EFFECT OF WORKING CAPITALMANAGEMENT ON FIRM PERFORMANCE

Abstract

This study examines the relationship between working capital management (WCM) and financial performance of seven companies listed on the Pakistan Stock Exchange (PSX) within the automobile parts and accessories sector, spanning the years 2015 to 2024. Despite the critical role of WCM, its influence on specific profitability metrics like Gross Operating Profit (GOP), Net Profit Margin (NPM), and Net Profit Ratio (NPR) remain underexplored, particularly in developing economies. This research addresses the existing gap by employing panel data regression analysis, utilizing both Fixed Effects and Random Effects models. The independent variables include key components of working capital management—Cash Conversion Cycle (CCC), Inventory Conversion Period (ICP), Accounts Payable Period (APP), and Receivables Collection Period (RCP)—as well as financial ratios such as the Debt-to-Equity Ratio (DER) and Current Ratio (CR). The dependent variable, financial performance, is measured using Gross Operating Profit (GOP), Net Profit Margin (NPM), and Net Profit Ratio (NPR).

Keywords- Working Capital Management, Pannel data Analysis, Gross Operating Profit, Net Profit Margin, Net Profit Ratio