Does Working Capital Management Contribute to the Profitability of Manufacturing Sector? Evidence from Pakistan

Abstract

The aim of this study is to analyse the determinants that influence the companies’ profitability in the manufacturing industry of Pakistan. The tool for data collection used in our research study is secondary data, which consists of 10-year financial data from 2012 to 2021. This research used descriptive statistics, OLS, random effect, and fixed effect models to define the sample and analyse the impact of working capital in the automobile sector. The results indicated that in the case of automobile firms, working capital management proxies are dominant, which significantly affects on the firm’s performance. The findings evaluated that sales growth significantly affects a firm’s performance. Lastly, the outcomes revealed that a firm’s size has no significant effect on the firms’ profitability. In conclusion, it is argued that effective working capital management leads to better financial performance. The research would be beneficial to business investors and managers in Pakistan’s non-financial sector. This also provides a guideline for investors when making investment decisions.