Can Working Capital Cycle or Cash Conversion Cycle be Factored in Economic Performance of Pakistani Corporate Firms?

Abstract

This study works to examine the working capital factors that may enhance economic performance of corporate firms in Pakistan. This performance is measured by sales and accounts payable in days, accounts receivable in days, inventory turnover in days and cash conversion cycle represents working capital. The study is conducted on 64 non-financial firms listed on Karachi stock Exchange for a period of 12 years, from 2003 to 2014. Account receivables and payables along with cash conversion cycle have significant positive relationship with performance of firms. Inventory turnover has a significant negative relationship with sales. The result of this study shows that the role of managing working capital is vital for firms. If account receivable in days and accounts payable in days are increased, it will lead to increased sales of the firms. The study shows that if management can master the art of efficiently managing the working capital and keep it at optimum level, they will enhance the economic performance of the firm.