Does WC Management Affect Firms' Profitability and Liquidity Position

The Purpose of this study is to investigate the effect of working capital management on the profitability and operational liquidity position of manufacturing firms listed on Karachi Stock Exchange, Pakistan. The study uses return on average total assets and cash flows from operating activities to current liabilities ratio as proxy variables for profitability and operational liquidity position respectively. Working capital management is used as an explanatory variable which is described in terms of credit policy, payment policy, strategy for investment in current assets, strategy for short term financing, efficiency of stock-in-trade management and overall efficiency of working capital management. In addition to these explanatory variables, degree of financial leverage, firm¿s size, firm¿s ability to utilize its assets and cash generated from operation per unit sales, are also used as independent variables. This study concluded that managers can improve profitability and liquidity position of manufacturing firms by focusing on conservative strategy of investment in current assets and aggressive strategy of short term financing and efficient management of stock-in-trade and WC.