Driving Profitability Through Strategic Working Capital Management: Insights from Pakistan’s Textile Industry

Abstract

Efficient management of working capital is essential for ensuring financial stability and enhancing profitability, particularly in industries that are capital-intensive, such as textiles. This study investigates the relationship between working capital management and profitability within the textile industry, utilizing data from ten firms listed on the Pakistan Stock Exchange over the period 2019 to 2023. The study employs the Ordinary Least Squares regression model to analyze the impact of key working capital metrics—such as average payment period, inventory turnover, average collection period, and cash conversion cycle—on performance indicators, including return on assets, return on equity, and return on capital employed. The findings reveal that a shorter cash conversion cycle and faster receivables collection significantly improve firm profitability. Additionally, longer accounts payable periods and higher inventory turnover are also positively linked with enhanced financial performance. These results underscore the importance of optimizing working capital components for achieving operational efficiency and sustaining profitability. This study not only contributes to the existing literature by addressing a research gap in the context of the textile industry, but also provides valuable managerial and policy insights. Furthermore, the findings have broader implications for promoting sustainable business practices, supporting the efficient use of resources, and contributing to global sustainability goals.