Working Capital Efficiency and Firm Profitability: Evidence from Pakistan’s FMCG Sector
DOI:
https://doi.org/10.51153/mf.v21.i1.732Keywords:
Working capital management, Cash conversion cycle, Profitability, Emerging markets, PakistanAbstract
This study examines the impact of working capital management (WCM) on firm profitability in Pakistan’s fast-moving consumer goods (FMCG) sector. The study evaluates how components of the cash conversion cycle influence financial performance in an emerging market characterized by liquidity constraints and economic volatility. Using panel data from publicly listed FMCG firms on the Pakistan Stock Exchange, the study applies fixed-effects regression models with clustered standard errors. Working capital efficiency is measured through the cash conversion cycle (CCC) and its components, while profitability is proxied using return on assets. Robustness checks include lagged regression specifications. The results indicate a significant negative relationship between the cash conversion cycle and firm profitability, suggesting that efficient working capital management enhances firm performance. Receivables management improves profitability, while the effects on inventory and payables vary across firms depending on operational conditions. The study focuses on a single sector within Pakistan, limiting generalizability across industries. Future research may extend the analysis to cross country comparisons and additional emerging markets. Managers should prioritize optimized receivable collection cycles and efficient liquidity planning to enhance profitability. Policymakers may support financial management capacity-building in emerging-market firms. The study contributes to WCM literature by providing updated evidence from Pakistan using rigorous panel econometric techniques and highlighting liquidity management under emerging-market constraints.
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