Author : Maeenuddin, lenny yusrini, dr. shaari abd hamid, muhammad hafeez, muhammad salman chughtai
Keyword : Working capital management (wcm), cash conversion cycle (ccc), return on assets (roa), average inventory turnover (ito), days debtors turnover (dto), days creditor turnover (cto)
Subject : Finance and accounting
Article Type : Original article (research)
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Abstract : This undertaking study investigated the relationship between working capital management as an independent variable that was operationalized by ITO, DTO, and CTO, and the firms’ profitability by measuring Return on Assets (ROA) as the dependent variable. Sample of 69 non-financial sector firms of Pakistan which are listed in the Pakistan Stock Exchange for 11 years (2007-2017) was taken. PLS-SEM was used for the first time to examine the relationship. The relationship was examined by descriptive statistics, correlation, path analysis, including path coefficient, P-value, t-value, and path coefficient confidence interval. The path coefficient shows the existence of the relationship, P-value shows its significance, the t-value shows the level of relationship, and the confidence interval shows the significance of the relationship. The results show that without the moderating effect of firm size, overall working capital management has a positive impact on ROA. Firm size has a significant moderating effect on the relationship between CTO and ROA. While the effect of firm size as a moderator on the relationships between ITO and ROA, DTO and ROA, and CCC and ROA are not significant. This study concluded that to enhance the profitability of the firm, and to get the best results from ROA, the managers should focus on the efficient management of working capital components (ITO, DTO, and CTO). The limitation of the study is that the samples used are only from the non-financial sector firms of one specific country (Pakistan), using only one ratio (in this case, ROA) for measuring profitability. Future studies should consider other ratios such as ROE, ROCE, and EVAM by using the same model of PLS-SEM.
Article by : Maeenuddin
Article add date : 2020-08-04
How to cite : Maeenuddin, lenny yusrini, dr. shaari abd hamid, muhammad hafeez, muhammad salman chughtai. (2020-August-04). Relationship between working capital management and return on assets: evidence from pakistan. retrieved from https://www.openacessjournal.com/abstract/65