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The Impact of Working Capital Management on Profitability: The Mediating Role of Liquidity in Pakistan’s Textile Sector

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This study investigates the impact of working capital management (WCM) on the profitability of textile firms listed on the Pakistan Stock Exchange (PSX), with a specific focus on the mediating role of firm liquidity. Pakistan’s textile sector, which contributes approximately 8.5% to GDP, accounts for 46% of total manufacturing output, and generates over 60% of national export earnings, operates under persistent macroeconomic pressures including energy shortages, currency depreciation, volatile cotton prices, and constrained access to short-term financing. The study employs a panel dataset comprising eight PSX-listed textile firms over the period FY2020-FY2024, yielding 40 firm-year observations; the dynamic GMM profitability model uses 30 observations because CCC and ITO data were unavailable for selected firm-years. The primary measures of working capital efficiency are the Cash Conversion Cycle (CCC) and Inventory Turnover (ITO), while firm profitability is measured by Return on Assets (ROA) and firm liquidity is captured through the Current Ratio. The empirical results show a positive and significant relationship between CCC and ROA (β = 0.068, p = 0.028), a strong positive relationship between ITO and ROA (β = 1.847, p = 0.015), and a dominant positive effect of liquidity on profitability (β = 28.640, p = 0.002). Firm liquidity partially mediates the relationship between working capital management and profitability, and panel cointegration tests confirm a stable long-run equilibrium among the study variables.

Impact of Working Capital Management on Profitability and Market value of the Logistics Industry

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A company needs sufficient non-current assets and current assets for the successful running of the business and maximization of the wealth of the firm. Especially, in the short-run current assets or working capital management plays an important role in the success or failure of the firm and its impact on its profitability of the firm. This article aims to examine the impact of working capital management on the performance and as well as the market value of companies in the logistics industry. This study used the fixed effect panel data analysis with a data set covering six logistics companies listed on the Bombay Stock Exchange, India for the period 2013-2022.

To estimate the relationship between working capital management and the performance of companies used Return on Assets (ROA), Return on Equity (ROE), and Market value to Book value (MVBV) as dependent variables in the research models. The main results indicate that the positive relationship between working capital, market value, and profitability is not very clear. Logistics companies’ sales are negatively associated with MVBV and ROE of logistics companies. The cash conversion cycle is found statistically not significant, and the relationship between CCC and profitability is negative. Overall, of the study, it is concluded that working capital has an impact on the profitability of logistics companies in India.