Working Capital Management (WCM) and Performance of Pharmaceutical Companies

Abstract

The study investigates how working capital management (WCM) influences the profitability of pharmaceutical companies in Pakistan. The study period is five years, from 2010 to 2014. The secondary information used in this paper was collected from the financial statements of the eight (08) pharmaceutical companies listed on the Stock Exchange of Pakistan. This study applies WCM as an independent variable, which includes the CATAR for current assets to total assets, CLTAR for current liabilities to total assets, QR for quick ratio, LOS for log of sales, and DER for debt-to-equity. The return on assets (ROA), a dependent variable, simultaneously assesses the company's profitability. The correlation analysis indicates that the ROA has a positive linkage with QR, LOS, and CATAR, while the ROA has a negative relationship with CLTAR and DER. Also, regression results indicate that QR and LOS have a positive relationship with profitability. However, QR and LOS are found to impact ROA significantly.

On the other hand, the variables CATAR, CLTAR, and DER have a negative association with profitability. Here, DER significantly impacts ROA, while CATAR and CLTAR have an insignificant impact on ROA. Panel data methodology is also used to research the effects of WCM on the performance of Pakistani pharmaceutical firms. This research suggests that the pharmaceutical sector can efficiently manage its working capital, which will result in an improvement in its overall performance. This investigation pertains to a single sector; however, prospective investigations should cover additional industries in Pakistan.

Keywords: Pakistani Pharmaceutical Companies, Return on Assets, and Working Capital Management

DOI: 10.7176/EJBM/16-8-05

Publication date: October 30th 2024