The aim of this paper is to inspect the tendencies in working capital management and itsimpact on firms' performance of Pakistani firms listed on Karachi Stock Exchange. Return onAsset (measure of profitability) is used as a dependent variable to investigate the relationshipbetween corporate profitability and working capital management for a sample of 120manufacturing firms for a period of 7 years (2008 -2014), using panel data analysis. AccountsReceivable Days (AR) Inventories Days, Account Payable Days (AP) and Cash ConversionCycle (CCC) are used as key variables of the study. Results of the regression analysis displaythat high investment in account receivables and inventories is linked with lower profitability.We found significant negative relation between Profitability and Accounts receivables days,Inventories Days, Account Payable days and Cash conversion cycle. We found that thecomponents of working capital have strong influence on the profitability of manufacturingfirms of Pakistan. Our results shows that well-functioning working capital management playsan instrumental role in profitability and growth of firms and firms can enhance theirprofitability through efficient management of the components of working capital.
Keywords: Profitability, Accounts Receivables Days, Inventories, Accounts Payable Days,CCC, Karachi Stock Exchange, Working Capital Management, Firm Performance