Examining the Impact of Working Capital Management Approaches on Financial Performance in the Textile Sector of Pakistan

Abstract

Efficient management of operational funds holds immense importance for enterprises. The calculation of net working capital, achieved by subtracting current liabilities from assets, carries significant weight. Aspects such as durations for collecting and disbursing funds, the rate of inventory rotation, the transformation of cash, and the cycle of trade play a pivotal role in determining the level of profitability. This research undertook an evaluation of their influence on the profitability of Pakistan's textile industry, utilizing data from 10 publicly listed companies and subjecting them to thorough panel regression analysis. The findings brought to light that the Average Collection Period (ACP) exhibited an inconsequential and adverse impact on Net Operating Profit (NOP). Conversely, the Average Payment Period (APP) demonstrated a substantial reduction in NOP. While Inventory Turnover (ITID) displayed an insignificant amplification in NOP, Cash Conversion Cycle (CCC) exhibited a positive correlation with the firm's financial performance in distinction to Net Trading Cycle (NTC) yielded a detrimental effect.