration # 11-PTS-04680
Cell # 0321-5104028
Department of Business Administration, Faculty of Social Sciences
Allama Iqbal Open University
ABSTRACT
Administration of working capital alludes to administration of current resources and of current
liabilities. Firms may have an ideal level of working capital that augments their worth. Former
confirmation has decided the relationship between meeting expectations capital and execution.
This study expands the writing. The working capital was dictated by the money change cycle and
position of working capital, demonstrated by the current degree, brisk proportion, and stock to
current resources. The execution was measured regarding productivity by profit for aggregate
resources, and relationship between living up to expectations capital administration and benefit
was explored by utilizing board information investigation for an example of cotton industry.
Evaluated mathematical statement by the board information strategy to acquire the evaluations of
the parameters of pooled model was sought logical variables to gauge their impact on firm
execution. Results show that high interest in inventories and receivables lead to lower benefit
and current resources for aggregate resources lead to higher gainfulness. The results infer that
solid relationship between living up to expectations capital administration and execution.
DEDICATION AND ACKNOWLDGEMENT

Although, this study is an individual effort, yet it would not have been made possible
without the help and guidance of God Almighty and few very nice people.
I feel all that much obliged to Mr. Ahmed Imran Hunjra who oversee this exploration
from start to finish through and prompt and in addition redressed me on incalculable events and
demonstrated to me the ropes as best practices to go about completing examination. I am all that
much thankful to Mr. Majid Rashid program supervisor COL-EMBA/EMPA to providing for me
a chance to gain from intelligent and fit employees of college to comprehend and take in the
global administration science research philosophies and methodologies.
Finally I might want to commit this expert paper to my Father and Mother there is no
doubt without their amazing raised and influence, I would not have the capacity to accomplish
this point of reference in my life. I would also dedicate this work to my wife and family for their
continuous support though out my Master of Business Administration.
CERTIFICATE (from supervisor)

The project report entitled The Impact of Capital Working on Companys Profitability at COL
Executive Master of Business Administration conducted by Rashid Ali. Roll No AL-539019,
Registration No. 11-PTS-04680, Semester Autumn 2014 has been completed under my guidance
and I am satisfied with the quality of students research work.
Supervisor,
_______________________
Name: Ahmed Imran Hunjra
Date:
ALLAMA IQBAL OPEN UNIVERSITY

Commonwealth MBA Programme for Executive
ATTESTATION OF AUTHORSHIP
I Rashid Ali Roll No. AL-539019, Registration 11-PTS-04680 An understudy of COL
Master of Business Administration Program in Allama Iqbal Open University, gravely pronounce
that my task Report entitled the Impact of working Capital on Company's Profitability is my own
work and that, to the best of my insight and conviction, it contains no material beforehand
distributed or composed by someone else. This report is not submitted as of now and might not
be submitted in future for acquiring a degree from same or an alternate University or Institution.
In the event that it discovered to be replicated/ copied at later phase of any understudy enlisted in
the same of whatever other University, I might be at risk to face legitimate activity before Unfair
Mean Committee (UMC), according to AIOU/HEC Rules and Regulations, and I comprehend
that on the off chance that I am discovered liable, my degree will be canceled.
____________________
Name: Rashid Ali
Programme: COL / MBA
TABLE OF CONTENTS
Chapter No. 1
Introduction
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Chapter No. 2
Chapter No. 3
Chapter No. 4
Chapter No. 5
Background
Profitability
Problem Identification
Statement of Problem
Research Question
Objectives of Study
Significance of Study
Literature Review
2.1
Review of Literature
2.2
Theoretical Framework
2.3
Hypothesis
Research Methodology
3.1
Data Set and Sample
3.2
Variables
3.4
Comparative Balance Sheets
Data Analysis and Interpretation

4.1
Demographic Data and Return Percentage
4.2
Table Summarizing Data
4.4
Narrative Describing most important findings
Findings, Conclusions & Recommendations

5.1
Summary of Findings
5.2
Conclusions
5.3
Recommendations
5.4
Limitations and Future Research
5.5
References
5.6
Appendix
Chapter # 1
Introduction
1.1
Background:
Working Capital is an important part of any business and organization and it plays a
Important role on the liquidity and productivity of the organization. Working capital means to
manage the liquidity as the current assets should meet the current obligations of the company
efficiently and effectively. However firms with excessively few current resources may bring
about deficiencies and challenges in keeping up smooth operations (Horne and Wachowicz,
2000). Productive working capital administration includes arranging and controlling current
resources and current liabilities in a way that takes out the danger of powerlessness to meet due
fleeting commitments from one perspective and evade unnecessary interest in these benefits then
again (Eljelly, 2004). Numerous overviews have demonstrated that administrators invest
impressive time on everyday issues that include working capital choices. One explanation behind
this is that current resources are brief speculations that are persistently being changed over into
other resource sorts (Rao, 1989). As to current liabilities, the firm is in charge of paying these
commitments on an auspicious premise. Liquidity for the continuous firm is not dependent on
the liquidation estimation of its advantages, but instead on the working money streams produced
by those benefits (Soenen, 1993). Taken together, choices on the level of diverse working capital
segments get to be visit, dull, and tedious. Working Capital Management is an exceptionally
touchy range in the field of budgetary administration (Joshi, 1994). It includes the choice of the
sum and arrangement of current resources and the financing of these benefits. Current resources
incorporate each one of those benefits that in the typical course of business come back to the
manifestation of money inside a brief time of time, usually inside a year and such impermanent
speculation as may be promptly changed over into money upon need. The Working Capital
Management of a firm to some extent influences its gainfulness.
A definitive goal of any firm is to expand the benefit. Anyway, saving liquidity of the
firm is an imperative destination as well. The issue is that expanding benefits at the expense of
liquidity can bring genuine issues to the firm. Subsequently, there must be a tradeoff between
these two goals of the organizations. One goal ought not to be at expense of the other on the
grounds that both have their imperativeness. On the off chance that we couldn't care less about
benefit, we can't get by for a more drawn out period. Then again, on the off chance that we
couldn't care less about liquidity, we may confront the issue of indebtedness or chapter 11.
Therefore meeting expectations capital administration ought to be given fitting thought and will
at last influence the gainfulness of the firm.
Firms may have a perfect level of working capital that opens up their value.
Inconceivable stock and a liberal trade credit methodology may provoke high arrangements.
Greater stock decreases the threat of a stock-out. Trade credit may enable arrangements because
it allows customers to assess thing quality before paying (Long, Maltiz and Ravid, 1993, and
Deloof and Jegers, 1996). A substitute piece of working capital is records payable. Delaying
portions to suppliers allows a firm to assess the way of bought things, and can be a shabby and
versatile wellspring of financing for the firm. Of course, late portion of receipts can be exorbitant
if the firm is offered a refund for in front of timetable portion. An unmistakable measure of
Working Capital Management (WCM) is the cash positon cycle, i.e. the time slack between the
utilization for the purchases of unrefined materials and the gathering of offers of finished items.
The more broadened this time slack, the greater the enthusiasm for satisfying desires capital
(Deloof, 2003). A more augmented Important cycle may construct benefit in light of the way that
it prompts higher arrangements. Regardless, corporate profit might moreover lessen with the
Important cycle, if the costs of higher enthusiasm for satisfying desires capital trip speedier than
the benefits of holding more inventories and/or surrendering more trade credit to customers. This
discussion of the imperativeness of working capital organization, its different parts and its results
for profit drives us to the issue explanation which we will be separating.
Working capital is the excess of current assets over current liabilities. Working capital
(WC) is a financial source which represents operating liquidity available to a business,
organization or other entity. The (Current Assets - Current Liabilities) are called working capital
(Current Assets Current Liabilities = Working Capital). If the current assets of the company not
meet the current obligations of the company then a company has working capital deficiency, also
called the working capital deficit. The working capital have two aspects first one is Working
Capital is positive then it means the company is able to pay the short term obligations and
Negative working capital means the company is unable to pay the short term obligations.
1.2
Profitability
Profitability means a firms earnings from its resources, it also means how much returns a
firm achieved by the investment on its assets (ROA).

There are two possible understanding of resources concept:
1. Concept of Balance Sheet
2. Managing Pattern Concept
There are two understanding of resources.
Excess of present sources over present obligations are called the net resources or net
present sources. Working investment is really what a part of long lasting finance is kept in and
used for supporting present actions.
The balance piece definition of resources is significant only as an indication of the organization's
present solvency in repaying its lenders.
When firms speak of shortage of resources they in fact possibly imply lack of cash sources. In
fund flow analysis and increase in resources, as traditionally defined, symbolizes employment or
application of resources.
1.3 Problem Identification
The working capital straightforwardly hits the benefit of the organization. The profit for
resources which is identified with the benefit of the organization and the Inventory turn-over,
Average accumulation period, normal installment period is identified with the working capital.
Productive working capital administration which identifies with arranging and controlling
current resources and current liabilities. A more extended money transformation cycle may be
building the benefit because of higher deals. These segments of working capital which influences
the benefit of the organizations (Deloof, 2003). The target of working is to have the ideal parity
of every segment. Best administration of money, receivables, inventories, payables and credit
discharge stores (Filbeck, Kreuger 2004).
(Nasir & Rehman, 2007) says the funds straight strikes the productivity of the companies
and to manage the present resources and present obligations. Operating investment involve long
lasting and short-term funds long lasting means the amount of present resources required to meet
the firm long lasting minimum requirements (Van Horn, 2005: 205). Narware (2004) describes
the connection of funds and productivity with the help of ratio's and mathematical tools there is a
significant connection between productivity and funds.

The management of working capital is an important part of financial management
because it directly affects the profitability of the company. The management of current assets in
such a way to meets the short term obligation of the company is called the working capital.
When the working capital is manage in the best way than the profitability of the company is also
increase.
This study related to the working capital management and profitability of the textile
sector of Pakistan. The study based on secondary data which gathered from the annual reports of
the companies. The companies are listed in the Karachi Stock Exchange and the data we use in
2007 to 2011.
1.4 Statement of Problem
The purpose of study will be to investigate whether any relationship exists between
working capital management and profitability in the textile companies listed at Karachi Stock
Exchange, Pakistan. It will also be evaluated, that how much profitability impact on working
capital.
1.5 Research Question
a. Is the Average collection period affects the company's profitability?
b. Is the Average payment period affects the company's Profitability?
1.6 Objectives of Study
a. To find out whether relationship exist between working capital management and
1.7
profitability.
b. To check the impact of working capital management in textile sector of Pakistan.
Significance of the Study
Working capital is the key of the company profitability. Profitability of firms not
distributed internal financing, working capital affect the firm's external financing requirements.
This study will help to Investors for using working capital policy as information for specific
sector of Pakistan. The working capital management policy may be useful in assessing the
company's long-term earnings prospects.
Chapter # 02
Literature Review
2.1
Review of Literature
The working capital management is the important factor for the profitability. Some
researchers are performed to be analyzing of the connection of funds control with the
productivity. Smith (1980) argued, the funds control impacts the productivity of Pakistani
companies the results is comes to increase the companys value.
Smith, (1980) defined a big investment in the current assets increase the profitability and
lowers the risk but as well as lower profitability obtained. Carpenter and Brown (1983) said that
there is no straight line connection between the level of present resources and income methodical
risk of the US firms; (Rao, 1989) which is relevant to the present responsibilities the companies
is accountable for spending the responsibilities a chance to time foundation. Blinder and
Maccini, (1991). Czyzewski and Hicks (1992) gave the analysis on the highest return on Assets
hold the higher cash balance. Soenen, (1993) defined this relationship on US firms a negative
relationship on trade cycle length with return on assets. Smith and Begemann, (1997) studied on
industrial firm's Johannesburg Stock Exchange he describes the decrease in the total current
liabilities divided by gross fund led to an improvement in return on assets and vice versa. After
this research a Shin and Soenen, (1998) to expand the time period and size he investigated a
large sample of US firms 58,985 and period is 20 years i.e. start from 1975 to 1994 after that
there is a significant negative relationship with its profitability.
Lamberson, (1995) said maintain at the proper level of working capital component i.e.
accounts receivables, accounts payable and inventories. Jose et al, (1996) there is a significant
negative relationship exist between the profitability and cash conversion cycle.
Deloof and Jegers, (1996) said that another part of the funds is records payables. If
postponing transaction to providers allows the company to evaluate the high quality of buy
products. However, the transaction of delayed accounts can be very expensive if the companies
are provided a lower price for the beginning expenses. The well-known evaluate of Working
Control Management(WCM) is the cash transformation pattern, i.e. the time lag between the
expenses for the buys of raw components and the selection of revenue of completed products.
Gardner et al, (1986) and Weinraub and Visscher, (1998).
The working capital
management is very important because its affects on the profitability and risk of the firm's. Shin
& Soenen, (1998) to emphasize the effective funds control is very important for make the value
for the investors. The funds control has an important effect on the productivity and assets both.
(Wang 2002) work on the Japanese and Taiwanese firms and defines the way of working capital
management has a significant impact on the profitability of the companies and increase in
profitability by decreasing the number day's accounts receivable and inventors. Deloof (2003) he
takes a example size of 1009 of non financial companies of The country. His result is revealed
that there is a bad connection between the A/R and Stock convert over with total managing
benefit. He is recommended that the administrator can improve the productivity through improve
the records due and short the records receivables and stocks. Eljelly, (2004) defined the efficient
working capital management involve in the planning and controlling the current assets and
liabilities. In such a manner to remove the risk of inability to meet the short term obligations.
Gosh and Maji (2004) he says that the degree of utilization of current assets was positively
associated with the profitability of the all the company under that study. Filbeck and Kruger,
(2005) a company can decrease the finance cost and increase the funds to expansion the projects
to invest the amounts in the current assets.
Shah and Sana (2006) described that there is a bad connection between funds and
productivity percentages except regular payment period which is favorably related to the total
benefit amount. Padachi (2006) describes the working capital management impact the firm's
profitability. The working capital management is expected to contribute positively to the creating
of firm's value. Then indicate that high investment in inventories and accounts receivables to the
associated with low profitability. Lazaridis and Tryfonidis (2006) he fined the relationship
between working capital management and corporate profitability of the firms listed at Athens
Stock Exchange. He concludes that there is statically significant relationship between
profitability measures by the cash conversion cycle and gross operation profit. Nasir & Rehman
(2007) investigated in the studies the effect of funds control on the productivity of the companies
by taking the data of 94 detailed companies at (CURRENT ASSETS - CURRENT
LIABILITIES) for the interval of 6 years since 1999 to 2004. The common payment interval and
regular selection interval with the current rate, stock revenues and also cash transformation
pattern as funds control guidelines and size, debt rate and set resources rate are the control
factors. He found the significant negative connection productivity and funds control of the
companies. Afza and Nazir (2008) defined the factors which are determining the working capital
management. And conclude the negative relationship between profitability and working capital
management.
The administration of working capital will be characterized as the "administration of
current resources and current liabilities, and financing these current resources. " Working
capital administration is essential for making quality for shareholders. Administration of working
capital administration was found to have a noteworthy effect on both productivity and liquidity
in studies in distinctive nations.
Long et al. created a model of exchange credit in which hilter kilter data drives great firms to
amplify exchange credit with the goal that purchasers can check item quality before installment.
Their example contained all modern (SIC 2000 through 3999) organizations with information
accessible from COMPUSTAT for the three-year period finishing in 1987 and utilized relapse
examination. They characterized exchange acknowledge arrangement as the normal time
receivables will be exceptional and measured this variable by registering every company's
days of deals extraordinary (DSO) , as records receivable every dollar of day by day deals. To
lessen variability, they found the middle value of DSO and all different measures over a three
year period. They discovered proof steady with the model. The discoveries propose that makers
may build the implied expense of expanding exchange credit by financing their receivables
through payables and transient obtaining.
Shin and Soenen examined the relationship between working capital administration and
esteem creation for shareholders. The standard measure for working capital administration is
the money change cycle. Money change period reflects the time compass in the middle of
payment and gathering of money. It will be measured by assessing the stock change period
and the receivable transformation period, less the payables transformation period. In their study,
Shin and Soenen utilized net-exchange cycle (NTC) as a measure of working capital
administration. NTC is fundamentally equivalent to the money transformation cycle (CCC)
where every one of the three segments are told. NTC may be an intermediary for extra living up
to expectations capital needs. They analyzed this relationship by utilizing connection and
relapse examination, by industry, and working capital power. Utilizing a COMPUSTAT
specimen of 58,985 firm years covering the period 1975- 1994, they discovered a solid negative
relationship between the length of the company's net-exchange cycle and its productivity.
Built with respect to the discoveries, they recommend that one conceivable route to make
shareholder worth is to decrease association's NTC.
To test the relationship between gathering desires capital organization and corporate profit,
Deloof used a sample of 1,009 immeasurable Belgian non-cash related firms for a period of
1992- 1996. By using association and backslide tests, he found gigantic negative relationship
between awful working pay and the number of days accounts receivable, inventories, and
records payable of Belgian firms. In perspective of the study results, he suggests that chiefs can
augment corporate gainfulness by decreasing the amount of day's records receivable and
inventories.
Ghosh and Maji tried to review the capability of working capital organization of Indian cement
associations in the midst of 1992 - 93 to 2001 - 2002. They determined three record values execution document, utilization list, and general profit document to gage the adequacy of
working capital organization, instead of using some fundamental working capital organization
degrees. By using backslide examination and industry gauges as a target viability level of
individual firms, Ghosh and Maji attempted the speed of achieving that target level of
gainfulness by individual firms in the midst of the period of study and found that some of
the test firms successfully upgraded capability in the midst of these years.
Eljelly observationally broke down the relationship amidst profit and liquidity, as measured by
present degree and cash fissure on a test of 929 joint stock associations in Saudi Arabia.
Using
relationship
and
backslide
examination,
Eljelly
sound
tremendous
negative
relationship between the affiliation's profit and its liquidity level, as measured by current
extent. This relationship is more guaranteed for firms with high present extents and long cash
change cycles. At the business level, regardless, he found that the cash change cycle or the
cash gap is of more important as a measure of liquidity than current extent that impacts
productivity. The firm size variable was in like manner found to have important effect on benefit
at the business level.
Lazaridis and Tryfonidis conveyed a cross sectional study by utilizing a test of 131 firms
Recorded on the Athens Stock Exchange for the time of 2001 - 2004 and discovered
measurably huge relationship between productivity, measured through terrible working benefit,
and the money change cycle and its parts (accounts receivables, accounts payables, and stock). In
light of the results examination of yearly information by utilizing relationship and relapse tests,
they propose that directors can make benefits for their organizations by accurately taking care
of the money change cycle and by keeping every segment of the transformation cycle (accounts
receivables, accounts payables, and i nventory) at an ideal level.
Raheman and Nasir considered the effect of differing variables of working capital organization
including ordinary social affair period, stock turnover in days, typical portion period, cash
change cycle, and current degree on the net working advantage of Pakistani firms. They
picked an example of 94 Pakistani firms recorded on Karachi Stock Exchange for a period of six
years from 1999 - 2004 and found a robust negative relationship between variables of working
capital organization and benefit of the firm. They found that as the Important cycle increases.
They attempted the effects of working capital organization on SME profit using the board data
system. The results, which can't avoid being generous to the region of endogeneity,
demonstrated that heads could make regard by reducing their inventories and the number
of days for which their accounts can't avoid being exceptional. Also, shortening the
Important cycle moreover upgrades the organization's advantage.
Falope and Ajilore used an example of 50 Nigerian refered to non-cash related firms for the
period 1996 - 2005. Their study utilized load up data econometrics as a part of a pooled
backslide, where time-game plan and cross-sectional observations were combined and assessed.
They found a immense negative relationship between net working profit and the typical
aggregation period, stock turnover in days, ordinary portion period and cash postion cycle for
an example of fifty Nigerian firms recorded on the Nigerian Stock Exchange. Also, they found
no discriminating mixed bags in the effects of working capital organization amidst limitless and
little firms.
Mathuva analyzed the impact of working capital association pieces on corporate benefit by
utilizing a case of 30 affiliations recorded on the Nairobi Stock Exchange (NSE) for the periods
1993 to 2008. He utilized Pearson and Spearman's associations, the pooled standard littlest
square (OLS), and the settled influences break faith models to direct information examination.
The key disclosures of his study were that: i) there exists an exceedingly essential negative
relationship between the time it takes for firms to gather money from their clients (records
gathering period) and benefit, ii) there exists an extraordinarily titanic positive relationship
between the period taken to change over inventories into courses of action (the stock change
period)
and productivity,
and
iii) there
exists
an uncommonly
fundamental positive
relationship between the time it takes the firm to pay its banks (normal allotment period) and
profit.
In rundown, the composition review demonstrates that working capital organization influences
on the benefit of the firm however there still is vulnerability as to the suitable variables that
might serve as delegates for working capital organization. The present study scrutinizes the
relationship between a set of such variables and the productivity of an illustration of American
gathering firms. Table 1 underneath gathers the definitions and speculative expected signs.
(Eljelly, 2004) cleared up that successful liquidity organization incorporates orchestrating and
controlling current assets and current liabilities in such a route, to the point that murders the risk
of inability to meet due transient responsibilities and sidesteps outlandish enthusiasm for these
profits. The association amidst productivity and liquidity was investigated, as measured by
present extent and cash opening on an illustration of business elements in Saudi Arabia using
relationship and back slide examination. The study found that the Important cycle was of more
centrality as a measure of liquidity than the current extent that impacts advantage. The size
variable was found to have gigantic effect on benefit at the business level. The outcomes were
enduring and had discriminating consequences for liquidity organization in distinctive Saudi
associations. In any case, it was clear that there was a negative relationship amidst profit and
liquidity markers, for instance, current extent and exchange gap in for icy hard coin the Saudi
example examined. Second, the study in like manner uncovered that there was unfathomable
mixed bag among organizations in regards to the immense measure of liquidity.
(Deloof, 2003) talked about that most firms had a lot of trade put resources into for spendable
dough working capital.
For measuring the capability of working capital organization, execution, use, and general benefit
records were processed rather than using some fundamental working capital organization extents.
Setting industry benchmarks as target-adequacy levels of the individual firms, this paper
moreover attempted the rate of accomplishing that target level of capability by an individual firm
in the midst of the time of study. Revelations of the study exhibited that the Indian Cement
Industry by and large did not perform strikingly well in the midst.
(Shin and Soenen, 1998) highlighted that compelling Working Capital Management (WCM) was
key for making worth for the shareholders. The route satisfying desires capital was managed had
a discriminating impact on both gainfulness and liquidity. The relationship between the length of
Net Trading Cycle, corporate gainfulness and peril adjusted stock return was examined using
association and backslide examination, by industry and capital force. They found a strong
negative relationship between lengths of the organization's net trading Cycle and its advantage.
Additionally, shorter net trade cycles were associated with higher risk adjusted stock returns.
2.2
Theoretical Framework:-
Independent Variable
Dependent Variable
Average collection period
Average payment period
Return on
Assets
Inventory turn over
Model:ROA= o+1 (ACP) +2 (APP) +3 (ITO)

2.3
Hypothesis Statements:
H1: Average collection period have the negative effect on profitability and ROA.
H2: Average payment period positively related with the ROA.
H3: Inventory turnover have the negative impact on profitability and ROA.
Chapter # 03
Research Methodology
3.1
Research Design:
The ebb and flow examination is focused to find out the effect of trusts over the
organization's profit. The quantitative strategy has been taken after to find better results and
results that can be connected later on. Expansive Data have been taken from the yearly monetary
surveys of the firm.
We have utilized the proportion investigation system to check the consequences of our
theories. Degree investigation of stock and its variables decided the heading of speculation cycle.
Receivable administration checked through the normal gathering period in this is dead set
through the information taken from the association's receivables and as far as possible they have
given to their clients.
3.2
Data Set and Sample

The data used in this study was acquired from the websites of the companies. Data is
collected from annual audited reports of the firm for the years from 2007- 2011.
The purpose of this research is to contribute towards a very important aspect of financial
management known as working capital management with reference to the following listed
companies
1.
2.
3.
4.
5.
Gul Ahmed Textile

Kohat Textile Mills
Nishat Textile Mills
Saif Textile Mills
Koh-i-Noor Textile Mills
www.gulahmed.com
www.kohattextile.com
www.nishatpak.com
www.saiftextile.com
www.kohinoormills.com
Here we will see the relationship between living up to expectations capital administration
hones and its impacts on gainfulness for a time of five years from 2007 2011. This area of the
report examines the variables included in the study, the circulation examples of information and
connected measurable methods in researching the relationship between living up to expectations
capital administration and productivity.3.3
Variables:-
This study undertakes the issue of identifying key variables that influence working capital
management.
All the variables stated below have been used to test the hypotheses of our study. They
include dependent, independent and some control variables.
Return on Assets (ROA) which is measure of profitability of the firm is used as
dependent variable. It is calculated dividing by net income by total assets.
Average Collection Period (ACP) used as proxy for the collection policy is an
independent variable. It is calculated by dividing account receivable by sales and multiplying the
result by 365 (number of days in a year).
Inventory turnover in days (ITID) used as proxy for the inventory policy is also an
independent variable. It is calculated by dividing inventory by cost of goods sold and multiplying
with 365 days.
Average payment period (APP) used as proxy for the payment policy is also an
independent variable is calculated by dividing accounts payable by purchases and multiplying
the result 365 days.
3.4
Statistics
Statistics used to check the authenticity of results. We will use the following variables to
determine the results. These variables are given below.
ROA Return on Assets, Net Income, Total Assets, ACP, Days, Total amount of days in period,
Accounts Receivables, Average amount of accounts receivables, Credit Sales, Total amount of
net credit sales during period, Average collection period, Credit Sales, APP, No. of Working Days
or Months, Creditor Turnover Ratio, Account payable, Net Credit Purchase, ITO, Sales,
Inventory, Cost of goods sold, Average Inventory.
3.5
Techniques
Ratio Analysis:
We will use ratio analysis techniques to study the hypotheses. To measure the relationship
between dependent and independent variables multiple regression will be applied.
Regression Analysis
S. No
Company
Years
ROA (%)
ACP(Days)
APP(Days)
ITO(Times)
Gul Ahmed Textile
2007
1.63%
80
83
4.35
Gul Ahmed Textile
2008
0.83%
77
69
4.00
3
4
5
Gul Ahmed Textile

Gul Ahmed Textile
Gul Ahmed Textile
2009
2010
2011
0.59%
3.27%
5.86%
66
43
29
94
41
53
3.58
3.98
2.46
Kohinoor Textile
2007
1.34%
47
83
6.48
Kohinoor Textile
2008
-3.47%
46
69
3.80
Kohinoor Textile
2009
-8.58%
11
94
6.34
Kohinoor Textile
2010
-13.08%
45
41
5.55
Kohinoor Textile
2011
-21.75%
34
53
10.43
Kohat Textile
2007
-1.90%
38
83
3.89
Kohat Textile
2008
-4.60%
42
69
7.63
3
4
5
Kohat Textile
Kohat Textile
Kohat Textile
2009
2010
2011
-10.71%
1.07%
0.43%
59
47
36
94
41
53
14.29
4.01
4.83
2007
3.06%
17
83
5.53
2008
16.19%
25
69
4.70
2009
4.02%
20
94
5.83
2010
8.21%
23
41
5.20
2011
14.55%
18
53
4.96
Saif Textile
2007
0.29%
69
83
4.08
Saif Textile
2008
-0.93%
72
69
4.92
Saif Textile
2009
-14.00%
71
94
5.44
Saif Textile
2010
1.64%
60
41
3.39
Saif Textile
2011
12.05%
51
53
5.25
Dependent Variable: ROA

Method: Panel EGLS (Cross-section random effects)
Date: 02/05/15 Time: 15:30
Sample: 1 25
Periods included: 5
Cross-sections included: 5
Total panel (balanced) observations: 25
Swamy and Arora estimator of component variances
Variable
ITO
APP
ACP
C
Coefficient
Std. Error
-0.01491
-0.00035
-0.00067
0.132907
t-Statistic
0.005979
0.000679
0.00088
0.060738
Prob.
-2.493008
-0.515777
-0.763273
2.188217
Effects Specification
S.D.
Cross-section random
Idiosyncratic random
0.048038
0.061423
Weighted Statistics
R-squared
Adjusted R-squared
S.E. of regression
F-statistic
Prob(F-statistic)
0.30377
0.204308
0.061504
3.054143
0.050883
Mean dependent var

S.D. dependent var
Sum squared resid
Durbin-Watson stat
Unweighted Statistics
R-squared
Sum squared resid
0.321321
0.12434
Mean dependent var

Durbin-Watson stat
Rho
Correlated Random Effects - Hausman Test

Equation:
Untitled
Test cross-section random effects
Chi-Sq.
Statistic
Test Summary
Cross-section random
Chi-Sq.
d.f.
Prob.
* Cross-section test variance is invalid. Hausman statistic set to

zero.
Cross-section random effects test comparisons:
Variable
ITO
APP
ACP
Fixed Random
-0.01361
-0.00045
-0.00034
-0.01491
-0.00035
-0.00067
Var(Diff.)
0.000004
0
0
Prob.
0.5317
0.2032
0.5916
Cross-section random effects test equation:

Dependent Variable: ROA
Method: Panel Least
Squares
Date: 02/05/15 Time:
16:21
Sample: 1 25
Periods
included: 5
Cross-sections included: 5
Total panel (balanced) observations: 25
Variable
Coefficie
nt
C
ITO
APP
ACP
0.11744
3
-0.01361
-0.00045
-0.00034
Std.
Error
0.05937
0.00633
0.000683
0.001076
Effects Specification
tStatistic
1.978147
-2.149756
-0.653242
-0.314836
Prob.
0.0644
0.0463
0.5223
0.7567
Cross-section fixed (dummy variables)
R-squared
Adjusted RSquared
0.64992
6
0.50577
8
S.E. of
regression
0.06142
3
Akaike info criterion
Sum squared
resid
0.06413
6
Schwarz criterion
Log likelihood
F-statistic
Prob(F-statistic)
39.0967
7
4.50874
1
0.00527
6
0.00159
6
0.08737
1
2.48774
1
2.09770
1
2.37956
1
1.65751
5
Mean dependent var

S.D. dependent var
Hannan-Quinn criter.
Durbin-Watson stat
Ratio Analysis of Each Firm Separately

1.
Gul Ahmed Textile Mills
Return on Assets (ROA):Return on assets (ROA) can be divided in two ways. First, it measures management's ability and
efficiency in using the firm's assets to generate profits. Second, it reports the total return accruing
to all providers of capital (debt and equity) independent of sources of capital. Generally, higher
ROA is better.
Formula:
RETURN ON ASSETS
(ROA)
NET INCOME
=
TOTAL ASSETS
(Amount in Rs. 000s)
NET INCOME
2011
2010
2009
2008
2007
1,196,457
477,533
80,210
102,838
164,400
TOTAL ASSETS
20,404,679
14,599,691
13,583,734
12,397,702
10,084,240
5.86%
3.27%
0.59%
0.83%
1.63%
RETURN ON
ASSETS
(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

Average Collection Period (ACP):The amount of time that it takes for a business to receive payments due, in term of receivables
forms the customers.
Formula:
Average Collection Period
(ACP)
DAYS X AR
=
CREDIT SALES
Days
Total number of days in period
AR
Average amount of accounts receivables
Credit Sales
Total amount of net credit sales during period
DAYS
AR
CREDIT SALES
Average Collection
Period
2011
2010
2009
2008
2007
360
360
360
360
360
2,030,723
2,359,265
25,435,46
19,688,79
29
43
2,532,581
2,490,258
2,164,671
13,906,465
11,650,143
9,798,338
66
77
80

Average Payment Period: (APP)
Average payment period means the average period taken by the company in making payments to
its creditors. It is computed by dividing the number of working days in a year by creditors
turnover ratio.
Formula:
Net Credit Annual

Average Payment Period
(APP)
Purchase
Average Trade Creditors

2011
Net Credit Annual
13,008,14
Purchase
2010
8
1,923,045
Average Payment
53
Period
2009
2008
2007
8,157,184
4,308,746
4,102,422
2,606,339
918,130
1,122,833
787,544
603,888
41
94
69
83

Inventory Turnover:A ratio showing how many times a company's inventory is sold and replaced over a period. The
days in the period can then be divided by the inventory turnover formula to calculate the days it
takes to sell the inventory on hand or "inventory turnover days."
Formula:
Sales
Inventory Turnover
=
Inventory
2011
2010
2009
2008
Sales
25,435,665
19,688,794
13,906,465
11,650,143
9,798,338
Inventory
10,334,360
4,943,904
3,886,171
2,915,550
2,254,144
Inventory Turnover
2.46
3.98
3.58
4.00
2007
4.35

Current Ratio:Formula:
Current Ratio
Current Assets
Current Liabilities
2011
2010
2009
2008
2007
Current Assets
13,616,576 8,350,600
7,359,272
6,464,312
5,277,007
Current Liabilities
13,194,546 8,574,679
7,749,618
7,151,112
5,555,217
0.95
0.90
0.95
Current Ratio
1.03
0.97

Gross Profit Margin:Formula:
Gross Profit
Gross Profit Margin
=
Total Revenue
2011
2010
2009
2008
2007
Gross Profit
4,626,622
3,172,860
2,358,609
1,699,071
1,425,901
Total Revenue
25,435,465 19,688,794
13,906,465
11,650,143
9,798,338
17%
15%
15%
Gross Profit Margin
18%
16%

Net Profit to Sales:Formula:
Net Profit
Net Profit to Sales
=
Total Sales
Net Profit
2011
2010
2009
2008
2007
1,196,457
477,533
80,210
102,838
164,400
Total Sales
Net Profit to Sales
25,435,46
19,688,79
4.70%
2.43%
13,906,465
11,650,143
9,798,338
0.58%
0.88%
1.68%

Return on Equity:Formula:
Net Income
Return on Equity
=
Share Holders Equity
Net Income
Shareholders Equity
Return on Equity
2011
2010
2009
2008
2007
1,196,457
477,533
80,210
102,838
164,400
634,785
634,785
634,785
551,987
551,987
1.88
0.75
0.13
0.19
0.30
2.
Ratio Analysis of Kohat Textile Mills
RETURN ON ASSETS
NET INCOME
TOTAL ASSETS
2011
6,433
1,512,106
2010
16,459
1,535,082
2009
(133,469)
1,245,814
2008
(55,221)
1,201,438
2007
(22,864)
1,204,447
0.43%
1.07%
-10.71%
-4.60%
-1.90%
AVERAGE
COLLECTION
PERIOD
No. of Days
AVERAGE AMOUNT OF
RECEIVEABLES
NET SALES
No. of Days
Average Amount of
Receivables
Net Sales
2011
360
2010
360
2009
360
2008
360
2007
360
216,050
2,133,636
221,283
1,686,696
237,316
1,444,643
167,681
1,438,648
139,426
1,317,002
Average Collection
Period
36
47
59
42
38
Net Credit Annual

Purchase
Average Trade
Creditors
Net Credit Annual Purchase

2011
13,00
8,148
1,92
3,045
2010
8,157
,184
918
,130
2009
4,308
,746
1,122
,833
2008
4,102
,422
787
,544
2007
2,606
,339
603
,888
53
41
94
69
83
Inventory Turn Over
SALES
INVENTORY
SALES
INVENTORY
2011
2,13
3,636
44
2,184
2010
1,68
6,696
42
1,020
2009
1,44
4,643
10
1,094
2008
1,43
8,648
18
8,602
2007
1,31
7,002
33
8,671
4.83
4.01
14.29
7.63
3.89
Current Ratio
Current Assets
Current Liabilities
Current Assets
Current Liabilities
2011
715,731
814,697
0.88
Gross Profit Margin
Gross Profit
Total Revenue
2010
706,212
833,199
0.85
2009
379,812
530,909
0.72
2008
404,132
630,867
0.64
2007
521,994
569,736
0.92
Gross Profit
Total Revenue
2011
134,065
2,133,636
6%
Net Profit to Sales
Net Profit
Total Sales
Times
2010
172,036
1,686,696
10%
2009
426
1,444,643
0%
2008
67,708
1,438,648
5%
2007
101,870
1,317,002
8%
Net Profit
Total Sales
2011
6,433
2,133,636
0.30%
2010
16,459
1,686,696
0.98%
2009
(133,469)
1,444,643
-9.24%
2008
(55,221)
1,438,648
-3.84%
2007
(22,864)
1,317,002
-1.74%
Return on Equity
Net Income
Shareholder's Equity
Net Income
2011
6,433
208,000
0.03
2010
16,459
208,000
0.08
2009
(133,469)
208,000
-0.64
2008
(55,221)
208,000
-0.27
2007
(22,864)
208,000
-0.11
3. Ratio Analysis of Nishat Textile Mills

RETURN ON ASSETS
NET INCOME
TOTAL ASSETS
=
2011
4,843,912
33,281,574
14.55%
NET INCOME
TOTAL ASSETS
2010
2009
2008
2007
2,915,461 1,268,001 6,138,968
1,211,208
35,524,813 31,512,686 37,916,579 39,587,091
8.21%
4.02%
16.19%
3.06%
AVERAGE AMOUNT OF
AVERAGE
COLLECTION
No. of Days
RECEIVEABLES
PERIOD
NET SALES
No. of Days
Average Amount of Receivables
Net Sales
2011
360
2,481,259
2010
360
2,041,256
2009
360
1,300,366
2008
360
1,329,027
2007
360
831,653
48,565,144
31,535,647
23,870,379
19,267,633
17,180,192
18
23
20
25
17
Net Credit Annual

Purchase

2011
2010
13,008,148
1,923,045
53
8,157,184
918,130
41
Inventory Turn Over
SALES
INVENTORY
2009
2008
2007
4,308,746
4,102,422
1,122,833
787,544
94
69
SALES
INVENTORY
2,606,339
603,888
83
2011
2010
31,535,64
2009
23,870,37
2008
19,267,63
2007
17,180,19
48,565,144
9,846,680
7
6,060,441
9
4,092,512
3
4,103,648
2
3,106,436
Time
4.93
5.20
5.83
4.70
5.53
Current Ratio
Current Assets
Current Liabilities
Current Assets
Current Liabilities
2011
16,838,629
15,322,349
1.10
Gross Profit Margin
Gross Profit
Total Revenue
2011
7,846,447
48,565,144
16%
2010
5,980,185
31,535,647
19%
2008
13,929,518
11,721,605
1.19
2007
13,309,087
7,649,373
1.74
2009
4,351,541
23,870,379
18%
2008
2,968,776
19,267,633
15%
2007
2,844,938
17,180,192
17%
2009
2008
1,268,001
6,138,968
23,870,379 19,267,633
5.31%
31.86%
Net Income
2007
1,211,208
17,180,192
7.05%
Net Profit
Total Sales
2011
4,843,912
48,565,144
9.97%
2010
2,915,461
31,535,647
9.24%
2011
4,843,912
3,515,999
1.38
2010
2,915,461
3,515,999
0.83
Return on Equity
Net Income
2009
8,294,838
9,602,265
0.86
Gross Profit
Total Revenue
Net Profit to Sales
Net Profit
Total Sales
2010
11,732,928
10,569,015
1.11
2009
1,268,001
2,424,827
0.52
2008
6,138,968
1,597,857
3.84
2007
1,211,208
1,597,857
0.76
4. Ratio Analysis Saif Textile Mills
RETURN ON ASSETS
NET INCOME
TOTAL ASSETS
AVERAGE
COLLECTIO
N PERIOD
No. of Days
Average Amount of
Receivables
Net Sales
Average Collection
Period
NET INCOME
TOTAL ASSETS
2011
607,730
5,041,553
12.05%
No. of Days
2010
77,489
4,722,148
1.64%
2009
(560,226)
4,000,300
-14.00%
2008
(39,724)
4,293,409
-0.93%
2007
12,188
4,182,192
0.29%
AVERAGE AMOUNT OF
RECEIVEABLES
NET SALES
2011
360
2010
360
2009
360
2008
360
2007
360
1,042,820
7,361,391
775,350
4,642,452
740,173
3,727,820
892,083
4,489,205
732,669
3,813,037
51
60
71
72
69

2011
2010
2009
2008
2007
13,008,148
1,923,045
53
8,157,184
918,130
41
4,308,746
1,122,833
94
4,102,422
787,544
69
2,606,339
603,888
83
Net Credit Annual

Purchase
Inventory Turn Over
SALES
INVENTORY
SALES
INVENTORY
2011
7,361,391
1,400,986
5.25
Current Ratio
Current Assets
Current Liabilities
2009
3,727,820
685,765
5.44
2011
2,654,487
2,801,268
0.95
2010
2,378,726
2,867,459
0.83
2007
3,813,037
933,599
4.08
Times
2009
1,571,354
1,889,080
0.83
2008
1,988,376
1,991,026
1.00
2007
1,828,120
2,069,343
0.88
2009
2008
111,282
440,437
3,727,820
4,489,205
3%
10%
Net Profit
Total Sales
2007
389,441
3,813,037
10%
Gross Profit
Total Revenue
2011
1,339,648
7,361,391
18%
2010
710,696
4,642,452
15%
Net Profit to Sales
Net Profit
Total Sales
2008
4,489,205
911,516
4.92
Current Assets
Current Liabilities
Gross Profit Margin
Gross Profit
Total Revenue
2010
4,642,452
1,368,010
3.39
2011
607,730
7,361,391
8.26%
2010
77,489
4,642,452
1.67%
2009
(560,226)
3,727,820
-15.03%
2008
(39,724)
4,489,205
-0.88%
2007
12,188
3,813,037
0.32%
Return on Equity
Net Income
Net Income
2011
607,730
264,129
2.30
2010
77,489
264,129
0.29
2009
(560,226)
264,129
-2.12
2008
(39,724)
264,129
-0.15
2007
12,188
264,129
0.05
5. Ratio Analysis Kohinoor Textile Mills
RETURN ON ASSETS
NET INCOME
TOTAL ASSETS
NET INCOME
TOTAL ASSETS
2011
(1,258,880,8
2010
(1,136,512,4
2009
(722,551,5
2008
(314,802,2
2007
114,441,
82)
5,787,152,5
41)
8,691,983,5
63)
8,418,337,
03)
9,082,467,
119
8,540,250,
12
56
734
-21.75%
-13.08%
-8.58%
446
-3.47%
1.34%
AVERAGE AMOUNT OF
AVERAGE
COLLECTION
061
No. of Days
RECEIVEABLES
PERIOD
NET SALES
2011
360
2010
360
2009
360
2008
360
2007
360
Receivables
498,802,691
5,210,209,42
774,726,517
6,211,709,47
239,474,981
7,578,457,17
775,013,196
6,071,270,85
988,152,762
7,611,236,70
Net Sales
Average Collection
Period
34
45
11
46
47
No. of Days
Average Amount of

2011
2010
2009
2008
2007
Purchase
Average Trade
13,008,148
8,157,184
4,308,746
4,102,422
2,606,339
Creditors
1,923,045
53
918,130
41
1,122,833
94
787,544
69
603,888
83
Net Credit Annual
Inventory Turn Over
SALES
INVENTORY
2011
5,210,209,42
2010
6,211,709,47
2009
7,578,457,17
2008
6,071,270,85
2007
7,611,236,70
SALES
INVENTOR
7
1,119,779,66
8
1,195,946,68
4
1,598,730,68
5
1,175,108,84
499,369,266
7
Time
10.43
5.55
Current Ratio
6.34
3.80
6.48
Current Assets
Current Liabilities
2011
2,040,769,51
2010
3,208,773,00
2009
2,746,006,52
2008
4,771,034,94
2007
4,447,640,63
Current Assets
4
6,345,402,11
2
7,317,407,73
4
6,109,690,78
4
5,689,702,49
2
4,868,224,02
Current Liabilities
2
0.32
3
0.44
8
0.45
5
0.84
2
0.91
2008
793,520,549
2007
1,124,499,87
Gross Profit Margin
Gross Profit
Gross Profit
Total Revenue
2011
(94,543,570)
2010
324,598,369
2009
659,137,986
Total Revenue
5,210,209,42
6,211,709,47
7,578,457,17
6,071,270,85
9
7,611,236,70
9
-2%
7
5%
8
9%
4
13%
5
15%
Net Profit to Sales
Net Profit
Total Sales
2011
(1,258,880,88
2010
(1,136,512,44
2009
(722,551,56
2008
(314,802,20
2007
Net Profit
2)
1)
3)
7,578,457,1
3)
6,071,270,8
114,441,119
7,611,236,70
Total Sales
5,210,209,429
-24.16%
6,211,709,477
-18.30%
78
-9.53%
54
-5.19%
5
1.50%
Return on Equity
Net Income
2011
(1,258,880,88
2010
(1,136,512,44
2009
2008
(722,551,563 (314,802,203
2007
114,441,11
Net Income
Shareholder's
2)
1)
9
363,650,08
Equity
509,110,110
-2.47
509,110,110
-2.23
509,110,110
-1.42
509,110,110
-0.62
0
0.31
Chapter # 04
Hypotheses Testing
Since the objective of this study is to examine the relationship between profitability and working
capital management. The study makes a set of testable hypothesis.
Hypothesis Statements
H01:
Average collection period have the negative effect between profitability and WCM.
H02:
Average payment period positively related with the Gross Profit
H03:
Inventory Turnover has the negative relationship between profitability and WCM.
Model Specification
Our study uses regression analysis of given data. Our model is given below.
ROA =
0 + 1 (ACP) + 2 (APP) + 3(ITO)
ROA :
Return on Assets
ACP
APP
ITO
Inventory Turnover
Hypothesis Analysis Gul Ahmed Textile Mills
H01:
Current
Current
Working
Assets
Liabilities
Capital
5,277,007
6,464,312
7,359,272
8,350,600
13,616,576
5,555,217
7,151,112
7,749,618
8,574,679
13,194,546
(278,210)
(686,800)
(390,346)
(224,079)
422,030
Years
2007
2008
2009
2010
2011
Profitability
Average
(Rs. 000
Collection
Millions)
164,400
102,838
80,210
477,533
1,196,457
Period
80
77
66
43
29
Interpretation:
The data given in above table shows the relationship between WCM, Profitability and Average
Collection Period. Results show that as in year 2007 Average Collection Period is 80 days and
WCM is Rs. (278,210) and Profitability is Rs. 164,400 million and in year 2011 WCM is Rs.
422,030/- and Profitability is Rs. 1,196,457/- in Average Collection Period is 29 days. It shows
that as Average Collection Period decreases Working Capital of the firm and Profitability
increases.
So our hypothesis proved this statement, Average collection period have the negative effect
between profitability and WCM.
H02:

Years
Gross Profit
2007
2008
2009
2010
2011
(Rs. 000 Millions)

1,425,901
1,699,071
2,358,609
3,172,860
4,626,622
(APP)
83
69
94
41
53
Interpretation:
As according to hypothesis average payment period positively related with the GP. It is true
hypothesis but due to other factors like average collection period fluctuates during the period of
2007 to 2011. So that data shows that the negative impact of APP and GP.
If other factors remain suitable for the firms business so this hypothesis will be true in this
connection.
H03:
Inventory Turnover have the negative relationship between profitability and WCM.
Years
2007
2008
2009
2010
2011
Working Capital
(278,210)
(686,800)
(390,346)
(224,079)
422,030
Inventory Turn Over

4.35 Times
4.00 Times
3.58 Times
3.98 Times
2.46 Times
Interpretation:
As inventory turnover time increases then the working capital decreases and shows the negative
figure and when inventory turnover decreased then working capital increase and converted into
positive.
During the period from 2007 to 2011 inventory turnover is 4.35 time and 2.46 times the working
capital is Rs. (278,210) and Rs. 422,030.
Hypothesis Analysis Kohat Textile Mills

H01:
Years
Current
Current
Working
Assets
Liabilities
Capital
521,994
404,132
379,812
706,212
715,731
569,736
630,867
530,909
833,199
814,697
521,993
404,131
379,811
706,211
715,730
2007
2008
2009
2010
2011
Interpretation:
Profitability
Average
(Rs. 000
Collection
Millions)
(22,864)
(55,221)
(133,469)
16,459
6,433
Period
38
42
59
47
36
The data given in above table shows the relationship between WCM, Profitability and Average
WCM is Rs. 521,993 and Profitability is Rs. (22,864) millions and in year 2011 WCM is Rs.
715,730/- and Profitability is Rs. 6,433/- in Average Collection Period is 36 days. It shows that as
Average Collection Period decreases Working Capital of the firm and Profitability increases.
H02:

Years
Gross Profit
2007
2008
2009
2010
2011
(Rs. 000 Millions)

101,870
67,708
426
172,036
134,064
(APP)
83
69
94
41
53
Interpretation:
connection.
H03:
Years
2007
2008
2009
2010
2011
Working Capital
521,993
404,131
379,811
706,211
715,730
Inventory Turn Over

03.89 Times
07.63 Times
14.29 Times
04.01 Times
04.83 Times
Interpretation:
positive.
Hypothesis Analysis Nishat Textile Mills
H01:
Years
Current
Current
Working
Assets
Liabilities
Capital
7,649,373
11,721,605
9,602,265
10,569,015
15,322,349
5,659,714
2,207,913
(1,307,427)
1,163,913
1,516,280
2007
13,309,087
2008
13,929,518
2009
8,294,838
2010
11,732,928
2011
16,838,629
Interpretation:
Profitability
Average
(Rs. 000
Collection
Millions)
1,211,208
6,138,968
1,268,001
2,915,461
4,843,912
Period
17
25
20
23
18
The data given in above table shows the relationship between WC, Profitability and Average
WC is Rs. 5,659,714 Million and Profitability is Rs. 1,211,208 Millions and in year 2011 WC is
Rs. 1,516,280/- and Profitability is Rs. 4,843,912/- in Average Collection Period is 18 days. It
shows that as Average Collection Period decreases Working Capital of the firm and Profitability
increases.
H02:

Years
Gross Profit
2007
2008
2009
2010
2011
(Rs. 000 Millions)

2,844,938
2,968,776
4,351,541
5,980,185
7,846,447
(APP)
83
69
94
41
53
Interpretation:
According to hypothesis average payment period positively related with the GP. It is true
2007 to 2011. So that the data shows that the negative impact of APP and GP.
connection.
H03:
Years
2007
2008
2009
2010
2011
Working Capital
1,516,280
1,163,913
(1,307,427)
2,207,913
5,659,714
Inventory Turn Over

05.53 Times
04.70 Times
05.83 Times
05.20 Times
04.93 Times
Interpretation:
As inventory turnover time increases then the working capital decreases and shows the
negative figure and when inventory turnover decreased then working capital increase and
converted into positive.
Hypothesis Analysis Saif Textile Mills

H01:
Current
Current
Working
Assets
Liabilities
Capital
1,828,120
1,988,376
1,571,354
2,378,726
2,654,487
2,069,343
1,991,026
1,889,080
2,867,459
2,801,268
(241,223)
(2,650)
(317,726)
(488,733)
(146,781)
Years
2007
2008
2009
2010
2011
Profitability
Average
(Rs. 000
Collection
Millions)
12,188
(39,724)
(560,226)
77,489
607,730
Period
69
72
71
60
51
Interpretation:
The data given in above table shows the relationship between WCM, Profitability and
Average Collection Period. Results show that as in year 2007 Average Collection Period is 69
days and WC is Rs. (241,223) and Profitability is Rs. 12,188 millions and in year 2011 WC is
Rs. (146,781) and Profitability is Rs. 607,730/- in Average Collection Period is 51 days. It shows
that as Average Collection Period decreases Working Capital of the firm and Profitability
increases.
H02:

Years
Gross Profit
2007
2008
2009
2010
2011
(Rs. 000 Millions)

389,441
440,437
111,282
710,696
1,339,648
(APP)
83
69
94
41
53
Interpretation:
According to hypothesis average payment period positively related with the GP. It is true
connection.
H03:
Years
2007
2008
2009
2010
2011
Working Capital
241223
2650
317726
488733
146781
Inventory Turn Over

4.08 Times
4.92 Times
5.44 Times
3.39 Times
5.25 Times
Interpretation:
As inventory turnover time increases then the working capital decreases and shows the
negative figure and when inventory turnover decreased then working capital increase and
converted into positive.
Hypothesis Analysis Koh-i-Noor Textile Mills

H03:
Years
Profitability
Average
(Rs. 000
Collection
(420,583,390)
(918,667,551)
(3,363,684,264
Millions)
114,441,119
(314,802,203)
(722,551,563)
Period
47
46
)
(4,108,634,731
(1,136,512,441
)
(4,304,632,598
)
(1,258,880,882
Current
Current
Working
Assets
Liabilities
Capital
2007
2008
4,447,640,632 4,868,224,022
4,771,034,944 5,689,702,495
2009
2,746,006,524 6,109,690,788
2010
3,208,773,002 7,317,407,733
2011
2,040,769,514 6,345,402,112
11
45
34
Interpretation:
The data given in above table shows the relationship between WC, Profitability and
Average Collection Period. Results show that as in year 2007 Average Collection Period is 47
days and WC is Rs. (420,583,390) and Profitability is Rs. 114,441,119 and in year 2011 WC is
Rs. (4,304,632,598) and Profitability is Rs. (1,258,880,882) in Average Collection Period is 34
days. It shows that as Average Collection Period decreases Working Capital of the firm and
Profitability increases.
between profitability and WC.
H02:

Years
Gross Profit
2007
2008
2009
2010
2011
(Rs. 000 Millions)

1,124,499,879
793,520,549
659,137,986
324,598,369
(94,543,570)
(APP)
83
69
94
41
53
Interpretation:
connection.
H03:
Years
2007
2008
2009
2010
2011
Working Capital
420,583,390
918,667,551
3,363,684,264
4,108,634,731
4,304,632,598
Inventory Turn Over

6.48 Times
3.80 Times
6.34 Times
5.55 Times
10.43 Times
Interpretation:
positive.
Regression Analysis of Each Firm

Gul Ahmed Textile Mills
2011
422,030
1,196,457
Working Capital
Profit
2010
(224,079)
477,533
2009
(390,346)
80,210
2008
(686,800)
102,838
2007
(278,210)
164,400
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.622151596
R Square
0.387072609
Adjusted R Square
-2
Standard Error
176738.8533
Observations
1
Koh-i-Noor Textile Mills
Working Capital
2011
(4,304,632,5
2010
(4,108,634,7
2009
(3,363,684,2
2008
(918,667,55
2007
(420,583,39
98)
(1,258,880,8
31)
(1,136,512,4
64)
(722,551,56
1)
(314,802,20
0)
82)
41)
3)
3)
114,441,119
2009
(151,097)
(133,469)
2008
(226,735)
(55,221)
2007
(47,742)
(22,864)
Profit
SUMMARY OUTPUT
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
Kohat Textile Mills
Working Capital
Profit
SUMMARY OUTPUT
0.96
0.93
-2.00
178296314.47
1.00
2011
(98,966)
6,433
2010
(126,987)
16,459
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.336681934
0.113354724
-2
73366.15429
1

Working Capital
Profit
2011
1,516,280
4,843,912
2010
1,163,913
2,915,461
SUMMARY OUTPUT
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.006334767
0.00
004012926754
-2
2828855.655
1
2009
(1,307,427)
1,268,001
2008
2,207,913
6,138,968
2007
5,659,714
1,211,208
Saif Textile Mills

Working Capital
Profit
2011
(146,781)
607,730
2010
(488,733)
77,489
SUMMARY OUTPUT
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.018657298
0.000348095
-2
358050.5156
1
2009
(317,726)
(560,226)
2008
(2,650)
(39,724)
2007
(241,223)
12,188
Chapter No. 5
5.1
Conclusions:
The vast majority of the Pakistani firms have a lot of trade resources into for cold hard
currency working capital. It can along these lines be normal that the route in which working
capital is overseen will have a critical effect on gainfulness of those organizations. We have
discovered a noteworthy negative relationship between net working benefit and the normal
gathering period, stock turnover in days and normal installment period. These results propose
that supervisors can make esteem for their shareholders by decreasing the quantity of days
records receivable and inventories to a sensible least. The negative relationship between records
payable and benefit is reliable with the view that less gainful firms hold up more to pay their
bills.
The conclusions are in affirmation with who discovered a solid negative relationship
between the measures of working capital administration including the normal accumulation
period, stock turnover in days and normal installment period with corporate benefit. On premise
of the above investigation we may further reason that these results can be further fortified if the
organizations deal with their working capital in more proficient ways. Administration of working
capital signifies "administration of current resources and current liabilities, and financing these
current resources". On the off chance that these organizations legitimately deal with their money,
accounts receivables and inventories in a legitimate manner, this will eventually expand benefit
of these organizations (Deloof 2003; Eljelly 2004; Shin and Soenan 1998).
Recommendations:
On the basis of this study, there are few recommendations which can be opted.
Public Policies Inputs
There are non-favorable government strategies in term of bank credits and premium rates. It is
the need of great importance to create a rational by the administration that permits an
exception/admission to the material segment. For example, the Export-Import Bank was situated
up with the end goal of financing and encouraging the businesses in India, particularly material.
The administration may offer sponsorships to impart the trouble of the business.
Input Cost Reduction
In Pakistan, now a day, working together is higher when contrasted with the territorial nations,
which has brought about astringent intensity to Pakistani Products in Foreign Markets. China and
India are the greater contenders of Pakistan. We fear if expense of working together in Pakistan
is not brought at standard with other Asian nations, our items would discover no spot in Market
both regarding quality and cost. In the setting of future exchange, there is a pressing need to
bring all the utility charges and duty of assessments down to the base level.
Up-gradation of Technology
Refined engineering ought to be acquainted with rival alternate nations (China, Bangladesh and
India) in the worldwide market in term of expense and quality. Human Resources Development,
the Textile Board ought to make a different preparing wing as a Center of Human Resource
Development where instructional classes ought to be led for the limit building of work. There is
additionally critical need to expand the quantity of such Vocational Institutions where advanced
specialized instruction is given.
Management of Input Resources (Energy)
As per estimation, it is assessed that in later past around 800 units have shut in Punjab amid
power and gas burden shedding while approx. 500,000 laborers lost their employments. With a
specific end goal to spare the business there must be a special treatment with the business in
continuous Importantity supply.
Encouragement of Investment
The investment volume is not satisfactory in the textile sector as compared to the
potential available. Government should take serious step to survive the textile industry. In order
to decrease the price raw material for textile we need to increase our production capability.
References:
1.
Almeida, H., Campello, M. and Weisbach, S. M., (2004), The cash flow sensitivity of cash,
The Journal Of Finance, Vol. 6, No. 4, pp. 1777- 1804.
2.
Bonney, M.C., (1994), Trends in inventory management, Journal of Production Economics,

Vol. 35, pp. 107-114.
3.
Michael, G., (1994), Managing working capital in an improving economy, CPA Journal, Vol.
64, Issue 7.
4.
Peel, M.J and Wilson, N., (1996), Working Capital and financial management practices in small
firm sector, International small business journal, Vol. 14, No.2, pp. 52-68.
5.
Dr. Shubita, M. Fawzi & Dr. Alsawalhah, J. Maroof, (2012), "The relationship between
capital structure and profitability", International Journal of Business and Social Science,
Vol. 3, No.16.
6.
Niresh, J. Aloy, (2012), "Capital Structure and Profitability in Srilankan Bank", Global
7.
Journal of Management and Business Research, Vol. 12, Issue. 13.

Uremadu, S.O, (2012), "Bank Capital Structure. Liquidity and Profitability; Evidence
from the Nigerian Banking System", International Journal of Academic Research in
Accounting, Finance and Management Sciences, Vol. 2, Issue. 1.
8.
Shaheen, Sadia & Malik, A. Q.(2012) "The impact of capital intensity, size of firm and
profitability on debt financing", Interdisciplinary journal of contemporary research in
business, Vol No. 3 (10).
9.
Cecchetti, S.G & Mohanty M. S, (2011), "The real effects of debt", Bank of International
Sttlements.
10.
Akhtar, Pervaiz & Hussain, Muhammad & Mukhtar, M. Ahsan, (2010), "The
determinants of Capital Structure; A case from Pakistan Textile sector", International
conference on business management.
11.
Dreyer, Jacque (2010), "Capital Structure; Profitability, earnings volatility and the
probability of financial distress", University of Pretoria.
12.
Roshan, B. (2009), "Capital Structure and owner ship structure", The journal of online
education, New York.
13.
Elmar Puntaier (2009), "Capital structure and profitability: S&P 500 Enterprises in the
light of the 2008 Financial Crises", University of Leicester, Great Britain.
14.
Altumbas, Yener & Marques, David, (2009), "Large debt financing; Syndicated loans
versus corporate bonds, European Central Bank, http://www.ecb.europa.
15.
Hijazi, S. T. & Tariq, Y. B. (2006), "Determinants of Capital Structure: A case for the
Pakistani Cement Industry. The Lahore Journal of Economics.
16.
Feruti, Rametulla & Ejupi, Elsana, (2006), "Capital Structure and Profitability; The
Macedonian Case", European scientific Journal, Vol. 8, No. 7.
17.
18.
Berger, A. N. & Patti, E.B. di (2002), "Capital structure and firm performance"
Nikolaos P. Eriotis & Zoe Frongouli, (1997)"Profit Margin and Capital Structure; An
empirical relationship", The journal of Applied Business research, Volume 18, No. 2, PP
85-88.
19.
Abor, Joshua (2008), "Determinants of the capital structure of Ghanian Firms", African
economic research consortium.
Appendix
COMPARATIVE BALANCE SHEET
Gul Ahmed Textile Mills Limited
2011
2010
2009
2008
2007
6,653,725
6,140,114
6,105,833
5,827,621
4,702,826
Intangible assets
38,630
16,349
28,883
28,215
30,435
Long term investment
58,450
58,450
58,450
58,450
58,450
4,241
1,846
2,262
3,505
4,943
33,057
32,332
29,034
15,599
10,579
6,788,103
6,249,091
6,224,462
5,933,390
4,807,233
706,350
10,334,36
475,422
447,063
485,957
387,278
4,943,904
3,886,171
2,915,550
2,254,144
2,030,723
2,359,265
2,532,581
2,490,258
2,164,671
159,830
137,263
145,431
217,115
171,747
40,486
47,939
33,931
40,633
19,050
212,546
237,936
160,749
69,269
63,999
48,926
63,905
53,679
176,496
188,273
83,355
13,616,57
84,966
99,667
69,034
27,845
8,350,600
7,359,272
6,464,312
5,277,007
20,404,67
14,599,69
13,583,73
12,397,70
10,084,24
ASSETS
NON - CURRENT ASSETS
Property, plant and equipment
Long term loans and advances

Long term deposits
CURRENT ASSETS
Stores, spare parts and loose tools
Stock-in-trade
Trade debts
Loans and advances
Prepayments
Other receivables
Tax refunds due from government
Cash and bank balances
EQUITY AND LIABILITIES

Share Capital and Reserves
Share Capital
634,785
634,785
634,785
551,987
551,987
Reserves
2,880,446
2,480,446
2,400,446
2,102,052
1,942,052
(Accumulated loss)/un-appropriated profit
1,197,642
480,534
83,001
107,990
165,152
4,712,873
3,595,765
3,118,232
2,762,029
2,659,191
2,198,591
2,222,650
2,566,604
2,354,317
1,772,007
284,563
194,314
139,273
124,773
91,773
14,106
12,283
10,007
5,471
6,052
298,669
206,597
149,280
130,244
97,825
2,586,514
1,964,969
1,735,918
5,214,385
4,010,209
216,798
156,589
178,405
593,671
495,900
9,759,190
5,744,727
5,332,208
1,132,738
879,529
632,044
676,863
503,087
144,318
95,288
66,000
74,291
7,151,112
5,555,217
NON CURRENT LIABILITIES

Long term financing
Deferred Liabilities
Deferred Taxation Net
Staff Retirement Benefits
CURRENT LIABILITIES
Trade and Other Payables
Accrued Mark Up
Short Term Borrowing
Current maturity of long term financing
Provision for taxation - net of payment
13,194,546
31,531
8,574,679
7,749,618
CONTINGENCIES AND
COMMITMENTS
13,583,73
20,404,679 14,599,691
4 12,397,702 10,084,240
(Source: Balance sheet available at www.gulahmed.com)
Comparative Profit and Loss Statement

Gul Ahmed Textile Mills Limited
2011
25,435,46
2010
19,688,79
2009
13,906,46
2008
11,650,14
2007
9,798,33
Sales
5
20,808,84
4
16,515,93
5
11,547,85
8
8,372,43
Cost of sales
9,951,072
7
1,425,90
Gross Profit
4,626,622
3,172,860
2,358,609
1,699,071
Distribution cost
Administrative expenses
Other operating expenses
1,090,588
808,926
116,918
2,016,432
2,610,190
776,234
715,293
53,619
1,545,146
1,627,714
585,657
572,983
13,712
1,172,352
1,186,257
563,336
473,867
203,258
200,443
14,959
19,432
781,553
693,742
917,518
732,159
Other operating income

Operating profit
Finance cost
(Loss)/profit before taxation
Provision for taxation
(Loss)/profit after taxation
(Loss)/earnings per share -
25,245
2,635,435
1,097,981
1,537,454
340,997
1,196,457
25,116
1,652,830
944,603
708,227
230,694
477,533
22,594
1,208,851
1,038,990
169,861
89,651
80,210
16,797
934,315
732,477
201,838
99,000
102,838
6,277
738,436
476,245
262,191
97,791
164,400
basic and diluted (Rs.)
9.42
7.52
1.45
1.86
3.11
(Source: Balance sheet available at www.gulahmed.com)
COMPARATIVE BALANCE SHEET

Kohat Textile Mills
ASSETS
Property, plant and equipment
Intangible assets
Long term loans and
advances
Long term deposits
2011
2010
2009
2008
2007
727,438
759,674
800,154
752,160
1,016
1,275
63,526
41,588
644,961
449
34,000
1,137
66,784
796,375
1,137
66,784
828,870
1,185
1,137
866,002
2,421
1,137
797,306
1,906
1,137
682,453
20,555
20,934
23,009
10
25,356
24,302
442,184
21
421,020
22
1,094
23
188,602
338,671
6,050
5,367
1,672
18,779
1,283
2,552
998
25,259
7,316
3,667
558
192
167,681
2900
844
1,448
139,426
681
1,972
316
10,647
477
715,731
13,591
575
706,212
13,165
811
379,812
17,244
57
404,132
16,511
115
521,994
1,512,106
1,535,082
1,245,814 1,201,438
1,204,447
CURRENT ASSETS
Stores, spare parts and loose
tools
Stock-in-trade
Trade debts
Loans and advances
Prepayments
Other receivables
Tax refunds due from
government
EQUITYANDLIABILITIES
Share Capital
208,000
208,000 208,000
208,000
208,000
Reserves
293,604
301,470 315,849
264,599
153,383
(Accumulated
loss)/unappropriated profit
180,957
682,561
195,256 (226,094)
704,726
297,755
-106,553
366,046
-54,554
306,829
NON CURRENT
LIABILITIES
Long term financing
348,452
363,763 396,491
284,186
313,223
28,310
23,906 20,659
20,339
14,659
Defferred Liabilities
Defferred Taxation Net
28,310
23,906
20,659
20,339
14,659
CURRENT LIABILITIES
165,257
Accrued Mark Up
57,121

Current maturity of long
term financing
Provision for taxation - net
of payment
143,645 126,602
46,534
24,024
71,489
89,903
26,241
17,529
517,319
553,799 293,026
501,734
426,308
75,000
89,221 87,257
31,403
29,421
6,575
814,697
833,199
530,909
630,867
569,736
CONTINGENCIES AND
COMMITMENTS
1,874,02 1,925,59 1,245,81 1,301,43
0
4
4
8
1,204,447
(Source: Balance sheet available at www.kohattextile.com)
KOHAT TEXTILE MILL
Comparative Profit and Loss Statements
2011
2010
2009
Sales
Cost of sales
2,133,636
1,999,571
2008
2007
1,686,696
1,444,643
1,438,648
1,317,002
1,514,660
1,444,217
1,370,940
1,215,132
Gross Profit
172,036
426
6,250
6,752
10,365
7,732
8,724
37,983
39,051
39,890
34,356
32,466
2,608
11,097
1,508
46,841
56,900
50,255
42,088
42,698
87,224
115,136
(49,829)
25,620
59,172
19,309
857
685
Operating profit
106,533
115,993
(49,144)
Finance cost
(Loss)/profit before
taxation
78,762
27,771
94,341
140,849
21,
(189,9
652
93)
112,392
(86,
099)
94,791
(34,
572)
21,338
5,193
-30,878
(55,
221)
-11,708
(22,
864)
2.65
1.10
Distribution cost

(Loss)/earnings per share basic and diluted (Rs.)
134,065
6,433
0.31
(56,524)
16,
(133,4
459
69)
6
0.79
.42
67,708
101,870
673
26,293
1,047
60,219
(Source: Balance sheet available at www.kohattextile.com)
NISHAT MILLS LIMITED

Comparative Balance Sheet
ASSETS
Property, plant and
equipment
Intangible assets
Long term loans and
advances
Long term deposits
CURRENT ASSETS
Stores, spare parts and
loose tools
Stock-in-trade
Trade debts
Loans and advances
Prepayments
Other receivables
government
Cash and bank
balances
2011
2010
2009
2008
13,30
3,514
12
6,834
2,13
3,889
84
9,206
2
9,502
16,44
2,945
1,184
,166
11,199
,635
4
1,049
11,952
,949
1
2,367
11
,848
23,21
7,848
10,64
7,310
95
5,136
9,84
6,680
2,48
1,259
75
6,351
4
7,211
1,61
9,291
1,13
2,701
132,550
21,959,543
498,803
16,823
23,791,885
688,832
6,060,441
2,041,256
504,046
31,912
2,295,856
56
1,251
4,09
2,512
1,30
0,366
46
2,025
2
9,880
1,73
7,310
2007
10,586,159
13,321,08
8 15,672,980
8,122
9,523
10,541
23,98
7,061
9,342
26,278
,004
490,229
422,428
4,103,648
3,106,436
1,329,027
831,653
403295
411270
30,400
26,395
7,499,167
8,441,298
73,752
69,607
111
110,585
,494
16,838,62
9
11,732,928
8,29
4,838
13,92
9,518
13,309
,087
33,28
1,574
35,524
,813
31,51
2,686
37,91
6,579
39,587
,091
Share Capital
3,515,999
3,515,999 2,424,827
1,597,857
1,597,857
27,034,04
8
24,944,85 15,637,93
3 9
17,410,35
5
27,354,83
3
4,843,912
2,915,461 1,268,001
6,138,968
1,211,208
35,393,95
9
31,376,31
3
19,330,76
7
25,147,18
0
30,163,89
8
2,861,956
2,980,694 2,334,411
1,047,794
1,773,820
510,640
1,256,892 245,243
510,640
1,256,892
2,577,020
1,141,227
926,593
Accrued Mark Up
358,454
2,139,921 1,309,658
20
232,247
2,777
201,847
131,744
10,471,68
5
6,649,447 7,342,600
9,175,518
5,018,664
1,283,865
1,128,632 433,313
926,025
1,341,565
418,768 313,917
276,988
230,807
11,721,60
5
7,649,373
Reserves
(Accumulated
NON CURRENT
LIABILITIES
Long term financing

245,243
CURRENT LIABILITIES

term financing
of payment
631,325
15,322,34
9
CONTINGENCIES AND
COMMITMENTS
10,569,01
5
9,602,265
54,088,90 46,182,91
4
4
(Source: Balance sheet available at www.nishatpak.com)
31,512,68
6
37,916,57
9
39,587,09
1
NISHAT MILLS LIMITED

2011
2010
2009
Sales
Cost of sales
Gross Profit
Distribution cost

Operating profit
Finance cost
taxation
(Loss)/profit after
taxation
(Loss)/earnings per share
- basic and diluted (Rs.)
2008
2007
48,565,1
44
40,718,69
7
31,535,64
7
25,555,46
2
23,870,37
9
19,518,83
8
19,267,63
3
16,298,85
7
17,180,19
2
14,335,25
4
7,846,4
47
5,980,1
85
4,351,5
41
2,968,7
76
2,844,9
38
2,190,4
96
656,7
56
431,2
20
3,278,4
72
4,567,9
75
1,714,5
98
545,1
66
289,0
80
2,548,8
44
3,431,3
41
1,315,6
30
435,0
12
191,6
08
1,942,2
50
2,409,2
91
961,711
928,778
398,757
320,202
110,781
1,471,2
49
1,497,5
27
91,758
1,340,7
38
1,504,2
00
2,444,9
981,6
599,0
85
50
06 5,806,873
671,275
7,012,9
4,412,9
3,008,2
7,304,4
2,175,4
60
91
97
00
75
1,601,0
1,126,9
1,446,7
48
22
96
907,432
819,267
5,411,
3,286,0
1,561,5
6,396,9
1,356,2
912
69
01
68
08
568,0
370,6
293,5
00
08
00
258,000
145,000
4,843,9
2,915,4
1,268,0
6,138,9
1,211,2
12
61
01
68
08
13.
10.
6.
38.
7.
78
50
20
42
58
(Source: Balance sheet available at www.nishatpak.com)
SAIF TEXTILE MILLS

2011
ASSETS
Property, plant and
equipment
Intangible assets
Long term loans and
advances
Long term deposits
CURRENT ASSETS
loose tools
Stock-in-trade
Trade debts
Loans and advances
Prepayments
Other receivables
government
Cash and bank
balances
2010
2009
2008
2007
2,18
5,991
2,14
5,989
2,22
5,806
2,19
4,375
2,304,294
167
258
535
910
713
5,800
2,291
2,483
2,401
3,066
7,095
18
8,013
2,38
7,066
6,871
18
8,013
2,34
3,422
7,128
19
2,994
2,42
8,946
7,476
7,163
99,871
2,30
5,033
38,836
2,35
4,072
6
1,712
1,40
0,986
1,04
2,820
2
4,583
5
6,647
1,36
8,010
77
5,350
1
9,282
5
1,005
68
5,765
74
0,173
3
6,831
51,263
52,877
911,516
933,599
892,083
732,669
26252
19746
4,649
8
9,122
2
6,808
5,264
10
2,555
4
4,514
5,557
1
0,793
3
8,024
3,984
3,416
58,077
23,330
40,309
59,329
3,807
2,65
4,487
7,104
2,37
8,726
3,206
1,57
1,354
4,892
1,98
8,376
3,154
1,82
8,120
5,04
1,553
4,72
2,148
4,00
0,300
4,29
3,409
4,18
2,192

Share Capital
Reserves
(Accumulated
26
4,129
26
5,981
49
5,443
1,02
5,553
-124,082
4
06,028
26
4,129
26
5,981
(21
2,897)
3
17,213
1,15
3,340
1,403,88
1
1,75
9,180
264,129
265,981
264,129
264,129
265,981
265,981
340,518
8
70,628
372,933
90
3,043

Long term financing
1,399,80
8 1,183,035
6
1,392
6
1,392
44,780
44,780
3
4,827
3
4,827
31,947
31,947
26,761
2
6,761
CURRENT LIABILITIES
57
25
9,733
220,095
7,802
238,170
249,112
11
11
Accrued Mark Up
6,381
166,370
5,064
34,274
59,527
1,73 1,978,06
1,34 1,478,61
1,229
4
8,778
2 1,496,385
35
16
term financing
0,375
502,930
7,436
239,970
245,358
2
of payment
3,550
0
0
18,961
2,80
2,8
1,88
1,9
2,06
1,268
67,459
9,080
91,026
9,343
CONTINGENCIES AND COMMITMENTS
5,04
4,7
4,00
4,2
4,1
1,553
22,148
0,300
93,409
82,182
(Source: Balance sheet available at www. saiftextile.com)
Sales
Cost of sales
Gross Profit
SAIF TEXTILE MILLS

2011
2010
2009
7,361,
4,642,4
3,727,8
391
52
20
6,021,7
3,931,7
3,616,5
43
56
38
1,339,
710,6
111,
648
96
282
Distribution cost

Operating profit
Finance cost
(Loss)/profit before taxation
(Loss)/earnings per share basic and diluted (Rs.)
206,7
62
125,6
00
61,5
39
393,
901
945,7
47
117,7
90
102,6
79
8,0
67
228,5
36
482,1
60
124,1
78
97,8
12
7,2
19
229,2
09
(117,9
27)
2008
4,489,2
05
4,048,7
68
440,4
37
2007
3,813,0
37
3,423,5
96
389,4
41
123,126
80,030
80,745
73,849
6,692
210,5
63
229,8
74
2,809
156,6
88
232,7
53
3,1
4,2
1,6
37
32
04
5,715
6,387
948,8
486,3
(116,3
235,5
239,1
84
92
23)
89
40
261,6
383,2
575,2
77
91
06
314,998
260,902
687,2
103,
(691,5
(79,4
(21,7
07
101
29)
09)
62)
79,4
25,6
(131,3
77
12
03)
-39,685
-33,950
607,7
77,4
(560,2
(39,7
12,
30
89
26)
24)
188
23
2.
(21.
1.
7.
.01
93
21)
50
58
(Source: Balance sheet available at www. saiftextile.com)
KOH I NOOR TEXTILE MILLS

2011
2010
2009
5,181,769,803
5,404,085,959
300,000,000
266,629,500
2008
2007
ASSETS
Property, plant and
equipment
Intangible assets
3,435,864,74
8
4,062,381,866
4,088,025,263
300,000,00
Long term loans and
advances
10,518,2
Long term deposits
CURRENT ASSETS
loose tools
Stock-in-trade
Trade debts
Loans and advances
Prepayments
Other receivables
government
236,551,5
28
499,369,2
66
498,802,6
91
204,847,9
36
1,530,4
66
300,494,005
69,823,447
229,350,175
2,040,769,514
5,787,152,512
1,432,800
1,820,751
4,311,432,1
3,151,751
1,615,75
50
1,440,751
3,746,382,9
98
247,229,500
5,483,210,554
323,609,725
1,119,779,665
774,726,517
329,990,567
11,577,434
453,059,140
120,711,830
75,318,124
1
5,672,331,2
10
17
4,092,609,81
4
368,032,69
0
383,642,759 304,342,590
1,195,946,68
4
1,598,730,680 1,175,108,847
239,474,98
1
775,013,196 988,152,762
239,474,98
1
564,476,629
264,345,513
3,208,57
9
2,349,040
6,475,758
31,174,862 1,278,445,507 1,445,082,969
89,247,515
279,446,232
114,863,679
132,442,694
53,513,454
131,689,499
3,208,773,002
2,746,006,524
4,771,034,944
4,447,640,632
8,691,983,556
8,418,337,734
9,082,467,061
8,540,250,446
Share Capital
Reserves
(Accumulated
509,110,110
509,110,110
509,110,110
(1,766,042,454) (597,598,306) 378,150,546
509,110,110
363,650,08
1,729,746,57
8 2,134,333,
2,238,856,68
(1,256,932,344) (88,488,196) 887,260,656
1,370,202,27 1,985,418,12
Long term financing
667,598,062
3 7
31,084,682
31,084,682
92,861,746
92,861,746
68,862,581
68,862,581
2,497,983,
902,907,809
920,570,
251,000,069
253,472
251,000,069
253,472,52
CURRENT LIABILITIES
849,185,345
Accrued Mark Up
996,903,370
1,336,138,70 1,107,202,52
1 3
165,360,8
494,147,375
22

Current maturity of long term
financing
Provision for taxation - net of
payment
3,475,566,183
4,508,280,54 4,460,475,34
9 8
4,127,379,65
2 3,417,152,
974,619,612
924,362,737 322,319,602
529,543,297
654,035,
49,127,602
54,478,371 54,332,493
41,147,079
72,938,
6,345,402,112
CONTINGENCIES AND COMMITMENTS
7,317,407,73
3
6,109,690,78
8
877,736,509
615,517,
113,895,958
108,580,
5,689,702,49
5
8,691,983,55 9,051,232,15 9,082,467,06

5,787,152,512
6
2
1
(Source: Balance sheet available at www. kohinoormills.com)
4,868,224,
8,540,250,
KOH I NOOR TEXTILE MILLS

2011
2010
2009
2008
2007
Sales
5,210,209,429
6,211,709,477
7,578,457,17
8
Cost of sales
5,304,752,999
5,887,111,108
6,919,319,19
2
5,277,750,305 6,486,736,826
Gross Profit
(94,543,570)
324,598,369
659,137,986
793,520,549
Distribution cost
Administrative
expenses
Other operating
expenses
367,876,943
427,762,097
499,728,559
342,913,108
333,401,011
155,708,511
198,493,424
220,275,950
198,807,499
146,318,259
165,333,959
137,897,904
202,438,502
101,367,666
32,313,590
688,919,413
764,153,425
922,443,011
643,088,273
512,032,860
(783,462,983)
(439,555,056)
(263,305,025) 150,432,276
612,467,019
Other operating
income
190,841,424
76,080,251
307,843,468
Operating profit
(592,621,559)
(363,474,805)
44,538,443
Finance cost
taxation
622,655,407
(1 ,
215,276,966)
43,603,91
6
(1,258,880,88
2)
724,053,189
(1,087,527,99
4)
706,299,453
(661,761,0
10)
494,863,830
(267,105,1
04)
486,161,514
173,053,93
3
48,984,447
60,790,553
(1,136,512,44
(722,551,56
1)
3)
47,697,099
(314,802,20
3)
58,612,814
114,441,1
19

(Loss)/profit after
taxation
(Loss)/earnings per
share - basic and
diluted (Rs.)
6,071,270,854 7,611,236,705
1,124,499,879
77,326,450
227,758,726
46,748,428
659,215,447
(24.73
)
(22.32
(14.
(6.3
)
19)
4)
(Source: Balance sheet available at www. kohinoormills.com)
2.7
8

Final Project Rashid Ali

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Project Rashid Ali

Uploaded by

Copyright:

Available Formats

IMPACT OF WORKING CAPITAL

Rashid Ali (Col/MBA Executive)

Department of Business Administration, Faculty of Social Sciences

Allama Iqbal Open University

DEDICATION AND ACKNOWLDGEMENT

CERTIFICATE (from supervisor)

ALLAMA IQBAL OPEN UNIVERSITY

Data Set and Sample

Comparative Balance Sheets

Data Analysis and Interpretation

Demographic Data and Return Percentage

Table Summarizing Data

Narrative Describing most important findings

Findings, Conclusions & Recommendations

Limitations and Future Research

firm achieved by the investment on its assets (ROA).

significant connection between productivity and funds.

The working capital

Average collection period

Average payment period

Inventory turn over

Model:ROA= o+1 (ACP) +2 (APP) +3 (ITO)

Data Set and Sample

Gul Ahmed Textile

Gul Ahmed Textile

Gul Ahmed Textile

Gul Ahmed Textile

Nishat Textile Mills

Nishat Textile Mills

Nishat Textile Mills

Nishat Textile Mills

Nishat Textile Mills

Dependent Variable: ROA

Mean dependent var

Mean dependent var

Correlated Random Effects - Hausman Test

* Cross-section test variance is invalid. Hausman statistic set to

Cross-section random effects test equation:

Cross-section fixed (dummy variables)

Akaike info criterion

Mean dependent var

Ratio Analysis of Each Firm Separately

Gul Ahmed Textile Mills

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

Total number of days in period

Average amount of accounts receivables

Total amount of net credit sales during period

(Amount in Rs. 000s)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

Net Credit Annual

Average Trade Creditors

(Amount in Rs. 000s)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

Gross Profit Margin

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

(Amount in Rs. 000s)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

Ratio Analysis of Kohat Textile Mills

Average Payment Period

Net Credit Annual

Net Credit Annual Purchase