Impact of Working Capital Management on Profitability: A Case of Pakistan Textile Industry.

To be successful in short run, management of working capital was significantly important for firms. Improper management of working capital negatively affects the firm profitability. Optimum level of working capital can maximize firm value and ultimately profits. The current study was taken to examine the impact of working capital and its components on return the assets of Pakistan Textile Industry. Return on assets was used as a proxy for firm profitability. For this purpose annual data of 46 listed companies were taken from textile industry as a sample for a period of (2003 -2009). For the quantification relationship of return on assets was taken as a dependant variable and number of day's account receivable, number of day's inventory, number of day's account payable and cash conversion cycle were taken as independent variables. The data was in panel form therefore, the ordinary least square method was used. The results revel that all the independent variables, number of day's account receivable, number of day's inventory, number of day's account payable and cash conversion cycle negatively affected the dependant variable return on assets. Thus, it was concluded that shorten the period from sales to cash receipt, high the firm's ability to generate profits.