Articles

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.

Do Firms Change the Working Capital Management Policy During The Covid-19 Pandemic? Case of Transportation & Logistics and Healthcare Industries in Indonesia

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This study explores the crucial role of working capital management in balancing profitability and risk for companies. Economic conditions and sector-specific fluctuations in GDP influence working capital decisions. The transportation and logistics industry faced challenges with reduced demand, while the healthcare industry dealt with increased demand and longer payment collection periods during the pandemic. Using panel data regression on healthcare and transportation companies listed on the Indonesia Stock Exchange from 2017 to 2021, the study examines the impact of working capital management on profitability. Findings show significant correlations between working capital components and company profitability in both sectors. Specifically, before the pandemic, Days Sales Outstanding (DSO) positively affected Return on Assets (ROA), while Working Capital Financing Policy (WCFP) had a negative impact. During the pandemic, DSO and Working Capital Investment Policy (WCIP) positively influenced ROA in the transportation sector, while WCFP negatively affected it. In the healthcare sector during the pandemic, both DSO and Days Inventory Outstanding (DIO) positively affected ROA. For Net Profit Margin (NPM), the significance of working capital variables changed during the pandemic in the transportation sector, with DSO negatively impacting NPM, while WCIP and WCFP had a positive effect. In the healthcare sector during the pandemic, WCIP positively correlated with NPM, while WCFP had a negative correlation. Effective working capital management is essential for companies to navigate economic fluctuations and ensure uninterrupted operations.