Impact of Working Capital Management Approaches (Aggressive/Conservative) on the Profitability and Shareholder’s Worth: Comparative Analysis of Cement and Sugar Industry

Abstract

This study investigates that how sugar and cement companies listed at Karachi stock exchange manage the working capital approaches (aggressive/conservative) mix. Sample of 18 cement and 31 sugar companies used in this thesis. In this study impact of working capital approaches namely aggressive investment policy and aggressive financing policy is checked on the profitability and shareholder’s worth. All the companies selected from sugar and cement sector are listed at Karachi stock exchange and have active status. The time period for this study is from 2006 to 2012. Regression analysis is use to analyze the impact of working capital investment and financing policies. Regression analysis is supported by SPSS software. The result of this study indicate that if companies follow the aggressive investment and financing policies then they will not be able to yield more profit as both these policies yields negative effect on the profitability and shareholder’ worth. There is inverse relationship between degree of aggressiveness with profitability and shareholder’ worth.

Keywords: Working capital efficiency, aggressive investment policy, working capital financing policy, firm’ profitability, shareholder’s worth, Cement industry, sugar industry