Haider Thisis

Impact of working capital on the profitability of the cement industry in Pakistan
Thesis Submitted to
National College of Business Administration and Economics, Lahore
In Partial fulfillment of the
Requirement for the Degree of
Master in Commerce
By
HAIDER ALI
Roll No. MCM-F19-395
Session: 2019 to 2021
1
Impact of working capital on the profitability of the cement industry in Pakistan
An empirical study from the perspective of higher education sector Pakistan By
HAIDER ALI
Roll No. MCM-F19_395
Session: 2019 to 2021
Thesis Submitted to
In partial fulfillment of the
Requirements for the degree of
Master in Commerce
2
DECLARATION TO BE FILLED BY THE STUDENT AT THE TIME OF SUBMISSION
OF THESIS TO THE SUPERVISOR AND/OR FOR EXTERNAL EVALUATION
Particular of the Student
1.1 Full Name Haider Ali
1.2 Father’s Name Asif Ali
1.3 Roll. Number MCM-F19-395
1.4 Program Master in Commerce
Declaration of Originality
IHaider Alihereby solemnly declare that this project:
a) is my original work, except where otherwise acknowledged in the text
b) has not been published earlier and
c) shall not be submitted by me in future for obtaining any degree from this or other
university or institution
d) has been incorporated HEC Plagiarism Policy
e) In case of violation of HEC Plagiarism Policy, I shall be liable to punishable action under
the plagiarism rules of HEC.
3
3.1 Student’s Full Signature
3.2 Date
TABLE OF CONTENTS
The National College of business Administration.......................................................................................1
Abstract:......................................................................................................................................................9
Chapter #1:..................................................................................................................................................9
Introduction.............................................................................................................................................9
Background of the study:.......................................................................................................................11
Statement of the problem:........................................................................................................................13
RESEARCH OBJECTIVES:.............................................................................................................................13
Gap analysis:..........................................................................................................................................13
Hypothesis:............................................................................................................................................14
Significance of study:.............................................................................................................................15
Chapter 2:..................................................................................................................................................15
Literature Review..................................................................................................................................15
Chapter # 3................................................................................................................................................27
Theoretical frame work.............................................................................................................................27
Theoretical model:.................................................................................................................................28
Model specification:..............................................................................................................................29
Measurement of variable..........................................................................................................................30
Return on asset (ROA):..........................................................................................................................30
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Firm size (FS):.........................................................................................................................................31
Debt ratio (DR):......................................................................................................................................32
Cash conversion cycle............................................................................................................................33
APP (Average Payment Period):.............................................................................................................34
Formula:................................................................................................................................................34
Current Ratio.........................................................................................................................................35
Econometric Model...................................................................................................................................35
Dependent variables..............................................................................................................................37
Net operating profit...........................................................................................................................37
Chapter 4...................................................................................................................................................38
Research and technique apply...............................................................................................................38
Descriptive Statistics:.........................................................................................................................38
Unit root test.........................................................................................................................................41
Unit Root Test........................................................................................................................................42
Unit root test:........................................................................................................................................43
Unit root test.........................................................................................................................................44
Random Effect.......................................................................................................................................45
Hausmen test........................................................................................................................................47
Conclusion:................................................................................................................................................49
Recommendation:.....................................................................................................................................49
Chapter # 5................................................................................................................................................50
Reference..............................................................................................................................................50
Impact of working capital on the

profitability of the cement industry in
Pakistan
Abstract:
5
In this study we have to conduct the working capital on the profitability of the firm. As we
conduct the data on the textile company for the last 6 year and took more than eight variables has
may be sufficient to define the working capital. For that research we run the unit root test with
random fixed effect. With showing the effect of random we also run the Hausman Test. We
conducted the data from the cement sector of the Pakistan we concluded the result thatthe all the
variables have significant impact most of the good impact on the current assets in short term but
in the long term it may not have so the firm size not put the significant impact. So over random
affect shows that their current ratio has a significant impact on the profitability of the cement
sector Pakistan and the rest of variable donot have high significant relation.
Chapter #1:
Introduction
There are lot of different sectors of businesses in Pakistan like textile industries, food industry,
telecommunication industries and many more. These are the following industries which generate
revenue for the government of the Pakistan. So, in this different sector, there are 20 different
sectors which considered the most important sectors in the Pakistan. In which cement industry
are also important sector which generate the 4% revenue for whole revenue of Pakistan. Cement
industry is considered the important sector in the business of the Pakistan. For that reason, it is
considered the great debatable issue among the researchers whether foods or cement industry’s
shares create the help to increase the wealth of people through investing in the shares of cement
industry. Our sample size is 10 listed Company in Pakistan Stock Exchange which is totally
related with the cement industry on Pakistan. Collect the secondary data from the annual reports
of cement industries, try to evaluate through regression Model and put test on six years of each
cement company. Our objected is to evaluate and determinants of the working capital of listed
companies in Pakistan Stock exchange. This research will be knowledgeable for the investor and
the professional business man in Pakistan and all over the world which may evaluate the
effective position of the company through critical analysis of the working capital of
CementCompany in Pakistan. The modern theory of working capital was established by
Modigliani and Miller (1958). Thirty-seven years later, Rajan and Zingales (1995, p. 1421)
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stated: “Theory has clearly made some progress on the subject. We now understand the most
important feature from the Modigliani and Miller assumptions that make working capital
relevant to a firm’s value. However, very small is known about the empirical relevance of the
different theories.” As such, this study provides insight into the relationship of debt and equity
constitution in listed company in Pakistanstock exchange market. A literature discusses the
various levels of debt and equity in various industries to explain the determinants of working
capital. However, much of the literaturedoes not shaded on how the factors affect the debt
ratio within an industry, especially in listed company in Pakistan.. Therefore, this study has
three objectives. First, the study is to identify the factors that determine the working capital (i.e.,
firm specific characteristics and macroeconomic variables) of listed company in Pakistan’s in
Malaysia. Second, the industrial effect is added to investigate the significance of the
different kinds of industry in determining the capital structure of listed company in
Pakistan. Third, attempts to identify how the different debt levels such as long term and
total debt term ratio affect the profitability of the cement companies in Pakistan.
Similarly, Harris and Raviv (1991, p. 299) in their study of working capital hypotheses
guaranteed: "The models overviewed have recognized an expansive number of potential
determinants of working capital. The observational work so far has not, be that as it may,
unraveled out which of these are imperative in different settings." Thus, a few restrictive
speculations of working capital exist (none is widespread), yet almost no is thought about their
exact importance.
Background of the study:
Truly, the working capital hypothesis appeared in 1958, when Franco Modigliani and Matron
Miller proposed the M&M pointlessness suggestion. They assembled that, the money related
impact of the firm was separated to its quality with faultless information, part 11 cost and no
appraisal in capital business segment. The study illuminates that the firm values were not sway
7
by issuing esteem financing and commitment financing or a blend of the both. The reason was
that the specialist's cash streams stay same if there was any change into the commitment to
esteem extent. So that is the reason they recommend that all agents have ascend to opportunity to
acquire at the same rate (Modigliani and Miller, 1958). The examination of working capital can
be orchestrated into three definitely comprehended speculations: the squeezing demand theory
(starting now and into the foreseeable future POT), trade off speculation (TOT), and office
theory (AT). The pecking demand speculation have focused on the internal record, for
occurrence, through reliably return have initially require, commitment financing have second
need when inside resources have not satisfactory. Besides, esteem financing would be the last
choice to finance the firm wander. The theory circuitous that, the try need outside capital as
opposed to the worth financing since it is a display to the business division. That is the reason
offer the outside social occasions for contributes. In that limit, the POT model exhibit to cash
related business division had not romanticized. Whereby the unequal information among the
director and outside social events was influenced corporate financing decision (Myers, 1984). By
mold and perfect impact structure, the firm has the choice to pick the TOT. The study
demonstrates that commitment financing has significant for the associations. For increase of firm
values then declarations the evaluation discoveries, the firm can take in record the TOT model.
Taking all things into account, the attempt that longing to get an equality among internal and
outside financing should take points of interest of the tax break of help commitment while using
examine to restrict the probability of money related agony (Drobetz and Fix, 2003). Working
capital is the most dreary domains in corporate cash that effect with everything taken into
account operation of a firm. The firm use the blend of commitment and benefit of working
capital for the associations for work its operation. The essential objective of working capital
organization needs to decrease the cost of cash to grow the shareholder wealth. However the pro
couldn't find the specific level of working subsidizing to change its preferences and expense.
Husni Ali Khrawish and Ali Husni Ali Khraiwesh, (2007 to 2008). The primary motivation
behind this exploration is to analyze the determinant of working capital and the obligation
development structure of the businesses organizations in Amman stock trade (ASE) over the
length of time (2001-2005). Established work of Modigliani and Miller's traditional paper
(1958), which recommend that the firm esteem have autonomous from its influence structure, the
experimental and hypothetical examination of financing example had been expansion to join
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extra variables, for example, charges, liquidation cost, office cost, and unbalanced data issues.
The litterateur locate the particular elements that might eccect the firm ideal working capital.
Some examination analyzed the determinant of working capital incorporate Harris and Ravivi
(1991), Rajan and Zingales (1995), Bevan and Danbolt (2000), Omet and Nobanee (2001),
Huand and Song (2002), Antonion et al (2002). Mr. Ramzi E.N. Tarazi: as indicated by this
analyst the working capital has most baffling cases in the territory of account since beginning of
the present day hypothesis of the structure of capital gave (Modigliani and Miller, 1958). This
examination had been so well known hypothetical and experimental casing work however not to
fathom the obligation stock decision. Influence structure is blend of obligation and value utilized
by an organization for financing their advantage (Modigliani and Miller, 1958). For the director
the working capital choice is one of the imperative choices. Brigham (2003) discover the
elements that influence the association's working capital, which have charge position, hazard,
return, administrative conservatism and opportunity development. Impeccable capital business
sector which incorporates no exchange or liquidation expense, and individual can acquires at the
same loan cost, and no assessment then estimation of the organizations not influenced by
financing choice. Modigliani and Miller's (1958) discover two conditions in which first finding
that estimation of the firm has autonomous of its working capital. There was regardless of if the
company's raised their capital by issuing stock and obligations. In this manner it's likewise called
the working capital immateriality guideline. The second discovering state that the value cost for
levered firm was equivalent to the value expense of unlevered firm. What's more, include the
benefit for budgetary danger. The reflect influence build expense of value increment. It
additionally mirrors the most extreme level of danger. The one of the best working capital is to
minimize the expense of capital in the meantime expand the organizations esteem. Also, The
organizations attributes about fund decision have been broadly considered crosswise over firms
and nations. For moment, Rajan and Zingales (1995), Frank and Goyal (2003) contemplated US
firms, while Deesomsak, Paudyal and Pescetto (2004),andDe Jong, Kabir and Nguyen (2008)
concentrated on Asia Pacific firms, and some from other created and creating nations.
9
Statement of the problem:
The genuine issue explanation is "determinant of working capital". In Pakistan little research has
been discover the association of determinant of working capital. So we have an examination on
the how to discover the structure of capital on the most imperative part in Pakistan which is
recorded in the Pakistan stock trade. So our find is to discover the determinant on the
Cementindustry of Pakistan.
RESEARCH OBJECTIVES:
The purpose of the research is to find out the determinant of working capital.
1. To find out the determinants of working capital.
2. To find out the determinant of working capital in the cement sector of Pakistan economy.
3. To analyze which are the main determinant that influence the financing decision in the
choice of working capital in Pakistan economy?
4. To explain the relationship of determinant of working capital.
Gap analysis:
Agha Jahanzeb and Norkhairul Hafiz Bajuri: The point of this study was to examination the
relationship between working capital, human capital, determinant and influence. This study has
been demonstrating a coherent clarification toward the element affecting working capital. This
10
the investigation was comprise of 176 non-money related organizations which is recorded on
Karachi stock trade over the time of 2003 to 2012.This study uncovers that substance and
productivity have noteworthy effect on influence at 1% level, while size development and age
has been immaterial effect on the reliant variables. It has additionally demonstrate the coefficient
of the two huge logical variables, which are return and unmistakable quality was negative. The
autonomous variable was firm size, return; non-obligations charge shield, liquidity and human
capital. This was tries to explore the relationship in alternate point of view. What's more,
numerous more research has done the examination on it yet our exploration is on the time of the
2009 to 2014 on the Pakistan stock trade cementlisted organizations. For exploration the free
variables are obligation value and ward variable are ROE, ROA, EPS, TIER, and Firm size. Our
outcome is discover that the all the variable put the huge effect on the Debt value with the
exception of Firm size it demonstrates that have the inconsequential connection while decide the
working capital
Hypothesis:
The primary Purpose of study is discovered the determinant of working capital. The
accompanying are the particular destinations of the study. Learn about the determinant of
working capital in the segment of cementindustry in Pakistan. To check the connection of
working capital, return on value, return on resource, obligation proportion, and time premium
earned proportion, size of the firm, acquiring per offer.
Ho: There is no relationship between the Debt ratio and return on equity
Hi: There is relationship between the Debt ratio and return on equity
Ho: There is no relationship between the Debt ratio and return on asset.
Hi: There is relationship between the Debt ratio and return on asset.
Ho: There is no relationship between the Debt ratio and time interest earned ratio.
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Hi: There is relationship between the Debt ratio and time interest earned ratio.
Ho: There is no relationship between the Debt ratio and earnings per share.
Hi: There is relationship between the Debt ratio and earnings per share.
Ho: There is no relationship between the Debt ratio and size of the firm.
Hi: There is relationship between the Debt ratio and size of the firm.
Significance of study:
The inquiry is that why I pick that point it basic I need to put resources into business and it the
principle source to put resources into offer that why before did any of work must have a viable
information against of it. And everywhere throughout the world it is viewed as the most critical
dialog and it will be best for the whole scientist and the financial specialist and additionally the
chiefs of the organizations.
Really the exploration is to discover determinants of the working capital in Pakistan. In

incorporates observational talk of organization's yearly reports and its proportion investigation. It
additionally gives the foundation talk on determinant of the working capital. The exploration is
directed for the time being period from the date of 2009-2014. This period is picked on the
grounds that it will regard for everybody to discover the most recent exploration.
Chapter 2:
Literature Review
12
MianSajidNazir and TalatAfzal (2009)isfocused on the study of long-term economic decisions.
researchers have especially examined investments, framework, dividends or company value
decisions, among other matters issues. However, short-term assets and liabilities are important
pieces of total assets and needs to get being carefully assessed. The research made an effort to
analysis the productivity of the working capital management of cement sector of Pakistan for the
period 1988-2008. Rather than employing the traditional proportions seed money efficiency
features been measured with regards to us index. This paper also tests the speed of achieving the
target level of efficiency by an individual firm during this study period was used firm norms as
the target level of efficiency. Findings of the study indicate thatthe cement sector as a complete
was performed well during the study period.
Naveedanjum and mobeenurrehman (2009) examined the influence the current assets
administration around the profitability of Pakistan cement sector. Moreover, the key elements
that basically determined the working capital inside the financials of Pakistan concrete sector. To
manage firm's current assets which is definitely working capital management also to reach a
desire balance level among profitability and risk, figures was gathered from Annual Reports and
sample consist of 12 Pakistani cement Companies detailed at KSE from 2003-2008. The
association between starting money management and earnings is examined with relationship
regression analysis the effect proved there is inverse and positive association among working
capital management and profitability in cement sector of Pakistan.
Abdul raheman and mohammad Nasr (2005) Working Capital Management money Management
has the impact on liquidity as very well on profitability of the firm. The study, we are selected
a sample of 94 Pakistan businesses listed on Karachi Stock Exchange for any period of 6 years
coming from 1999 - 2004, we all have studied the impact of different variables of working
capital management. which includes the Average collection period, Inventory turnover in times,
Average payment period, Money conversion cycle and Current ratio online operating
productivity of Pakistani firm Financial debt ratio, scale the organization measured regarding
natural logarithm of sales and economical assets to perform possessions ratio have been utilized
as control variables. Pearson's correlation, and regression evaluation Pool least square and
general least square with cross section weight version are being used for analysis. The results
show that {presently there is a negative relationship between variables of the working capital
13
management and profitability of the organization. It ensures that as the cash conversion cycle
raises it will cause reducing profitability of the company, and managers can produce a positive
value intended for get the shareholders by minimizing the cash conversion routine to a possible
minimum amount level.
SohailRizwanSaaharJabeenShaikh, MehwishShehzadi (2012)The current study examined the

Capital Asset Pricing Model (CAPM) for thePakistan share market using monthly share returns
with the Cement businesses listed around within the Karachi Inventory Exchange for the period
of January 2004 to December2009. This research demonstrates that the unit is not valid in its
applications in almost all the listed cement businesses to elucidate the correct expected returns.
The results of this study are certainly not substantiating the theory's fundamental result that
higher risk (beta) is associated with higher levels of come back. The model does clarify;
however, excess returns and so lends support to the linear structure from the CAPM equation.
The results of the study cause negate the hypotheses and give evidence against the CAPM.
Additionally, this paper investigates whether the CAPM sufficiently captures all-important
determinants of returns including the recurring variance of stocks. The results demonstrate that
left over risk has no impact on the expected earnings of portfolios.
Dr. talatafzal (2004)study investigated the relationship between aggressive conservative working
capital policies for seventeen professional groups of public limited companies listed at Karachi
Stock Exchange for an amount of a length of 1998-2003. The ordinary least square regression
model offers been utilized to investigate in to the relationship of operating capital approached
and profit of firms. The research found positive among their seed cash investment and financing
guidelines across different industries. Furthermore, these significant distinctions are amazingly
stable over the period of six years. The effective investment working capital policy is combined
with aggressive working capital funding policies. Finally, we discovered an adverse relationship
between the profitability measures of businesses and amount of effective of working capital
investment and financing policies. The analysis might contribute an improved knowledge of
operating capital management policies within just an emerging market just like Pakistan.
Hadhemi and Zadeh (2012) explored to research the effect of company size, operating
cash flow, and working capital in acknowledged organizations of Tehran Stock Exchange. Study
14
objectives and Hypothesizes have been proposed in this research. The impact of working capital
on the profitability of the firm in the first hypotheses, the effect of operating cash flow dividend
policy was given in the second hypotheses. Statistical method utilized as a part of this paper
includes regression model and legit regression show by synthetic data method. Systematic
remove had been utilized for confirming the statistical sample, and at long last seventy four
organizations had been chosen and explored. Outcomes of the analyzing the information
demonstrated all the three theory by utilizing the panel data within different expressions, there
was a significance full and negative connection between working capital and profitability , there
was an importance and positive connection between operating cash flow, dividend policy and
size of organization.
Soumadi and Hayajneh (2012) explored the impact of working capital on the execution of
profit in general Jordanian organization recorded in Amman stock exchange. Hypotheses and
Objective was to analyze the corporate execution and working capital study on people in general
Jordanian shareholdings organizations recorded in the Amman stock exchange. The study
utilized different regression model illustrated by ordinary least squares (OLS) as a procedure to
inspect what was the impact of working capital on the profit. The outcomes of the study reasoned
that working capital connected negatively and statistically with organization execution on the
sample test for the most part. They presumed that the impact of working capital on the support of
the development that there was no distinction between the financial leverage of high
development organizations and low development organizations on the execution, which it was
statistically and negatively.
Floriniţa (2012) presented study inspects the relationship between return on equity
(ROE), working capital and leverage. Researcher organizes research question and objective
address to discover the effect of the use of Debt on the Profitability of Romanian Companies. A
sample organizations enrolled under Buchwerest Stock Exchange was analyzed. The study
utilized regression system to approximate the effect of debt level on productivity (measured by
Return on Equity). Debt was utilized by numerous organizations to profit their capital and
benefit. The study that debt level was not the main aspects that impact to profit and working
capital. Researcher closed the influence of size (all were independent variables) and leverage on
the return on equity (dependent variables) position of the organization.
15
Yoon and Jang (2005) study introduces an empirical understanding into the relationship
between working capital and profit, return on equity (ROE) in the restaurant business utilizing
OLS regressions. The research question and objective explore address of the study was to figure
out the impact of working capital on profitability restaurant organizations. They said in
procedure that the accounting-based profitability was measured utilizing return on equity (ROE)
ratio. The outcomes of the regression analyses identified with hypotheses (restaurant
organizations utilizing an easier level of working capital have higher productivity. Research
results propose that throughout the test period organization estimate had a more predominant
impact on ROE of restaurant organizations than debt usage, bigger organizations earning
fundamentally higher equity returns. Results additionally prescribe that paying little mind to
having lower financial leverage; littler restaurant organizations were altogether more risky than
bigger organizations. They conclude the size impact authority in the ROE- financial leverage
relationship inside the restaurant business was better comprehended.
Gill, Mand, Sharma and Mathur (2012) communicated inspiration driving this study was
to take a gander at the components that effect of working capital on benefit business associations
in India. Their goal of the theories of the study was the components that effect of working capital
on the gainfulness in India. Little business development (SBG) autonomous variable was
operationalized as the extent to which minor business people watch that the general advancement
of their minor associations had improved over the span of the latest three years. Through relapse
examination, Gill et al. found that the impact was contrarily related with collateralized
possessions and organization's profitability. The little business visionaries from Punjab scope of
India were studied to collect information. The discoveries of this paper demonstrate that little
business execution and advancement, charge, all out resources and family have positive effect on
the money related working of little business organizations in India. The finish of this study helps
the writing on the variables that effect money related working of little business organizations.
Mathias Bernard Baveld ( 2010) This study explores how open recorded firms in The
Netherlands deal with their working capital. A specimen of 37 firms is utilized, which are among
the fifty biggest organizations in The Netherlands. The working capital strategies amid the non-
emergency time of 2004-2006 and amid the Financial Crisis of 2008 and 2009 are thought about.
16
This examination explores whether organizations need to change their non-emergency working
capital approaches when the economy is into a subsidence. The aftereffects of this study
demonstrate that, in emergency periods, firms don't have to change their working capital
arrangement concerning accounts payables and stock, if they will probably upgrade benefit. For
the working capital arrangement overseeing accounts receivables this is not the situation. This is
on the grounds that amid an emergency accounts receivables positively affect a company's
gainfulness of the following year. These outcomes are on transient premise. On the long haul,
advantages of helping clients amid emergency periods are prone to develop, on the grounds that
future deals will in any case arrive. Likewise the dangers taken by these supporting firms are
generally low and for extensive legitimate firms it is additionally moderately shabby.
Dr. Khalaftaani (2009) This research examined how opened recorded firms in The Netherlands
deal with their working capital. A specimen of 37 firms is utilized, which are among the fifty
biggest organizations in The Netherlands. The working capital strategies amid the non-
emergency time of 2004-2006 and amid the Financial Crisis of 2008 and 2009 are analyzed. This
examined researchers whether organizations need to change their non-emergency working
capital strategies when the economy is into a subsidence. The aftereffects of this study
demonstrate that, in emergency periods, firms don't have to change their working capital
approach concerning accounts payables and stock, if they will probably upgrade benefit. For the
working capital arrangement overseeing accounts receivables this is not the situation. This is on
the grounds that amid an emergency accounts receivables positively affect a company's
productivity of the following year. These outcomes are on transient premise. On the long haul,
advantages of supporting clients amid emergency periods are liable to develop, on the grounds
that future deals will at present arrive. Additionally the dangers taken by these helping firms are
generally low and for expansive legitimate firms it is likewise moderately modest.
Pedro Juan García-TeruelThis study examines how open recorded firms in The Netherlands deal
with their working capital. A specimen of 37 firms is utilized, which are among the fifty biggest
organizations in The Netherlands. The working capital strategies amid the non-emergency time
of 2004-2006 and amid the Financial Crisis of 2008 and 2009 are analyzed. This examination
researches whether organizations need to change their non-emergency working capital strategies
17
when the economy is into a subsidence. The effects of this study demonstrate that, in emergency
periods, firms don't have to change their working capital approach concerning accounts payables
and stock, if they will probably upgrade benefit. For the working capital arrangement overseeing
accounts receivables this is not the situation. This is on the grounds that amid an emergency
accounts receivables positively affect a company's productivity of the following year. These
outcomes are on transient premise. On the long haul, advantages of supporting clients amid
emergency periods are liable to develop, on the grounds that future deals will at present arrive.
Additionally the dangers taken by these helping firms are generally low and for expansive
legitimate firms it is likewise moderately modest.
Kolapo, F.T. 2011 assessed the impact of working capital administration (WCM) on corporate
execution of chose recorded firms in Nigeria. The period under audit ranges from 2001-2010.
The two models fabricated indicates Return on Assets (ROA) and Gross Working Capital
(GWC) as being clarified by the accompanying measures of WCM: Inventory Turnover in Days
(ITD), Average Collection Period (ACP), Average Payment Period (APP) and Cash Conversion
Cycle (CCC). The study distinguishes that WCM fundamentally and absolutely affect on
corporate execution through its impact on gainfulness which speaks to a standard foundation to
evaluate the execution of a firm.
Vijaylaxmi Chari (2010)had been assessed that the impact of working capital administration
(WCM) on corporate execution of chose recorded firms in Nigeria. The period under audit
ranges from 2001-2010. The two models fabricated indicate Return on Assets (ROA) and Gross
Working Capital (GWC) as being clarified by the accompanying measures of WCM: Inventory
Turnover in Days (ITD), (ACP), (APP) and Cash Conversion Cycle (CCC). Taking after the
board information approach, the discoveries uncover that WCM have prescient capacity on both
ROA and GWC; be that as it may, none of the measures of WCM has noteworthy impact on
GWC while APP and CCC apply centrality on ROA. The study distinguishes that WCM
fundamentally and absolutely affect on corporate execution through its impact on gainfulness
which speaks to a standard foundation to evaluate the execution of a firm.
18
Brigham and Ehrhardt (2005) mulled over the Du-Pont chart analysescould depict the
relationship between the working capital and profitability of debt level as thought about by return
equity ratio of an organization. Their objective and research question of the study was to figure
out the does Du- chart analyses could depict the relationship between the utilization and
profitability of debt level as thought about by return equity ratio of an organization. The study
utilized regression technique to estimate the effect of debt level on profitability (measured by
Return on Equity).According to analyses, the correct utilization of debt level could raise the
return on equity ratio. This implies that the organization's administration could make utilization
of the debt level to increase the profit. It was concluded this could show the capability of the
organization's management to augment its operation on assets in making profit.
Baggs and Brander (2005) research if exchange liberalization influences working capital
and profitability by utilizing Couldadian information from the period accompanying execution of
the Couldada-U.S Free Trade Agreement. Their study goal was to figure out the exchange
Liberalization, Financial working and Profitability. A few variables that could be utilized as
informative variables for influence, for example R&D expenditures, hypotheses concerns the
impact of tariff changes on profits. We test this hypotheses utilizing a regression technique. It
was natural to utilize the logarithm of profits as the dependent variable. They discover that
falling domestic tariffs were connected with and increasing capital and declining profits for
import- competing organizations, while fall in remote tariffs were connected with decreasing
leverage increasing profits for companies in export-oriented industries. This example was
reliable with the "pecking order” hypotheses of working capital.
Gill and Mathur (2011) study is to discover the components that impact of working
capital of Canadian organizations. Objective of the study is to discover that variables that impact
working capital of Canadian organizations. They show the experimental discoveries on the
components that impact money related influence of Canadian organizations. The Ordinary Least
Square (OLS) show with a cross area weight of seven segments (health care, services,
information technology, consumer products, communication and utilities) from services and
manufacturing enterprises was utilized to perform data analysis. This study connected non-
experimental and co-relational research design. The outcomes show that working capital of
Canadian organizations is impacted by the growth opportunities, profitability, collateralized
19
assets, effective tax rate, number of subsidiaries, productivity, adequate duty rate, company size,
company estimate, industry counterfeit and industry counterfeit in which Canadian companies
work.
Mahira (2011) concentrates in this on exploring the impact of the company’s profitability
on the working capital of the car segment organizations in Pakistan. Her research question
andobjectiveis to recognize the impact of the company’s profitability and its financial leverage
on the working capital of the auto division of Pakistan. To move ahead with this, the working
capital of recorded companies has been examined by receiving an econometric system over a
time of five years. By assessing regression analysis and checking the relationship of the assessed
model through Correlation Coefficient Test, she discovered that the profitability of the company
and its financial leverage have no effect on the working capital of the examined organizations
throughout the inspected period. Consequently, she concluded the study is unable to make any
huge connection between financial and profitability impact on the working capital of a company.
Obradovich and Gill (2013) their study looks at the effect of financial working and
corporate governance on the worth of American companies. Their research question and
objective is to distinguish the effect and impacts of working capital and corporate governance on
the quality of American companies. This study non-experimental and co-relational research
design was utilized to direct this study. The findings show that bigger board estimate negatively
affects the worth of American companies and CEO duality, financial working,return on assets,
audit committee and insider assets positively affect the quality of American companies. They
concluded the outcomes show that bigger board estimate negatively affects the worth of
American companies and CEO duality, financial working,return on assets, audit committee and
insider assets positively affect the quality of American companies.
Kumar, Amity, Galgotia and Khatua (2012) examined together that the behavioral
displaying of remote institutional investor's in Indian equity market. Their research question and
objective and look into inquiry to discover the behavioral modeling of foreign institutional
investor’s in Indian equity market. The present study empirically reports dynamic interaction and
documents static between stock market returns and foreign Institutional Investor utilizing vector
auto regression and ordinary least squares regression with impulse response function. They
discover that the foreign Institutional Investor (FII) flows have expanded just about twenty times
20
and accomplished shares of thirteen and six percent in the Bombay Stock Exchanges and the
National Stock Exchange in the money section of the Indian equity market. This raises the issue
of behavioral modeling of foreign Institutional Investor flows for global and local push in the
business sector. The paper recommends and concludedinformed churning strategies and active
methodologies by portfolio investors and managers managing companies with higher FII
investment around global and local stress.
Akhtar, et al (2012) mulled over energy sector and Fuel serves as the spine of the
economy. The research question and objective is to figure out the objectives incorporate the
advancement of Foreign Direct venture in state through expanded solid rivalry for ventures in the
energy segment, advancement of nearby gas and oil organizations of Pakistan. For measuring the
impact of working capital of the organizations, it is fundamental to know if a positive
relationship exists between the financial strength and financial working or not? The paper
analyzes the generalization that companies with higher leverage might pick high influence by
utilizing different statistical tools. The findings of the study indicate a positive relationship
between the financial leverage. The outcomes of the study presents that the companies having
higher profitability might enhance their financial execution by having large amounts of financial
leverage. The conclusion of the study gives prove by assessing diverse facts.
Akinmulegun (2012) in this paper exactly analyzes the impact of working capital on
chosen markers of corporate execution in Nigeria. The objective of the study is to look at the
impact of financial working on the chosen indicators of corporate execution in Nigeria. The
earlier findings were particular of advanced countries; econometric method of Vector Auto
Regression (VAR) model was utilized. The findings uncovered that Leverage stuns push
significantly on corporate execution in Nigeria. Hence, hypotheses that are sufficient for
indigenous macro financial variables ought to be produced in place of relying upon the organized
hypothesis of the progressed improved countries of the world, as these hypotheses can not be
proper substitutes for propelling the course of the advancing countries. The conclusion leverage
influence corporate execution in Nigeria. The econometric findings shows in this study exhibit
that leverage shocks (debt level / equity ratio) have significant impact on corporate execution.
Magpayo (2012) plans to verify the impact of working capital management policy on
financial performance of Philippine companies measured as far as net income, return on holding
21
(ROA) and return on value (ROE). The objective of the study is to discover the impact of
working capital administration approach and financial working on financial performance of
companies. ANOVA F-test, Pearson's rank association test and different regression investigation
were utilized on chosen firms incorporated in the Business World's Top enterprises in the
Philippines ranked in gross revenue. The outcomes of the study demonstrated that firm size,
company's working capital management strategy and financial working have noteworthy
connection to net income. Researcher presumed that the working capital management policy has
no critical impact on return on possessions (ROA) and return on equity (ROE).
Sanjay (2009) considered that in corporate finance, financing choice has picked up more
stupendous vitality on the grounds that the optimal working capital could be made through
proper mix of finance. Researcher objective of the study is to figure out the effect of financial
working on expense of capital. For this study, the vital data have been gathered from the Capital
line database of the capital business and analyze through diverse accounting ratios. This study
analyzes the empirical impacts of corporate working capital (financial working) on expense of
capital and the business worth of chosen firms of Indian Cement Industry. The analysis proof of
the study shows that no effect of financial working on expense of capital was discovered in the
concrete business in India, i.e. no critical linear relationship between the cost of capital and
working capital exists, and there is no correlation between the total valuation and financial
working inside the cement industry. He presumed that the financial working does not influence
the aggregate valuation of a company in the cement industry in India.
Gill et al. (2009) contemplated on working capital talk about so energizing is that just a
couple of the advanced hypothesis has been tried by empirical studies. Their objective is to
examine empirically if exchange liberalization has an effect on working capital. They have
gathered data from American service companies. Through regression analysis, they discovered
that financial working is influenced by company size and negatively influenced by collateralized
assets, firm growth, firm performance and effective tax rate. Keeping in mind the end objective
to stay (for correlation and reference explanations) depends on past analysis; the measures were
taken from three referent thinks about, which thus, are dependent upon past studies in behavioral
finance. The conclusion demonstrates that collateralized assets, firm growth, firm performance
and effective tax rate impact the firm’s working capital.
22
Pachori and Totala (2012) researched the working capital measures association's
exposure to financial risk. An elevated amount of working capital permits shareholders to
acquire a high return on equity; however they are additionally presented to a higher risk of
significant loss, if the return on assets is lower. Their study’s research question and objective is
to figure out the financial working impact on shareholders' return and market capitalization of
automotive organizations. The linear simple regression has been utilized as an instrument to
analyze the information by SPSS version. It is well known reality in analysis that working capital
is one of the methods by which shareholder' return and market capitalization could be enhanced,
the financial working influence might be used for motivation of shareholders' return and market
capitalization. It was recommended that debt providers and bankers might help industry out by
charging lower debt.
23
Chapter # 3
Theoretical frame work

According to this author (DejanMalinic, KsenijaDencic-Mihajlov, EmaLjubenovic 2013)
this examination develops effect of working capital on productivity of the concrete organizations
in pakistan such firms which recorded in the managed business sector and they utilize board date.
The study had discovered the rising character of professional workplace furthermore demonstrate
that this organizations might have brought down debt ratio and rely on upon the fleeting and long
haul debt of firm. This examination has additionally shown that there was a huge effect of ROE,
unmistakable quality, ROA, NOP (gainfulness), on debt ratio. Debt ratio level was huge
absolutely influenced by the chance of development and return instability of concrete firms.
SitiNurAqilahAbWahab, NurAinnaRamli (2012): In this paper they need to investigate that how
the functioning capital decision of Malaysian Government connected organizations (GLCs) was
impact the firm elements and Micro variables. The gathered the information from 13 GLCs for a
period 1997 to 2009 (13 years). ROA, Tangibility and firm size was the most imperative
variables to discover the benefit of GLCs. ROA, ROE, current resource, Liquidity, firm Size, Net
working benefit. Also, as indicated by the (Fitim DEARI, Media DEARI 2009) the exploration
has been done on the organizations productivity. The exploration has been done on the
Macedonian non-money related organizations which were enrolled on Macedonian stock trade.
The information was gathered of 3 years (2005-2007) of 32 recorded organizations. This
concentrate likewise done on the little and medium business which covering the time of 3 year
(2005-2007) and the information including on 30 recorded organizations. The examination has
been done on the yearly reports of organizations for exact investigation. The outcome showed
the difference in the middle of recorded and non-recorded organizations. Returns on resource,
substance, firm size, rate of development, and non debt charge shield were utilized as
independent variables and Net working benefit use as a dependent variable. our examination is
on the time of the 2009 to 2014 on the Pakistan stock trade cementlisted organizations. For
examination the independent variables are debt value and dependent variable are profit for value
(ROE), return on resource (ROA), procuring per offer (EPS), time premium earned ratio (TIER),
and Firm size. Floriniţa (2012) introduced study reviews the relationship between profit for value
24
(ROE), working capital and influence. Specialist sorts out exploration inquiry and target location
to find the impact of the utilization of Debt on the Profitability of Romanian Companies. An
example associations enlisted under Buchwerest Stock Exchange was investigated. The study
used relapse framework to estimated the impact of debt level on profitability (measured by
Return on Equity). Debt was used by various associations to benefit their capital and advantage.
The study that debt level was not the fundamental angles that effect to benefit and working
capital. Analyst shut the impact of size (all were independent variables) and influence on the
arrival on value (dependent variables) position of the association.
Theoretical model:
The research used historical data on each listed company in PSE (Pakistan stock exchange). The
major source of data included the Pakistan Stock Exchange, state bank of Pakistan and each
every listed company’s annual reports. And all the econometric tests are applied on the EVIEW
8.0 the main research is to find out the impact of working capital on the profitability of the
cement company in Pakistan.
Dependent Variable; Independent Variable;
Return on Assets
Current Ratio
NET OPERATING Cash conversion cycle

PROFIT
Debt ratio
Firm Size
Growth of Sales
25
Model specification:
The study is estimated by the general regression model that is used to find and impact of working
capital on the profitability of the firm for the 10high listed cement companies in the stock
exchange. Through the pool unit root test with random and fixed effect estimation technique
were assessed. After that put the Hausmen Test to find out which test is most suitable whether
the fixed effect and the random effect.
Profitability (NOP) = Return on asset + Firm Size + Cash Conversion Cycle + Debt ratio +
Current Ratio +growth of sales + error
NOP= α + b1 ROA +b2 FRM+b3 CCC +b4 DER+ b5 CUR + b6 GRS + error
Where,
ROA= Return on asset
FRM= Firm Size
CCC= Cash Conversion Cycle
CUR= Current Ratio
GRS= Growth of sales
DER= Debt ratio
NOP= Net Operating Profit
For the data analysis the statistics technique and tools are used like mean, median, standard
deviation and multi regression technique. According to the nature of the data the unit root test
apply on the panel data.
26
Measurement of variable
Return on asset (ROA):
Return on asset quantum the amount of return the corporations hatch as a percentage of the value
of its total asset. A signal of how return of a company is relative of its total asset. It also gives an
idea as to how able management is at using its asset to hatch earning. It’s calculated by dividing
annual earning of a company by its total asset. ROA spread out as a percentage. It is also called
return on investment. Net income is get from the income statement of the company and it is the
profit after tax. The total assets are get from the balance sheet of the company.
Return on asset= net income/ total asset
According to BwembyaChikolwa a common deliberate of firm profitability was return on assets

(ROA) (Brealey et al. 2008). The trade-off and pecking order theories deviate on the relationship
between leverage and profitability. According to the trade-off theory, high profitability will
increase tax shields and create an insistence for higher leverage. On the other hand, the pecking
order theory view that companies will use internal financing before external sources. Following
Myers and Majluf (1984), a negative relationship between profitability and leverage postulated.
According to (Syed TahirHijazi, Yasir Bin Tariq 2006) return was the hardy point of discord
between the pecking order theory POT and static trade-off theory STT. For increase the firm
returns it should have issue the debt and reduce its tax burden. On the other hand, POT assume
that if they want larger earnings then increase the main sources the firm ti cover its financial loss.
Therefore the STT have been positive relationship among return and leverage. Several studies
were conducted to explore the influencing determinant of working capital such as Dejanmalinic,
KsenijaDencicMihajlov, EmaLjubenovic (2013). AghJahanzeb and Norkhairul Hafiz Bajuri,
SannomoLaraiGarba, Abu SenniOdudu (2013),Yasir Hassan, Kashif-ud-din (2012), Jean J. Chen
(2003), Husni Ali Khrawish and Ali Husni Ali Khraiwesh (2010). Here is a significant
relationship between return on asset and debt ratio.
27
Firm size (FS):
Firm size tells about the sale of the company’s. It shows that the scale of the company size is. If
the company sale is large then the firm size is on large scale. Large scale firm also get the huge
earning from its annual sale. it means company goodwill is well. If the sale is week it indicates
that the company good will is low because company not gets the huge profit. Firm size depends
on the company sale. It calculates by taking log of sale. Firm size has become to use a control
variable in empirical corporate finance study. There are two general approaches use for firm size
definition total sale of firm and number of employees.
Firm size= log (sale)
The size of a firm is related to the risks and costs of insolvency (Ngugi 2008). Larger firms are
usually more varied and therefore bear lower risks of financial trouble (Ang et al. 1982) or that
their size creates less clarity and greater need for control (Ang et al. 1982, Myers 1984, Myers
&Majluf 1984). Researcher said that if they use the trade-off theory there is a positive
relationship between firm size and leverage and a negative relationship in accordance to the
pecking order theory. Westgaard (2008), Morri (2008), Bond (2006) find a well positive
relationship between firm size and debt, with Feng (2007) finding firm size to be non-significant
in determining leverage. Ooi (1999) finds an inverse relationship between firm size and leverage
and further concludes that smaller property companies may not have enough choice but to
gamble on bank loans. Earlier studies have used size to operating revenue, number of employees
or the size of total assets as proxies of size. Several research have been conducted for the
determinant of working capital which use the firm size as a independent variable such as Ramzi
E.N Tarazi (2013), Ishtiaq Khan1, SaeedUllah Jan, Mushtaq Khan (2015), Tugba Bas,
GulnurMuradoglu and Kate Phylaktis (2009). In my study firm size have a insignificant
relationship with debt ratio.
28
Debt ratio (DR):
Debt ratio is a financial ratio that tells about the percentage of the company’s asset that are
provided along debt. It is a financial ratio that measures the extension of a consumer’s or
company’s advantages. The ratio defined as the ratio of total short term debt and total long term
debt to total asset intimate as a percentage. The proportion of the company’s asset that is
financed by debts can be made clear. Debt ratio used to gain a common idea as the amount of
benefits being used by a company. If the percentage is week that shows company is less
dependent on leverage.
or alternatively:
Total debts include the short term debt and long term debt. It is also called as debt-to-assets ratio.
Most of the researchers have done the study on the working capital and they use the different
variables. Leverage can be measured with variety of the ratio. Like total liability to total asset,
total debt to equity, total debt to total asset, and total debts to net assets (Rajan&Zingales 1995).
For raised the company repaying its debts use the ratio of earnings before interest and tax (EBIT)
to interest expense. According to (Titman and Wassels 1988) have been a significant correlation
between book value and market value and non-significant in proxies used. Fama and French
(2002) said manager should usually decide to issue debt or working capital choices based on
book value data because market value have a high volatility and its depend on a various factors
which directly control the firms. In the BwembayChikolwa study these variables were used.
Total liability to total assets (TLA), total long-term debt to total assets (LTD), total short-term
debt to total assets (STD), and interest coverage ratio (NIE) are used to measure leverage. Short
term debt is included because it presents a significant proportion of total debt by property
companies; rolling-over short term debt to achieve longer term debt is a common practice in
29
property companies (Brett 1990; Ooi 1999). Several research was conducted for the determinant
of working capitalwich influenced on the debt ratio ( long term debt and short term debt) such as
Han-Suck Song (2005), Tugba Bas, GulnurMuradoglu and Kate Phylaktis (2009),Dr. Aremu,
MukailaAyanda (2013), Abdul GhafoorAwan, Muhammad Sajid Amin (2014).
Cash conversion cycle
The cash conversion cycle (CCC) is a metric that communicates the amount of time, in days, that
it takes for an organization to change over asset inputs into cash streams. The cash conversion
cycle endeavors to gauge the measure of pioneer every net info dollar is tied up in the generation
and deals process before it is changed over into cash through deals to clients. This metric takes a
gander at the measure of time expected to offer stock, the measure of time expected to gather
receivables and the time span the go to is stood to pay its bills without acquiring punishments.
The metric is calculated as:
CCC= ACP+ APP+ITID
Where:
The CCC is also referred to as the "cash cycle."
The average collection period is the approximate amount of time that it takes for a business to
receive payments owed, in terms of receivables, from its customers and clients.
Calculated as:
Where:
Days = Total amount of days in period
30
AR = Average amount of accounts receivables
Credit Sales = Total amount of net credit sales during period
APP (Average Payment Period):
Average payment period means the average period taken by the company in making payments to
its creditors. It is computed by dividing the number of working days in a year by creditors
turnover ratio. Some other formulas for its computation are give below:
Formula:
This ratio may be computed in a number of ways:
Any of the above formulas may be used to compute average payment period. If credit purchases
are unknown, the total purchases may be used.
31
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-
term obligations. To gauge this ability, the current ratio considers the total assets of a company
(both liquid and illiquid) relative to that company’s total liabilities.
The formula for calculating a company’s current ratio, then, is:
Current Ratio = Current Assets / Current Liabilities
The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates
all current assets and liabilities.
Econometric Model
The study follows the (Baskin, 1989)’s work to form the theoretical framework where PV is
primarily regressed against two key variables: Dividend yield and Dividend payout ratio being
proxies of dividend policy, using following multiple least square regression equation:
NOP= α + b1 ROA +b2 FRM+b3 CCC +b4 DER+ b5 CUR + b6 GRS + error
Pachori and Totala (2012) inquired about the working capital measures affiliation's
presentation to monetary danger. A hoisted measure of working capital licenses shareholders to
get an exceptional yield on value; in any case they are moreover exhibited to a higher danger of
noteworthy misfortune, if the arrival on resources is lower. Their study's examination inquiry and
goal is to make sense of the monetary working effect on shareholders' arrival and business sector
capitalization of car associations. The straight basic relapse has been used as an instrument to
dissect the data by SPSS form. It is understood reality in examination that working capital is one
of the techniques by which shareholder' return and market capitalization could be upgraded, the
32
monetary working impact may be utilized for inspiration of shareholders' arrival and business
sector capitalization. It was suggested that obligation suppliers and investors may bail industry
out by charging lower obligation.
Since a nearby connection exists between profit yield and profit payout moreover, there
are various different variables that influence both profit arrangement and shareholders riches, it
might prompt multi co linearity issue. To point of confinement this issue, Baskin (1989)
prescribed adding four control variables to relapse mathematical statement: size, obligation,
development and income unpredictability. Other than Baskin (1989's) suggested variables,
further two variables: income per share and profit for value are added to the comparison.
The primary regression equation takes the form:
NOPi=α o +α 1 roai+ α 2 frmi +ccc i +cur ,+ grs i +deri+∈i
Where;
ROA= Return on asset
FRM= Firm Size
CCC= Cash Conversion Cycle
CUR= Current Ratio
GRS= Growth of sales
DER= Debt ratio
NOP= Net Operating Profit
33
Dependent variables
Net operating profit
Net operating income (NOI) is a calculation used to analyze real estate investments that generate
income. Net operating income equals all revenue from the property minus all reasonably
necessary operating expenses. Aside from rent, a property might also generate revenue from
parking and service fees, like vending and laundry machines. Operating expenses are those
required to run and maintain the building and its grounds, such as insurance, property
management fees, utilities, property taxes, repairs and janitorial fees. NOI is a before-tax figure;
it also excludes principal and interest payments on loans, capital expenditures, depreciation and
amortization.
34
Chapter 4
Research and technique apply:
Descriptive Statistics:
Means such numbers that used for describe and summarized the data which is related with
Historical records, a survey, an experiment etc. It usually used to describe the basis features of
the data. In simple it used to define the whole summary in different values.
CUR CCC DEB ROA FRM GRS NOP

- 0.9144 5.9766 6.5350 0.2737 425098 0.4847
Mean 11.099 44 67 49 88 .1 22
6.6083 6.7460 0.1614 0.1021
Median 62 0.735 1.1 13 28 56 -0.545
Maxim 7.3774 7.3774 4.3968 664564
um 22 2.62 175.8 22 5 9 30.97
-
Minim 154.44 -
um 5 0.22 -8.24 3 -1 0.2427 -18.2
Std. 43.483 0.6728 29.021 0.8531 0.9271 145598 11.375
Dev. 09 31 75 62 57 6 02
- -
Skewne 2.2903 1.1216 5.6743 2.3727 2.6404 3.2951 0.4783
ss 8 01 22 2 12 29 29
Here this table showed that the 7 selected variable which shows the working capital on the
profitability of the firm. Which defined that the data are normally distributed The data set
contained a total of 56 observation on the 10 listed company on the Pakistan stock Exchange for
the last 5 years. The means of the listed company is not much close to the median. of their
Current Ratio. It means the company gain profit of 30% of the company. The average of the
35
CCC 2.62% The growth of the sales is defined on the (GRS) which averages are 42 % and it
median is 10%. And net operating profit shows through profit against working capital which
defined the averages of 42% it means overall the all the variables were between the 3% 42%.
All the average of profit or earning shows that the there is good growing of the food and cement
sector in Pakistan. Net operating profit used as dependent variable, after using technique of
descriptive statistic on the data of 8 listed company in Pakistan stock exchange. It calculated the
Mean of MPS is 30.97 which is max and min is 0. Median is 38 and the Std. deviation is 11.37%.
And other all the independent variables each independent variable show the different result
which median are relay between -0.54 to 6.74. Std. deviation is between 0.64 - 14441. At last
Mean is in between 0.42 to 4250. So concluded that different variables are different values which
may did not show any stationary trend. If the data show the non-stationery trend, then the unit
root test applied on each variable.
Cash Conversion Cycle
Unit Root test
The unit root test is used only on the non-stationery data which is collected by time series
technique or any historical records using the auto regressive model. So apply the unit root test
and analysis the significance result of CCC.
Level
Cross-
Prob.*
Method Statistic * Sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -16.6242 0 7 35
Null: Unit root (assumes individual unit root process)

Im, Pesaran and Shin W-stat -2.82985 0.0023 7 35
ADF - Fisher Chi-square 29.9282 0.0078 7 35
PP - Fisher Chi-square 35.3843 0.0013 7 35
36
** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
Here we are applied unit root test on the cash conversion cycle. It show the significance because
ADF - Fisher Chi-square prob is 0.0071> 0.05 it means it show that there is positive relation in
the data and the data have highly significant as while find the unit root test. the individual unit
root process both are showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the
significant result which is less than < 0.05.
Current Ratio
Unit Root Test
and analysis the significance result of EPS.
Level
Cross-
Method Statistic Prob.** sections Obs
Levin, Lin & Chu t* -5.9431 0 8 40


37
Here we are applied unit root test on the current ratio. It show the significance because ADF -
Fisher Chi-square prob is 0.0401> 0.05 it means it show that there is positive relation in the data
and the data have highly significant as while find the unit root test. the individual unit root
process both are showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the
Debt ratio
Unit root test
Level
Cross-
Levin, Lin & Chu t* -2.96347 0.0015 8 40

Im, Pesaran and Shin W-
stat -0.02312 0.4908 8 40

Here we are applied unit root test on the debt ratio. It show the insignificance because ADF -
Fisher Chi-square prob is 0.4501> 0.05 it means it show that there is negative relation in the data
and the data have highly in-significant as while find the unit root test.the individual unit root
process both are showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the in-
significant result which is greater than < 0.05.
38
Firm Size
Level
Unit Root Test
Cross-
Levin, Lin & Chu t* -6.50883 0 8 40


Here we are applied unit root test on the Debt ratio. It show the significance because ADF -
process both are not showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the
significant result which is less than < 0.05. one is showed that here is significance and othe is
not so it means we can accumulate that themay they hava a relationship or may not.
39
Growth Rate of sales
Unit root test:
and analysis the significance result of EPS.
Level
Cross-
Levin, Lin & Chu t* -10.1344 0 7 28


Here we are applied unit root test on the Growth of sale. It show the significance because ADF -
40
process both are showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the
Return on Asset:
Unit root test
Level
Cross-
Levin, Lin & Chu t* -10.6877 0 8 40


Here we are applied unit root test on the Return on asset ratio. It show the significance because
ADF - Fisher Chi-square prob is 0.0401> 0.05 it means it show that there is positive relation in
the data and the data have highly significant as while find the unit root test. the individual unit
root process both are showed that ImPesaran, ADF – Fisher chi and PP – fisher Chi have the
Pool least square
Random Effect
NOP? 1.60E-07 5.67E-08 2.825787 0.0068
41
D(CUR?) -0.26142 0.190443 -1.37267 0.1761
D(CCC?) 0.001016 0.007479 0.135864 0.8925
D(DEB?) 0.000451 0.001884 0.239253 0.8119
D(FRM?) -0.29846 0.217335 -1.37329 0.1759
D(GRS?) -0.09983 0.096807 -1.03121 0.3075
D(ROA?) 0.042357 0.011572 3.660315 0.0006
Random Effects (Cross)
_APP—C 0
_ATC—C 0
_BST—C 0
_CHC—C 0
_DBC—C 0
_DGC—C 0
_DNC—C 0
_DWC—C 0
_APP—C 0
_ATC—C 0
_BST—C 0
_CHC—C 0
_DBC—C 0
_DGC—C 0
_DNC—C 0
_DWC—C 0
Effects Specification
S.D. Rho
Cross-section random 0 0
Idiosyncratic random 0.622232 1
Weighted Statistics
Mean dependent var 1 S.D. dependent var 0

S.E. of regression 0.964243 Sum squared resid 45.55847
F-statistic -8.16667 Durbin-Watson stat 0.359397
Prob(F-statistic) 1
A statistical examination of two population means. A two-sample t-test examines whether two
samples are different and is commonly used when the variances of two normal distributions are
unknown and when an experiment uses a small sample size. For example, a t-test could be used
42
to compare the average ROA and DR. There are some results are non-probable like ROA but
others are all shows the significant figures.
The test statistic is known as the t-statistic. The t-test looks at the t-statistic, t-distribution
and degrees of freedom to determine a probability value that can be used to ultimate whether the
population means differ. The t-test is one of a number of hypothesis tests. To compare five or
more variables, statisticians use an analysis of variance (ANOVA). If the sample size is large,
they use a z-test. Other hypothesis tests include the chi-square test and f-test. The result of
Durbin-Watson stat 0.359397.
Hausmen test
Variable Fixed Random Var(Diff.) Prob.
NOP? 0 0 0 NA
D(CUR?) 0 -0.26142 -0.03627 NA
D(CCC?) 0 0.001016 -5.6E-05 NA
D(DEB?) 0 0.000451 -4E-06 NA
D(FRM?) 0 -0.29846 -0.04724 NA
D(GRS?) 0 -0.09983 -0.00937 NA
43
D(ROA?) 0 0.042357 -0.00013 NA
Cross-section random effects test equation:

Dependent Variable: C
Method: Panel Least Squares
Total pool (unbalanced) observations: 56
Std.
Variable Coefficient Error t-Statistic Prob.
C 1 2.20E-17 4.55E+16 0
NOP? 9.59E-24 4.03E-23 0.237807 0.8135
D(CUR?) 1.03E-16 3.51E-17 2.932568 0.0061
D(CCC?) -1.76E-19 1.35E-18 -0.13021 0.8972
D(DEB?) 2.51E-20 3.55E-19 0.070876 0.9439
D(FRM?) 4.68E-17 1.05E-16 0.444692 0.6594
D(GRS?) 4.56E-18 1.95E-17 0.23364 0.8167
D(ROA?) -1.19E-17 2.06E-18 -5.74456 0
Effects Specification
44
Cross-section fixed (dummy variables)
Mean dependent
var 1 S.D. dependent var 0
S.E. of regression 1.01E-16 Akaike info criterion -70.5314
Sum squaredresid 3.37E-31 Schwarz criterion -69.6996
Log likelihood 1997.879 Hannan-Quinn criter. -70.2089
F-statistic -1.5 Durbin-Watson stat 2.020493
Prob(F-statistic) 1
Due to get the good effect result by using the Hausmen test we find out that we will go with the
random effect. After test that effect we find that the 5 variables have clearly put the significant
effect on the profitability of the firm which proxy in shape NOP (Net Operating Profit). Here we
find out the CCC (cash conversion cycle) which is 0.001016. Deb (debt ratio) 0.000451, Firm
size (firm Size) -0.29846, growth rate of sale -0.09983 and current ratio is -0.26142 all have
the significant effect on the Net operating profit but the only one variables which put the non-
significant at the movement is return on asset 0.042357. It means the all variable of Working
capital which put the significant impact on the profitability of the cement companies in Pakistan
but in which only one variable it may become negative in sense.
Conclusion:
In this research I have used historical data take from the recorder web site (Pakistan stock
exchange cement industry listed). The data have consisted on 6 years (2009 to 2014). I applied
the descriptive statistic techniques for the analysis of the variables. And use unit root test to
check the single variable result on debt ratio. And also use the ECM model. This is the only one
variable which shows the insignificant relation with independent variable. Durbin Watson test
it is significant because it should be less than 2%. S.E. of regression coefficient is 1.0116 it is
also significant because it should be less than 10%. Durbin-Watson stat coefficient is2.020493
It is also significant because it should be less than 2%.
45
Recommendation:
In this exploration I have take just bond industry which is recorded in Pakistan stock trade (PSE)
and information (auxiliary information) is comprise of 6 years (2009-2014). Net working benefit
take as a subordinate variable current proportion, return on resource, cash conversion cycle,
development of offer firm size and obligation proportion takes as free variable. I have connected
spellbinding measurement, pool unit root test and blunder relationship model on these variables.
After that I got the outcome that just profit for resource show immaterial association with
obligation proportion then again, staying Independent variables show huge association with
obligation proportion (influence). Here I prescribe that in the event that you need to study or
research on the determinant of working capital then you ought to take two or more industry
which are recorded in Pakistan stock trade or some other stock trade and take information over 6
year and you can utilize variables for examination gainfulness, substance, development
opportunity, downright resource and so forth you can take information from yearly reports of the
organizations, and stock trades. At that point might be result will be huger.
Chapter # 5
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48

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Impact of working capital on the profitability of the cement industry in Pakistan

National College of Business Administration and Economics, Lahore

In Partial fulfillment of the

National College of Business Administration and Economics, Lahore

Requirement for the Degree of

Roll No. MCM-F19-395

Session: 2019 to 2021

An empirical study from the perspective of higher education sector Pakistan By

Roll No. MCM-F19_395

Session: 2019 to 2021

National College of Business Administration and Economics, Lahore

In partial fulfillment of the

Requirements for the degree of

OF THESIS TO THE SUPERVISOR AND/OR FOR EXTERNAL EVALUATION

Particular of the Student

1.1 Full Name Haider Ali

1.2 Father’s Name Asif Ali

1.3 Roll. Number MCM-F19-395

1.4 Program Master in Commerce

IHaider Alihereby solemnly declare that this project:

a) is my original work, except where otherwise acknowledged in the text

b) has not been published earlier and

d) has been incorporated HEC Plagiarism Policy

the plagiarism rules of HEC.

Impact of working capital on the

Background of the study:

Really the exploration is to discover determinants of the working capital in Pakistan. In

SohailRizwanSaaharJabeenShaikh, MehwishShehzadi (2012)The current study examined the

Theoretical frame work

Dependent Variable; Independent Variable;

NET OPERATING Cash conversion cycle

ROA= Return on asset

FRM= Firm Size

CCC= Cash Conversion Cycle

CUR= Current Ratio

GRS= Growth of sales

DER= Debt ratio

NOP= Net Operating Profit

Return on asset (ROA):

Return on asset= net income/ total asset

According to BwembyaChikolwa a common deliberate of firm profitability was return on assets

Firm size= log (sale)

Cash conversion cycle

The metric is calculated as:

CCC= ACP+ APP+ITID

The CCC is also referred to as the "cash cycle."

APP (Average Payment Period):

This ratio may be computed in a number of ways:

The formula for calculating a company’s current ratio, then, is:

Current Ratio = Current Assets / Current Liabilities

The primary regression equation takes the form:

NOPi=α o +α 1 roai+ α 2 frmi +ccc i +cur ,+ grs i +deri+∈i

ROA= Return on asset

FRM= Firm Size

CCC= Cash Conversion Cycle

CUR= Current Ratio

GRS= Growth of sales

DER= Debt ratio

NOP= Net Operating Profit

Net operating profit

CUR CCC DEB ROA FRM GRS NOP

Cash Conversion Cycle