“Liquidity and Profitability: An Empirical Analysis of Cement Industry of Pakistan” BY:ADNAN AHMED ACKNOWLEDGEMENT All prays to Allah Almighty who is the most beneficiate and the most merciful who is master of the day of “Decisions” and million times “Droods” and “Salams” to the Holy Prophet (PBUH) whose life is role model for us and for all. I am very thankful to my teachers, I under their kind control and guidance learnt a lot. May Allah bless them with success! ADNAN AHMED DEDICATION We dedicate this thesis to our parents.
Without their patience, understanding, support and most of all love, the completion of this work would not have been possible Table of Contents Chapter No 1 Introduction —————————————————–1 Chapter No 2 Review of Literature——————————————–5 Chapter No 3 Methodology and Data——————————————12 3. 1Methodology——————————————-12 3. 2Data Collection—————————————-14 Chapter No 4 Empirical Analysis and Result———————————15 4. Mean, Median & S. D———————————15 4. 2Correlation Analysis———————————-17 4. 3Regression Analysis———————————-18 4. 4Table No 1———————————————19 4. 5Table No 2———————————————19 4. 6Table No 3———————————————20 4. 7Data Collection—————————————-21 Chapter No 5 Conclusion——————————————————–24 References————————————————————————-26
Liquidity and Profitability An Empirical Analysis of Cement Sector CHAPTER ONE INTRODUCTION Generally working capital is a measure of both a company’s efficiency and its short-term financial health.
The working capital is calculated as: Working Capital = Current Assets – Current Liabilities A firm is required to maintain a balance between liquidity and profitability while conducting its day to day operations. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations and its continued flow can be guaranteed from a profitable venture. International Review of Business Research Papers Vo. 2 No. 2. October 2006, Pp. 45 -58) by Kesseven Padachi. Firms with too few current assets may incur shortages and difficulties in maintaining smooth operations (Horne and Wachowicz, 2000). Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations on the one hand and avoid excessive investment in these assets on the other hand (Eljelly, 2004).
One reason for this is that current assets are short-lived investments that are continually being converted into other asset types (Rao 1989). With regard to current liabilities, the firm is responsible for paying these obligations on a timely basis. Liquidity for the on going firm is not reliant on the liquidation value of its assets, but rather on the operating cash flows generated by those assets (Soenen, 1993). Taken together, decisions on the level of different working capital components become frequent, repetitive, and time consuming.
Working Capital Management is a very sensitive area in the field of financial management (Joshi, 1994). It involves the decision of the amount and composition of current assets and the financing of these assets. Current assets include all those assets that in the normal course of business return to the form of cash within a short period of time, ordinarily within a year and such temporary investment as may be readily converted into cash upon need. The Working Capital Management of a firm in part affects its profitability. Firms may have an optimal level of working capital that maximizes their value.
Large inventory and a generous trade credit policy may lead to high sales. Larger inventory reduces the risk of a stock-out. Trade credit may stimulate sales because it allows customers to assess product quality before paying (Long, Maltiz and Ravid, 1993, and Deloof and Jegers, 1996). A popular measure of Working Capital Management (WCM) is the cash conversion cycle, i. e. the time lag between the expenditure for the purchases of raw materials and the collection of sales of finished goods. The longer this time lag, the larger the investment in working capital (Deloof 2003).
This discussion of the importance of working capital management, its different components and its effects on profitability leads us to the problem statement which we will be analyzing. The problem statement to be analyzed in this study is: “Does Working Capital Management Affect Profitability of Manufacturing Firms? ” To analyze this problem statement, we have developed objectives of our research, which will hopefully contribute towards a very important aspect of financial management known as working capital management. To establish a relationship between Working Capital Management and Profitability over a period of four years for 18 Pakistani companies listed on Karachi Stock Exchange. •To find out the effects of different components of working capital management on profitability •To establish a relationship between the two objectives of liquidity and profitability of the Pakistani Manufacturing firm. •To find out the relationship between profitability and size of the Pakistani Manufacturing firm. To find out the relationship between debt used by the Pakistani firm and its profitability •To draw conclusion about relationship To achieve these objectives, our study is organized as follows: Section two reviews the literature for the relevant theoretical and empirical work on working capital management and its effect on profitability. Section three presents the methodology and framework which includes sample and the variables used in the empirical analysis. Section four portrays and discusses the data analysis, discussion and statistical results.
Section five presents the conclusion. CHAPTER TWO REVIEW OF LITERATURE The study of article Implementation of Working Capital Management on the Profitability of Oil & Gas Sector of Pakistan by Shah & Sana (2006), investigates a relationship between working capital and the profitability of listed companies of Oil and Gas sector of Pakistan for the period 2001-2005. They analyze working capital management through working capital ratios. Working capital ratios are stock or inventory turnover, receivables ratios, payables ratios, current ratios, quick ratios and cash conversion cycle.
In this research, they examined the relationship between working capital management and profitability of Pakistan’s Oil and Gas Exploration Sector Companies. The variables used are Gross Profit Margin, Number of days Accounts Receivables, Number of days Accounts Payables, and Cash Conversion Cycle. Result of this article shows a negative relationship between gross profit margin and number of day’s inventory and number of days account receivables, cash conversion cycle and sales growth. Whereas there is a positive relations between gross profit margin and number of days account payables. Cash conversion cycle has been found negative.
A firm is quick to collect cash from sales once it pays for purchases. But here the catch is that negative cash conversion cycle is due to pending payments of bills on time. That is why the payment cycle is longer than operating cycle. This measure reflects both operating and financing decisions of the firm. Sales growth show negative correlation with profitability which apparently show abnormal results but it does not seem abnormal in Oil and Gas Sector as its demand is more than supply. The article Financial Analysis and Working Capital Management Techniques Used By Small Manufacturers: Survey and Analysis.
By Morris Lamberson, University of Central Arkansas summarized the responses of 103 small manufacturers to a mail questionnaire survey sent to the chief financial officer of 477 firms located in the southern region of the U. S. The major thrust of the paper was to provide insight into the importance of and utilization of financial analysis and working capital management concepts by small manufacturers. This article concentrates on an examination of the extent to which small manufacturers use the financial concepts of financial analysis and planning and working capital management.
The author defined small firms as those that employ fewer than 500, which is commonly used by the Small Business Administration for small manufacturers. While the findings from this study suggest widespread use of these finance concepts, there continues to be a fairly large number of small manufacturers who do not utilize these techniques. While this study did not do an analysis of usage by size of firms, they observe that the use of these concepts seemed to increase as firm size increased. In surveying small firms, one could possibly conclude that we need a separate set of financial concepts for use by the small firms.
While there appear to be differences in the extent to which some concepts can be applied in the small firm, The article Corporate working capital management, Determinants and Consequences By Mark LaPlante & Rabih Moussawi emphasis that Little attention has been paid to corporate working capital management, despite the fact that many companies see such activities at the core of their profitability. They examine the implications of a corporation’s working capital management for its valuation. Consistent with industry surveys, they find evidence that firms over-invest in working capital.
Given this evidence, they then focus on what factors influence corporate working capital management. They also find that industry practices, firm size, future firm sales growth, the proportion of outsider directors on a board, executive compensation (current portion), and CEO share ownership significantly influence the efficiency of a company’s working capital management. Overall, their evidence suggests that managers respond positively to incentives and monitoring in managing their firm’s working capital.
This article emphasis on whether working capital management influences firm value or what factors influence the efficiency of a firm’s working capital management. With respect to the first issue, they find that on average firms have over-invested in their working capital. With respect to the second issue, they find that the inefficiency of a firm’s working capital management is positively correlated with firm size and uncorrelated with its industry’s concentration. They interpret these results as suggesting that firms are not using their market power at the margin to improve the efficiency of their working capital management practices.
Instead, they tend to follow the practices of their industry. In the article An Analysis of Working Capital Management Results across Industries by Greg Filbeck & Thomas Krueger, emphasis that by minimizing the amount of funds tied up in current assets, firms are able to reduce financing costs and/or increase the funds available for expansion. They discover that significant differences exist between industries in working capital measures across time. In addition, they discover that these working capital measures, themselves, change significantly within industries across time.
The research presented here is based on the annual ratings of working capital management published in CFO magazine. Their findings indicate a consistency in how industries “stack up” against each other over time with respect to the working capital measures. However, the working capital measures themselves are not static, with their results indicting significant movements across our entire sample over time Further research should take one of two lines. First, there should be a study of whether stock prices respond to CFO magazine’s publication of working capital management ratings.
Second, there should be a study of which, if any, of the working capital management components relate to share price performance. The purpose of the paper Trends in Working Capital Management and its Impact on Firms’ Performance: An Analysis of Mauritian Small Manufacturing Firms By Kesseven Padachi, is to examine the trends in working capital management and its impact on firms’ performance trend in working capital needs and profitability of firms are examined to identify the causes for any significant differences between the industries.
The dependent variable, return on total assets is used as a measure of profitability and the relation between working capital management. The regression results show that high investment in inventories and receivables is associated with lower profitability. The key variables used in the analysis are inventories days, accounts receivables days, accounts payable days and cash conversion cycle. The findings also reveal an increasing trend in the short-term component of working capital financing. Two types of variables are used in the study Explanatory Variables, Control Variable.
The efficiency ratios, namely accounts receivable, inventory and accounts payable and cash conversion cycle (CCC) are Explanatory variables. The gearing ratio (financial debt/total assets), the gross working capital turnover ratio (sales/current assets) and the ratio of current assets to total assets are included as control variables. This study has shown that the paper and printing industry has been able to achieve high scores on the various components of working capital and this has positively impact on its profitability.
The article Is it Better to be Aggressive or Conservative in Managing Working Capital? By Talat Afza & Mian Sajid Nazir investigates the relative relationship between the aggressive / conservative working capital policies and profitability as well as risk of firms for 208 public limited companies listed at Karachi Stock Exchange for the period of 1998-2005. They found a negative relationship between the profitability measures of firms and degree of aggressiveness of working capital investment and financing policies.
The firms yield negative returns if they follow an aggressive working capital policy. The study used aggressive investment policy and conservative investment policy as measuring variables of working capital management. Aggressive Investment Policy (AIP) results in minimal level of investment in current assets versus fixed assets. In contrast, a conservative investment policy places a greater proportion of capital in liquid assets with the opportunity cost of lesser profitability. Aggressive Financing Policy (AFP) utilizes higher levels of current liabilities and less long-term debt.
In contrast, a conservative financing policy uses more long-term debt and capital. The article Working Capital Management And Profitability – Case Of Pakistani Firms By Abdul Raheman and Mohamed Nasr, they have selected a sample of 94 Pakistani firms listed on Karachi Stock Exchange for a period of 6 years from 1999–2004, they have evaluate the effect of different variables of working capital management including the Average collection period, Inventory turnover in days, Average payment period, Cash conversion cycle and Current ratio on the Net operating profitability of Pakistani firms.
Debt ratio, size of the firm and financial assets to total assets ratio have been used as control variables. Pearson’s correlation and regression analysis are used for analysis. The results show that there is a strong negative relationship between variables of the working capital management and profitability of the firm. It means that as the cash conversion cycle increases it will lead to decrease profitability of the firm, and managers can create a positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level.
They find that there is a significant negative relationship between liquidity and profitability. They also find that there is a positive relationship between size of the firm and its profitability. There is also a significant negative relationship between debt used by the firm and its profitability. The article Working Capital Management: A Study on British American Tobacco Bangladesh Company Ltd. By Md. Sayaduzzaman identify the efficiency of working capital management of British American Tobacco Bangladesh Company Ltd. According to him it is highly satisfactory due to the positive cash in flows, planned approach in managing the major elements of working capital. The major objective of the study to examine the management pattern of inventory in the BATBCL during 1999-2003. The purpose of the present study is to analyze the various concepts of working capital and find out the feasibility of the concept of working capital in the light of better planning and control of working capital. In the Study, The basic focus in managing working capital should be to optimize the firm’s investment in them.
An expert in the financial management is of the opinion that problem of working capital is one of the factors responsible for the low profitability in manufacturing sector. The collected data have been tabulated, analyzed and interpreted with the help of different financial ratios and statistical tools like percentages, average, trend analysis, correlation and significance test, etc. Five hypotheses have been tested statistically to arrive at conclusion and policy implications. CHAPETER THREE METHODOLOGY AND DATA 3. 1Methodology
In this Research, we examined the relationship between working capital management and the profitability of Pakistan’s Cement Sector Companies. There are 22 companies in this sector listed on Karachi stock exchange, out of which complete data for seven companies from the year 2003-2006 was available. Rest of the 04 companies for which incomplete data was available, were excluded from the sample. Ratios for working capital items were calculated like number of days accounts receivables and number of day’s inventory turnover. The Operating cycle is one of the important measures of working capital management.
Then Statistical tests like Mean, Median, Standard Deviation, Correlation analysis, and Regression analysis were applied. Our study undertakes the issue of identifying key variables that influence working capital management of Pakistani firms. We have selected the variables that are discussed in the previous studies on working capital management. All the variables stated below have been used to test the hypotheses of our study. They include dependent and independent variables: These are the instruments which are used to measure profitability of companies. ?Gross Profit Margin= Gross Profit / Total Sales Number of days Acc/receivables = (Accounts Receivable * 365) / Sales. ?Number of days inventories = (Inventories*365) / CGS. ?The Operating Cycle = (Number of Day’s Accounts Receivable + Number of Day’s Inventory). ?Sales growth = (Current year’s Sale – Previous year’s Sales) / previous year’s Sales. Since the objective of our study is to examine the relationship between liquidity and profitability of cement sector of Pakistan, we make a set of testable hypothesis which are as “liquidity as negatively effects the profitability of Cement Industry of Pakistan”.
All the above variables have relationships that ultimately affect working capital management and it is expected that there is a negative relationship between gross profitability on the one hand and the measures of Working Capital Management (number of days’ accounts receivable, inventories operating cycle) on the other hand. This is consistent with the view that the time lag between expenditure for the purchases of raw materials and the collection of sales of finished goods can be too long, and that decreasing this time lag increases profitability. 3. 2Data Collection
The data used in our study is acquired from Karachi Stock Exchange (KSE), internet and web sites of specified companies. Data of firms listed on the KSE for the four years formed the basis of our calculations. The period covered by the study extends to four years starting from 2003 to 2006. The sample is based on financial statements of the 18 Pakistani firms, listed on KSE including firms from Cement sector of our economy.. Finally, the firms with data of the number of day’s accounts receivable, number of days inventories, operating cycle & sales growth are included in sample.
CHAPTER FOUR EMPIRICAL ANALYSIS AND RESULTS 4. 1Mean, Median & Standard Deviation Analysis TABLE NO. 1 Shows that the average value of gross profit of Cement Industry is 12. 8% of total sales. The value of standard deviation of the gross profit is 0. 1986, which shows that gross profit of any company of cement Sector is dispersed by 19. 86% from average value. This may be positively or negatively dispersed. The maximum value of gross profit is 0. 41M which means one company of cement Sector scored 0. 41M gross profit. And minimum value which shows gross loss (-1. 010) indicates that one company of cement sector has to bear highest loss. The median value of gross profit of cement Industry is 0. 1510. No. of days account receivable have an average of 104 days. It means in the cement industry it takes 104 days to collect cash from debtors against credit sales and No of days A/R dispersed to maximum 178 days. In the Cement Sector maximum days to collect cash for debtors are 1510 days and minimum days are 10. Most middle value of No. of days A/R are 69. In the case of No. of days Inventory, 32 days are on the average which means that after every 32 days the inventory shipped for sale.
These days are dispersed to maximum 50 from the average days. The maximum No. of days Inventory having one company in the industry are 237 and minimum is only 1. The most middle value of the No. of days inventory in the Cement industry of Pakistan are 13. The average of operating cycle is 136 days, it means it takes 136 days to complete a transaction. Complete transaction means that, the purchase of raw material, the manufacturing of products, Selling out them & Receiving cash against the sales. These days are dispersed to maximum 209. the maximum ays of operating cycle having one company in the cement Industry are 1739 and minimum no of days are 38. the most middle value of the days are 83. The last variable of our analysis is Sales Growth. It has an average value of 1. 7% that is nominal percentage of growth in this sector. The sales growth is dispersed to maximum 12. 99%. the maximum growth for the period 2003-2006 in this Industry having one company is 110. 40% and decrease in sales to 0. 74% for the said period. 4. 2Correlation Analysis TABLE NO. 2 show the correlation among variables.
When we see the correlation between gross profit margin (1) and No. of days accounts receivable (-0. 793), there is negative relation between them, means when No. of days accounts receivable decreases the profit increases because when a firm receives money it may invest the money in some other projects which increase the profit of the firm. When we examine the correlation between gross profit margin and No. of day’s inventories (-0. 406) is also negative relationship, means when the inventory takes more days to be converted into cost of goods sold, profit decreases and vise versa.
Operating cycle show negative relationship with profitability means that wider the cash conversion cycle the firm will have to arrange finance for more number of days hence pay interest which becomes the source of reduction in profit. Sales growth show a negative relationship with profitability which apparently show normal results but it does not seem normal in Cement Sector as its demand is less than supply, for more sales the company has to invest a lot initially which reduces the profit. However, results may be confirmed by conducting research on data for long time period.
Whereas there is a little effect on sales growth that is negligible. 4. 3Regression Analysis TABLE NO 3 Show Regression analysis, we have one dependent variable that is gross profit margin and remaining are independent variables that are No. of days account receivable, No. of days Inventory, Operating cycle and sales growth. The following regression equation and regression table shows negative trend between dependent and independent variables. Coefficient of gross profit margin is fixed at 0. 188. If there is one unit change in No of days account receivable then gross profit will be negatively changed by 0. 00884. If there is one unit change in No of days inventory the gross profit will be negatively changed by 0. 00160. If there is one unit change in operating cycle then gross profit will be negatively changed by 0. 000734. These variables show significant probability as shown in Table 3, whereas there is a negligible change in sales growth with respect to change in gross profit margin and it shows non-significant probability. Regression Equation G. P Margin = 0. 188-0. 000884 No. of days A/R – 0. 00160 No. of days Inv. – 0. 000734 Operating Cycle – 0. 00003 Sales growth . 4TABLE NO 1 Mean, Median & Standard Deviation Analysis ResultsMeanS. DMaximumMinimumMedian G. P Margin0. 1280. 19860. 4100-1. 10100. 1510 No. of Days A/R103. 6178. 11510. 410. 468. 9 No. of Days Inventories32. 0650. 26237. 130. 8612. 89 Operating Cycle135. 7209. 11738. 538. 582. 9 Sales Growth1. 7012. 99110. 40-0. 740. 19 4. 5TABLE NO 2 Correlation Analysis ResultsGross ProfitNo. of Days A/RNo. of Days Inv. Operating CycleSales Growth G. P Margin1 No. Days A/R-0. 7931 No. of Days Inv. -0. 4060. 5291 Operating Cycle-0. 7730. 9790. 6911 Sales Growth-0. 0020. 004-0. 067-0. 131 TABLE NO 3 Regression Analysis PredictorCoefficientTP Constant (GP)0. 188– No. of Days A/R-0. 000884-10. 900. 000 No. of Days Inv. -0. 00160-3. 710. 000 Operating Cycle-0. 000734-10. 200. 000 Sales Growth-0. 00003-0. 020. 98 4. 7DATA CALCULATION Impact of Liquidity on Profitability of Cement Sector of Pakistan CompanyYearG. P MarginNo. of Days A/RNo. of Days Inv. Operating CycleSales Growth Al-Abbas Cement Ltd20030. 02770. 6558. 81179. 466-0. 123 20040. 06510. 42797. 454107. 881-0. 144 2005-0. 057153. 76836. 605190. 373-0. 238 20060. 021106. 10840. 542146. 5420. 83
Bestway Cement Ltd20030. 15359. 54522. 40481. 9490. 0585 20040. 28249. 84515. 11764. 9620. 27 20050. 31658. 69410. 15668. 850. 291 20060. 37489. 14414. 295103. 4390. 249 Cherat Cement Company Ltd20030. 06354. 4288. 02962. 4570. 054 20040. 2967. 19116. 6583. 8410. 04 20050. 26766. 30513. 7580. 0550. 3 20060. 31477. 47125. 67103. 141-0. 06 D. G Khan Cement Company Ltd20030. 13161. 45915. 18176. 640. 144 20040. 24372. 82625. 26798. 0930. 106 20050. 26474. 4736. 79881. 2710. 294 20060. 36246. 59111. 81258. 4030. 486 Dadabhoy Cement Industries Ltd20030. 0758. 676. 8565. 520. 054 0040. 18561. 84515. 8577. 6950. 039 20050. 19951. 85612. 7664. 6160. 299 20060. 24673. 040. 85573. 895-0. 06 Dadex Eternit Ltd20030. 25275. 713165. 637241. 350. 612 20040. 21557. 524147. 141204. 6650. 347 20050. 19967. 213175. 014242. 2270. 338 20060. 1976. 46237. 132313. 5920. 145 Dan dont Cement Company Ltd2003-0. 18555. 47310. 03665. 509-0. 19 2004-0. 00657. 5212. 87460. 3950. 2 20050. 04248. 5099. 47357. 9820. 3 20060. 11246. 4486. 74553. 1930. 245 Dewan Cement Ltd20030. 105124. 016. 191130. 201110. 4 20040. 00852. 1225. 23357. 3550. 169 20050. 12395. 53319. 974115. 5070. 56 20060. 19886. 80722. 588109. 3950. 364 Fuji Cement Company Ltd20030. 07195. 2757. 573102. 848-0. 033 20040. 228103. 6798. 971112. 650. 305 20050. 27678. 8777. 18586. 0620. 208 20060. 38641. 2515. 16556. 4150. 449 Fecto Cement Ltd20030. 011388. 8714. 599103. 4690. 083 20040. 13273. 1317. 60780. 7380. 113 20050. 17871. 58817. 68689. 2740. 262 20060. 23772. 1983. 60175. 7990. 301 Gharibwal Cement Ltd2003-0. 16533. 4595. 01238. 4710. 285 20040. 05543. 3328. 08851. 42-0. 112 20050. 0765. 0814. 44969. 530. 225 20060. 12466. 53925. 60892. 1470. 035 Javeden Cement Ltd2003-0. 03785. 1718. 587104. 504-0. 279 20040. 07850. 5765. 82956. 4050. 97 20050. 14941. 0519. 94650. 9970. 136 20060. 17935. 16613. 01948. 1850. 169 Kohat Cement Ltd20030. 05551. 0076. 19957. 2060. 014 20040. 2561. 6383. 71465. 3520. 222 20050. 28234. 214. 81439. 0240. 189 20060. 4130. 64818. 62149. 2690. 242 Lucky Cement Ltd20030. 11842. 18512. 49954. 6840. 17 20040. 25873. 05119. 84292. 8930. 121 20050. 24871. 3110. 09581. 4050. 304 20060. 27266. 89620. 19587. 0910. 924 Maple Leaf Cement Factory Ltd20030. 09120. 8729. 783130. 655-0. 049 20040. 23187. 9169. 56797. 4830. 234 20050. 21482. 4813. 74396. 1910. 247 20060. 27109. 4612. 629122. 0890. 284 Pakistan Slag Cement Industry Ltd2003-0. 013111. 17779. 512190. 689-0. 03 2004-0. 041198. 924103. 329302. 253-0. 37 2005-0. 152366. 6123. 715490. 315-0. 429 2006-1. 1011510. 387228. 1251738. 512-0. 738 Pioneer Cement Ltd20030. 06447. 18310. 51557. 6980. 102 20040. 19798. 67311. 802110. 4750. 089 20050. 2456. 2869. 74766. 0330. 43 20060. 2948. 58612. 08860. 6740. 483 Zeal Pak cement Factory Ltd2003-0. 109275. 58659. 071334. 657-0. 06 2004-0. 031246. 51748. 905295. 4220. 218 20050. 042166. 60334. 284200. 8870. 403 20060. 82246. 96559. 553306. 518-0. 058 CHAPETER NO 5 CONCLUSION Working capital management is an integral part of financial management that’s why most of the firms make huge investments in their working capital. The study investigates through correlation analysis and Regression analysis to analyze the relationship between working capital management and the profitability of Cement sector Companies of Pakistan. Our results show a negative relationship between gross profit margin and number of day’s inventory and number of day’s accounts receivable operating cycle and sales growth.
Results also show the existence of firm effect, which is a different management style of the companies and different working capital needs. Regression analysis shows that joint effect of the coefficients of three variables (number of day’s inventory and number of day’s accounts receivable operating cycle) is significant which means working capital management effects profitability of the firm. While the coefficient of one variable (sales growth) is non significant which means working capital management does not effect the profitability of the firms. The independent variables jointly have strong explanatory power.
This indicates that working capital management practices adequately explain changes in profitability of the firm. Operating cycle has been found negative. On the surface it would seem that a relatively short cash cycle would be a sign of good management. A firm is quick to collect cash from sales once it pays for purchases. But here the catch is that negative operating cycle is due to pending payments of bills on time. That is why the payment cycle is longer than operating cycle. This measure reflects both operating and financing decisions of the firm.
Sales growth show negative correlation with profitability which apparently show abnormal results but it does not seem abnormal in Cement Sector as for more sales the company has to invest a lot initially which reduces the profit. However, results for sales growth may be confirmed by conducting research on data for long time period. REFRENCES  Shah. A and Sana. A, ” Impact of Working Capital Management on the Profitability of Oil and Gas Sector of Pakistan; European Journal of Scientific Research: Vol. 15 No. 3 (2006), pp. 301-307.  Filbeck. G, and Krueger. , “An Analysis of Working Capital Management Results Across Industries” University of Wisconsin – La Crosse, 2002.  Kieschnick. R, LaPlante. M and Rabih. M. , ” Corporate working capital Management: Determinants and Consequences”, University of Texas; January 2006.  Morris Lamberson, “FINANCIAL ANALYSIS AND WORKING CAPITAL MANAGEMENT TECHNIQUES USED BY SMALL MANUFACTURERS: SURVEY AND ANALYSIS”. University of Central Arkansas.  Raheman. A, and Nasr. M , “Working Capital Management And Profitability – Case Of Pakistani Firms”, International Review of Business Research Papers, Vol. 3 No. . March 2007, Pp. 279 – 300.  Kesseven Padachi, “Trends in Working Capital Management and its Impact on Firms’ Performance: An Analysis of Mauritian Small Manufacturing Firms ”; International Review of Business Research Papers Vo. 2 No. 2. October 2006, Pp. 45 -58.  Afza. T and Nizir. S, “Is it Better to be Aggressive or Conservative in Managing Working Capital? ” COMSATS Institute of Information Technology.  Md. Sayaduzzaman, “Working Capital Management: A Study on British American Tobacco Bangladesh Company Ltd. “, The Journal of Nepalese Business Studies, Vol. III No. 1, Dec. 2006.
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