Working Capital Management In Pakistan's Manufacturing Sector: An Analysis Of Pakistan Stock Exchange Companies

Abstract

Working capital management (WCM) policies and profitability of manufacturing companies listed on the Pakistan Stock Exchange (PSE) are examined in this study. Business operations depend on effective WCM, especially when financial constraints exist. This study examines how WCM components, such as accounts receivable (AR), inventory (INV), accounts payable (AP), and cash conversion cycle (CCC), affect profitability metrics. Researchers used multiple regression using to analyze data from ten manufacturing companies' annual reports covering 2021–2024. The results indicate that reducing AR collection time significantly enhances OPM by enabling quicker reinvestment and decreasing reliance on external financing. Similarly, a shorter CCC is linked to increased profitability by improving operational efficiency. The study also finds a positive relationship between INV levels and ROA, as adequate inventory enables companies to meet customer demand effectively, enhancing revenues. However, excessive reliance on AP as a funding source has mixed effects, underscoring the need for careful management of creditor relationships. Notably, the findings suggest a less pronounced impact of WCM on ROE, likely due to variability in equity structures among Pakistani firms. Overall, this research highlights the critical role of tailored WCM strategies for enhancing corporate profitability in Pakistan's manufacturing sector, offering insights into optimizing short-term financial policies to drive long-term business success.