Effects of Working Capital Management of Procter & Gamble on Its Profitability

Abstract

The study reveals profitability of a firm is highly associated with the working capital management especially in manufacturing firms where a big portion of assets consist on current assets and debts are considered more significant. It is very important to identify those factors that are responsible for quick conversion of a firm’s assets into cash and frequently recycle it. The main purpose of the firms is to maximize the value of shareholders and profitability of firm that rely on the effective planning & control of current assets and current liabilities. To study these relationships, Procter & Gamble has been selected and a twenty-year (1997-2016) scenario has discussed with the help of secondary data i.e. financial statements. Return on Equity (ROE) is taken as proxy of profitability by considering dependent variable whereas some variables of working capital management are included as independent variables to find out the relation between working capital and profitability. The study analyzes the relation between working capital management on profitability. E-views a statistical software has been used and Least Square Regression method has applied to analyze the association of variables. The result shows that ROE is positively affected by debt ratio & cash conversion cycle and adversely influenced by average collection period. Furthermore, profitability has positive relation with current ratio & negative relation with inventory turnover in days and average payment period.

Keywords: Working Capital Management, Profitability, Return on Equity, Average Collection Period, Cash Conversion Cycle, Debts Ratio