Impact of working capital on firms’ profitability

The correlation between working capital and profitability of firms is analyzed for the management of cash cycle management. Working capital is made by the three important factors, debtor, creditor and stock. When we include cash conversion cycle (CCC) to working capital then it becomes working capital management (WCM). Two sectors are selected as a sample size: automobile and oil and gas sector. The time period is from 2004 - 2009. Different variables affecting the profitability of firms are selected. In this study, networking capital, inventory turnover in days, average account receivable and financial asset to total assets (FATA) are taken as independent variables. The result shows positive movement of working capital (WC) on firm’s profitability. R shows the fitness of the model which is 49.95 %. The independent variables explain 49.95% of the model.   Key words: Working capital management (WCM), cash conversion cycle (CCC), account receivable (AR).