1

WORKING CAPITAL MANAGEMENT AND FIRMS

PERFORMANCE OF MANUFACTURING COMPANIES IN NEPAL

A Dissertation Submitted to the Office of the Dean Faculty of Management

in partial fulfillment of the requirements for the Master’s Degree

By
PREM KUWAR KSHATRI
Exam Roll No: 24760/20
Registration No: 7-1-2-509-2007
Central Department of Management

Kirtipur, Nepal
April, 2024
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CHAPTER I
INTRODUCTION

1.1 Background of the Study

Working capital management is the strategic management of a company's current

assets and liabilities, coupled with financing these assets through a combination of
short-term and long-term debt (Raheman & Nasr, 2007; Falope & Ajiore, 2009). It
plays a pivotal role in determining a firm's profitability, as firms allocate substantial
resources to optimize their working capital. Effective management of working capital
is paramount, as highlighted by Deloof (2003) and Raheman & Nasr (2007),
emphasizing the need for maintaining an optimal balance between current assets and
liabilities to support smooth operations and meet daily obligations within the
organization.

Manufacturing firms, in particular, allocate a significant portion of their resources to

working capital compared to other types of firms. This necessitates a delicate balance
between current assets and liabilities. Managers must navigate the trade-off between
these elements to ensure the timely fulfillment of short-term obligations while
avoiding over-investment or under-investment in working capital, which can lead to
increased costs or operational inefficiencies (Akoto et al. 2013).

Two primary strategies guide managers in effective working capital management.

Firstly, maintaining an optimal working capital cycle with minimal deviations helps in
controlling costs and maximizing efficiency. Secondly, managers must assess the
cost-benefit trade-offs to determine the optimal level of working capital that balances
profitability and liquidity (Ahmed et al., 2018). Failure to maintain this balance can
significantly impact a company's operations and profitability, potentially leading to
liquidity crises or missed investment opportunities (Caballero et al., 2012).

Working capital management is critical not only for a firm's profitability but also for
its market value and sustainability. The efficient management of working capital
directly impacts a company's profitability, making it a key determinant of its market
value. Moreover, working capital management is essential for ensuring a company's
sustainability by maintaining adequate cash flows to meet short-term debts and
operational expenses (Huynh, 2011).
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Investors closely monitor metrics such as return on assets (ROA), return on equity
(ROE), and net profit margin to evaluate a company's financial performance and
operational efficiency. ROA measures profitability relative to total assets, ROE
indicates the relationship between profit and shareholder return, and net profit margin
reflects profit as a percentage of revenue (Charitou, 2016). These metrics are crucial
indicators of a company's financial health and its ability to generate profits from its
assets (Sharma, 2013).

In the context of the COVID-19 pandemic, working capital management has become
even more challenging for businesses worldwide (Singhania & Mehta, 2017). The
pandemic has highlighted the importance of efficiently managing current assets and
liabilities to maintain liquidity and navigate economic uncertainties effectively.
Businesses need to focus on maintaining a proper balance between liquidity and
profitability to ensure their survival and long-term success (Panda & Nanda, 2018).

In conclusion, working capital management is a fundamental aspect of financial

management for businesses, especially in industries like manufacturing where it
significantly impacts operations and profitability. Managers must employ strategic
approaches to optimize working capital, considering factors such as the working
capital cycle, cost-benefit trade-offs, and the impact on financial metrics like ROA,
ROE, and net profit margin. Effective working capital management not only enhances
profitability but also contributes to a company's market value, sustainability, and
resilience during economic challenges like the COVID-19 pandemic.

1.1.1 Profile of the Company

A) Unilever Nepal Limited

Unilever Nepal Limited (UNL), a subsidiary of the global conglomerate Unilever, has
been a prominent player in Nepal's manufacturing sector for 28 years. Operating from
its manufacturing facility in Hetauda, UNL produces a range of fast-moving consumer
goods (FMCG) including soaps, detergents, shampoos, skincare products, toothpaste,
cosmetics, and tea. The company's sustained presence, performance, and profitability
over nearly three decades showcase the promising opportunities that Nepal's
manufacturing industry offers to international investors.
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Despite the challenges posed by the ongoing COVID-19 pandemic, UNL has
demonstrated resilience and adaptability. Following the initial disruptions, the
company gradually resumed its operations with stringent safety and hygiene protocols
in place. Certain segments of UNL's product portfolio, such as hygiene products like
Lifebuoy soaps, Rin and Wheel detergent powders, and Vim utensil cleaning
products, witnessed a swift demand recovery. This resilience is reflected in UNL's
impressive 58 percent top-line growth during the third quarter of 2020/21.

UNL's managing director and CEO, in a conversation with New Business Age,
highlighted the company's commitment to navigating the pandemic's challenges while
ensuring growth and profitability. Despite ongoing uncertainties, UNL has honed its
operational strategies to operate safely and effectively, contributing to its recovery
and success in the market.

With a workforce of approximately 1,000 employees across its locations, UNL plays a
significant role in Nepal's Soap, Cleaning Compound, and Toilet Preparation
Manufacturing Industry. The company's annual sales revenue amounts to $45.56
million (USD), and it operates within the FMCG segment, focusing on personal care
products for the domestic market and exports to India. Within this segment, UNL's
product range includes detergents, scourers, laundry and toilet soaps, personal and
beauty care items, and food products.

UNL's status as one of the highest dividends yielding stocks listed on the Nepal Stock
Exchange (NEPSE) underscores its financial stability and attractiveness to investors.
Its ability to weather challenges, adapt to changing market conditions, and maintain a
strong market presence positions UNL as a key player in Nepal's manufacturing
landscape, contributing to the country's economic growth and development.

B) Himalayan Distillery Limited

Himalayan Distillery Private Limited, a private company, was established nearly 21

years ago on June 7, 2001. It operates as a Non-govt Company and is registered at the
Registrar of Companies in ROC-SHILLONG. At the time of its registration, the
company had an authorized share capital of Rs. 14,000,000 and a paid-up capital of
Rs. 11,629,000. The company is classified under Business Activity Class/Subclass
Code 15511, with its main activity being the manufacture of country liquor. This falls
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under the division of Manufacturing of food products and beverages. Himalayan

Distillery Private Limited plays a significant role in the production and distribution of
country liquor within its region of operation.

Over its two-decade existence, the company has likely evolved and expanded its
operations within the manufacturing sector. Its focus on the production of country
liquor underscores its specialization in this segment of the food and beverage
industry. As a private entity, Himalayan Distillery Private Limited continues to
contribute to the manufacturing landscape, fulfilling market demands and meeting
regulatory requirements within its sector.

C) Bottlers Nepal Terai Limited

Bottlers Nepal (Terai) Limited (BNTL) has been honored with the Best Presented
Annual Report (BPA) 2020 award in the General Sector (Others) category by the
Institute of Chartered Accountants of Nepal (ICAN). This accolade recognizes
BNTL's exemplary efforts in presenting detailed, transparent, and comprehensive
financial information in its annual accounts for the fiscal year 2076/77. The award
reflects BNTL's commitment to corporate governance, compliance, and transparency,
which are fundamental in building trust with stakeholders such as customers,
suppliers, and shareholders.

The recognition received by BNTL underscores its consistent dedication to upholding

best practices in financial reporting and corporate governance. BNTL's success in
winning this prestigious award also signifies its continuous improvement in
transparency and accountability, contributing to its reputation as a reliable and
trustworthy business partner. The award ceremony, attended by ICAN President
Madan Sharma, highlighted BNTL's commitment to excellence and adherence to
industry-leading standards in financial disclosure and reporting.

D) Soaltee Hotel Limited

Soaltee Hotel Limited, founded in 1965, has established itself as a pioneer in Nepal's
hospitality industry, setting the standard for luxury and service excellence. With its
flagship property, the Soaltee Crowne Plaza Kathmandu, the company has become
synonymous with elegance and comfort in the heart of Nepal's capital. Over the years,
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Soaltee Hotel Limited has expanded its footprint, offering a range of accommodation
options from boutique resorts to urban retreats, all designed to cater to the diverse
needs of travelers. With a rich heritage and a commitment to innovation, Soaltee
Hotel Limited continues to elevate the hospitality experience in Nepal, welcoming
guests from around the world with warmth and hospitality.

E) Nepal Telecom

Nepal Telecom, often abbreviated as NTC, is the largest telecommunications service

provider in Nepal, owned by the government. Established in 2004, it offers a wide
range of telecommunications services including fixed-line, mobile, internet, and data
services across the country. Nepal Telecom plays a crucial role in connecting people
and businesses, bridging communication gaps, and contributing to the socio-economic
development of Nepal. With a focus on innovation and expanding its network
infrastructure, Nepal Telecom continues to strive towards enhancing connectivity and
accessibility for all Nepalese citizens.

F) Oriental Hotel Limited

Oriental Hotels Limited is a hospitality company based in Kathmandu, Nepal. The

company operates the Radisson Hotel in Kathmandu. The hotel is located in the
capital city of Nepal and offers a range of services and facilities for guests. The
company's headquarters are also located in Kathmandu. Oriental Hotels Limited is a
well-established company in the Nepalese hospitality industry, with a reputation for
providing quality services and accommodations to its guests. The company's focus on
customer satisfaction and its commitment to maintaining high standards of service
have helped it to build a strong customer base and establish a reputation as a reliable
and trustworthy provider of hospitality services in Nepal.

In addition to its operations in Nepal, Oriental Hotels Limited also has a presence in
other countries, including India. The company's Indian operations include the Taj
Coromandel in Chennai, Fisherman's Cove in Chennai, Taj Malabar Resort & Spa in
Cochin, Vivanta Coimbatore, The Gateway Hotel in Madurai, Gateway Coonoor, and
The Gateway Hotel in Mangalore. These properties are known for their elegant
design, luxurious amenities, and exceptional service, and they have earned a
reputation as some of the best hotels in India.
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1.2 Problem Statement and Research Questions

Working capital management is crucial in financial decision-making, synonymous

with short-term liquidity management. It's the lifeblood of a business, essential for
smooth operations. However, both excessive and inadequate levels of working capital
can harm an enterprise's objectives (Padachi, 2010). Excess current assets mean
higher long-term funding costs, while insufficient assets can lead to technical
bankruptcy. Thus, optimal management balances current assets and liabilities.

Determining the right working capital for a business is challenging due to

unpredictable cash flows, varying by firm. Public enterprises often struggle with
working capital management, resorting to external sources rather than internal funds
(Rawal, 2021). This complexity poses a trade-off between liquidity and profitability
(Huynh, 2011).

Effective working capital management ensures a company's liquidity for short-term

creditors. But can it make a company more profitable than a competitor neglecting
this aspect? This study explores metrics and processes for improving profitability
through working capital management, addressing specific research questions

i. What is the status of working capital utilization of manufacturing company?

ii. What is the relationship between the working capital and profitability of
manufacturing company?
iii. How ACP and NWC, CA to TA, NWC to TA are related to profitability of
manufacturing company?

1.3 Objectives of the Study

The main objective of this study is to analyze the working capital management and
corporate profitability of Unilever Nepal Ltd, Bottlers Nepal Ltd, and Himalayan
Distillery Ltd.

However, the specific objectives are as follows:

i. To identify the status of working capital utilization of manufacturing

companies.
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ii. To analyze the relationship between working capital and profitability of

manufacturing companies.
iii. To examine the effect of ACP, and NWC, CA to TA, NWC to TA on ROA,
ROE and NPM of manufacturing company.

1.4 Significance of the Study

The study conducted on the title of Working capital management is expected to be

used and/or applied by both the academicians and manufacturing companies’
managements. Accordingly, the following are the significances that are attained by
the study.

i. The knowledge generated through this study can be useful to the managers
and corporate leaders to determine and manage working capital management
in the organization.
ii. This study might be helpful for the management of the concerned companies
(Unilever Nepal Ltd, Bottlers Nepal, Himalayan Distillery Limited, Soaltee
Hotel Ltd., Nepal Telecom and Oriental Hotel Ltd.) in relation to the
working capital management.
iii. It might be valuable for the researcher, scholars, student who wants to study
into the working capital management of manufacturing companies of Nepal.

1.5 Limitations of the Study

i. Out of various manufacturing companies, this study is concerned with the

only three manufacturing companies of Nepal, i.e. Unilever Nepal Ltd,
Bottlers Nepal Ltd, Himalayan Distillery Ltd, Soaltee Hotel Ltd, Nepal
Telecom and Oriental Hotel Ltd.
ii. It has only considered secondary data for the study purpose. Data collection
conducting primary survey is not taken into consideration.
iii. This study has analyzed last 10 years data beginning from 2070/71 to
2078/79.
iv. This study only uses descriptive and inferential research design.

1.6 Chapter Plan

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A chapter plan is an outline that helps us to organize material is a way that is easy to
comprehend. It can be a very useful tool in helping to find the main points of the
chapter. This report has been divided into five chapters.

Chapter I: Introduction

The chapter provides an introduction to the study, offering a general background on

the topic. It outlines the statement of the problem, highlighting the specific issue or
gap in knowledge that the study aims to address. The objectives of the study are
clearly defined, stating the goals and desired outcomes. The significance of the study
is discussed, emphasizing its potential contributions to the field or to addressing real-
world issues. The chapter also acknowledges the limitations of the study and outlines
the organization of the subsequent chapters for a clear and structured presentation of
the research.

Chapter II: Literature Review

The second chapter builds upon the foundation laid in the first chapter by conducting
a comprehensive review of relevant literature. This review encompasses sources such
as books, journals, articles, research reports, newspapers, magazines, and policy
documents, both published and unpublished. The literature review critically analyzes
existing knowledge and research findings related to the study's topic, providing a
theoretical framework and contextual background. It identifies key themes, trends,
gaps, and debates within the literature, guiding the direction of the current study. By
synthesizing diverse sources of information, the chapter aims to establish a strong
theoretical and empirical basis for the research.

Chapter III: Research Methodology

Research methodology encompasses the approach taken to investigate a study's

objectives, including the research design and data nature. It details the procedures and
tools used for data collection, ensuring a systematic and rigorous research process.
The research methodology section outlines the strategies and techniques employed to
gather and analyze relevant data. By providing transparency and clarity on the
methodological choices, this section enhances the credibility and reliability of the
research outcomes.
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Chapter IV: Presentation and Analysis of Data

This chapter presents the outcomes of the data analysis conducted as part of the study.
It provides a detailed examination and interpretation of the collected data, focusing on
key findings and trends. The results section highlights the relationships, patterns, and
significant insights discovered through statistical analysis or qualitative exploration.
By presenting the results clearly and logically, this chapter contributes to a deeper
understanding of the research questions and objectives.

Chapter V: Summary and Conclusions

The fifth and final chapter of the study addresses the discussion, conclusion, and
implications drawn from the research findings. It synthesizes the results and explores
their significance in relation to the study's objectives. This chapter also offers
conclusions based on the findings, summarizing the key points and contributions of
the research. Additionally, it discusses the practical implications of the study's
outcomes and suggests recommendations or areas for further research.

Bibliography, appendix and other supportive documents have also been incorporated
at the end of the study.
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CHAPTER II
LITERATURE REVIEW

This chapter deals with the brief review of existing and prior empirical studies, related
to the subject of this study. The study of working capital management of Nepalese
manufacturing companies has been a matter of interest for researchers for long time.
Many studies have been carried out in developed as well as developing economies
relating to this topic. Generally, the portion of literature review has divided into
following parts: -

2.1 Theoretical Review

Keynesian Liquidity Preference Theory

Liquidity issues are significant, especially when financial resources are limited.
Keynesian liquidity Preference theory (1936) outlines three reasons for holding cash:
transaction motive (for daily business operations), precautionary motive (for market
fluctuations), and speculative motive. In financially constrained firms with multiple
positive net present value (NPV) projects, minimizing transaction costs and exploring
alternative capital sources becomes crucial (Dittmar, Mahrt-Smith & Servaes, 2003).

Trade credit is vital for smaller firms as per liquidity theory, while larger firms, with
better access to capital markets (Bellouma, 2014; Petersen & Rajan, 1997), may
provide interest-free financing to financially constrained firms. This approach helps
alleviate opportunity costs and facilitates smoother operations during periods of
financial constraint.

The Operation and Average collection period (CCC) Theory

The Average collection period (CCC) theory, pioneered by Richards and Laughlin
(1980), provides a comprehensive framework for understanding working capital
management. They highlighted the crucial yet often overlooked aspect of managing
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short-term assets and liabilities. The CCC model comprises receivables, inventories,
and payables, illustrating the cycle of cash flow within an organization.

The theory delves into the lifecycle of cash within the business, starting from the
purchase of raw materials, their transformation into finished products, and eventually
the collection of receivables from customers. This cycle encapsulates the entire
process from procurement to sales, shedding light on the dynamics of working capital
investments and their varying life expectancies.

Financial managers recognize that not all working capital investments yield liquidity
at the same pace. The CCC theory emphasizes the importance of managing this cycle
efficiently to optimize cash flows. It encompasses all aspects of working capital
management, including inventory levels, receivables, and payment processes, making
it a central concept in financial analysis and decision-making.

Pecking Order Theory (POT)

Following the pecking-order logic, firms determine how to finance their investments
in a defined order (Donaldson, 1961), to what degree utilization of internal funds (i.e.
retained earnings) in first place, followed by external funding (i.e. safe debt and then
risky debt), and ultimately issuing of new equity (Fama and French, 2002).
Successively, POT’s extension was attributed to the concept of asymmetric
information between managers and investors (Lucas & McDonald, 1990). To this
extent, managers are hypothetically equipped with relevant information about the fair
value and its riskiness of the firm’s prospect as comparing with investors (Myers &
Majluf, 1984).

Trade-off Theory

The dispute of working capital management has been undergoing an extensive

research which converging the addressing on the trade-off either upholding positive
working capital (Gill, Biger & Mathur, 2010; Ali, 2010; Abuzayed, 2012) or negative
working capital (Eljelly, 2004; Lazaridis & Tryfonidis, 2006; Garcia-Teruel &
Martinez-Solano, 2007; Raheman & Nasr, 2007; Zariyawati et al., 2009; Mansoori &
Muhammad, 2012; Wasiuzza man, 2015) would enhance firm’s performance.
Moreover, this argument could be delved further by scrutinising the financial
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implications between firms that possessing a substantial amount of working capital

(i.e. large inventory and less stringent trade credit policy) and those have a minimal
working capital level (i.e. lowest possible inventory level and strict trade credit
policy).
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Transactions Cost Theory

Ferris (1981) highlights the role of trade credit in reducing transaction costs for
buyers when dealing with suppliers. By separating payment cycles from freight
schedules, buyers can manage cash more effectively, especially in seasonal businesses
that experience inventory surges before peak seasons, leading to increased holding
costs like warehousing fees and financing charges. Firms can mitigate demand
fluctuations by offering early settlement discounts and bulk purchase options for
buyers with sufficient inventory storage capabilities (Petersen and Rajan, 1997).

There are two key cost advantages for firms offering trade credit compared to
traditional financial institutions like banks. Firstly, suppliers have access to more
relevant information about buyers' creditworthiness, such as order volumes, frequency
of orders, decisions on early settlements, and payment histories (Schwartz, 1994).
This information asymmetry gives suppliers a better understanding of risk compared
to banks. Secondly, firms are in a more secure position against default risks because
suppliers can withhold goods or liquidate them if buyers fail to repay, providing a
level of security not typically available from banks (Bellouma, 2014).

Agency Theory

Agency theory, as expounded by Pinto and Augusto (2014), addresses conflicts within
business entities through three main types of conflicts: between shareholders and
managers/directors, between shareholders and creditors (Jensen & Meckling, 1976),
and regarding expropriation issues between minority and large shareholders (Shleifer
& Vishny, 1986). This theory delineates the relationship between principals
(owners/shareholders) and agents (managers) wherein managers operate the firm on
behalf of the owners (Jensen & Meckling, 1976; Jerzemowska, 2006).

The relevance of agency theory is tied to financial managers' role in formulating

policies concerning short-term financial resources and long-run financing decisions to
fund various short-term assets. It assumes that managers can determine the optimal
level of working capital, create proper financial budgets, minimize idle resources, and
thereby enhance shareholders' wealth (Gill & Shah, 2012). Efficient working capital
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management theoretically leads to increased revenue as assets generate additional

returns, fulfilling short-term debt obligations.

Finance managers need to be aware of determinants affecting working capital

management (WCM) as empirical evidence shows its direct impact on firms'
performance (Aktas & Petmezas, 2015). Shareholders benefit from increased revenue,
which can be distributed as dividends if the company chooses. Stakeholders can
assess the firm's performance through specific production activities or processes, but
conflicts of interest between shareholders and management can lead to suboptimal
decisions in environments with information asymmetry and high scrutiny costs.

2.2 Conceptual Review

The concept of working capital includes both current assets and current liabilities. The
“Gross Working Capital” is the current asset total and are also referred to sometimes
circulating capital (Imran & Noursheen, 2010). The difference between current assets
and current liabilities is known as “Net Working Capital”, henceforth, the main
concern of working capital management is to ensure the maintenance of a convincing
level of working capital in such a way that it is neither lacking nor in excess. The
working capital needs not to be only adequate to cover the current liabilities, but also
to ensure a reasonable margin of safety (Imran & Nousheen, 2010). Gross working
capital consists of the funds invested in a company`s cash and marketable securities
accounts, accounts receivable, inventories and other current assets. These are the
composition of working capital (Moles, et al, 2011). Working capital management
could be measured either by the average collection period, the operating cycle, the
net-trade cycle or even the weighted average collection period. However, the average
collection period is the most popular measure of working capital efficiency
(Karaduman, Akbas, Ozsozgun & Durer, 2010).

Working capital is a financial metric, which represents the operating liquidity

available to a business. Along with fixed assets such as plants and equipment’s,
working capital is considered as a part of company's operating capital, referring to
current assets. To measure the efficiency of a company's working capital, people often
use net working capital, which is defined as difference between current assets and
current liabilities. If current assets are higher than current liabilities, this company has
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working capital efficiency, explaining the company's ability to continue its operation
and have sufficient fund to satisfy both maturity short-term debt and upcoming
operational expenses (Huynh, 2011).

Working capital management is concerned with short-term investment and financing

decision of an entity and is a major business requirement and a significant part of
corporate finance. WCM covers the planning and controlling activities of companies
regarding their current assets and current liabilities in a manner that guarantees their
ability to meet their current obligations satisfactorily as well as a maximum return on
their precious investment in these floating assets. The ultimate goal of working capital
management is to ensure that firms are able to continue their operations with
sufficient cash flow that will service their long-term debts and satisfy both maturing
short-term obligations and upcoming operational expenses. Working Capital
management is used as an optimization tool to make the most profitable use of liquid
funds while maintaining a minimum level of liquidity to cover possible unexpected
short-term expenditures (Kunze & Peri, 2015).

Working capital management (WCM) is one of those aspects related to financial

management, which is concerned with all management areas regarding finance – not
only sources and uses of finance in the company, but also the financial implications of
investment, production, marketing or personnel decisions and the total performance of
the company (Mathuva, 2010).

2.3 Empirical Review

Aldubhani (2022) conducted a study on Impact of working capital management on

profitability: evidence from listed companies in Qatar” aimed to find out whether
working capital management policies affects the profitability of manufacturing
companies listed on the Qatar Stock Exchange. To assess the working capital
management and profitability relationship, the author applied a multiple regression
analysis methodology in all manufacturing companies listed on the Qatar Stock
Exchange (10 firms) between 2015 and 2019. Average collection period, inventory
turnover, average payment period and average collection period were adopted as
proxies for working capital management, and profitability was measured by operating
profit margin (OPM), Return on assets (ROA), Return on capital employed (ROCE)
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and Return on Equity (ROE). He studies found that companies with shorter
receivables collection period and average collection period are more profitable.
Longer inventory turnover periods and accounts payable payment periods are related
to higher profitability of the firms.

Rudacogora and Kihooto (2022) conducted the study was Inyang Industries and to
find out the relationship between inventory control industries employees from Finance
office and accounting office equal to 148. The sample size was determined with the
help of the Solving formula which provides a simplified formula to calculate sample
size. When this formula was applied, the researcher got a sample size of 108. The
study used the purposive sampling technique to select the sample. The study applied
the following tools of data collection; documentary and questionnaires. The results
showed that there is a significant positive correlation between Cash Management
Practices and profitability as Pearson correlation is 0.889. The results showed that
there is very strong correlation between accounts payable management and
profitability as Pearson correlation is 0.884. Researcher confirmed strong and positive
relationship between accounts receivable management and profitability of Inyang
Industries. Since the Pearson Correlation value was 0.743. The results showed that
there is very strong correlation between Inventory Control management and
profitability as Pearson correlation is 0.807. The p-value is 0.000, which is less than
both standard significance levels of 0.05 and 0.01. Inyang industries should keep
optimum current assets in order to enhance the short-term debt-paying ability of the
firm.

Novak (2021) found according working capital management and profitability:

empirical evidence this paper analyzes the impact of working capital management
policies on manufacturing SMEs in the Czech Republic. The data necessary for the
research was collected through a questionnaire. The sample was chosen
probabilistically. We have introduced an economic discriminant to select the most
significant companies within the reference population. Overall, the analysis
considered 105 manufacturing companies for five years, from 2014 to 2018. The
individual determinants of working capital were used as independent variables, while
leverage represented the control variable. EBITDA represented the dependent variable
and was used to measure profitability. To perform the analysis, we used a quantitative
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methodology based on dynamic panel data. The robustness analysis confirmed the
validity of the results obtained. Empirical results suggest that granting longer
extensions to customers does not impact profitability. Furthermore, the results of the
other variables showed a negative relationship with the profitability of the companies,
suggesting that investing in inventories and obtaining extensions from suppliers lead
to additional costs that negatively affect profitability.

Adhikari (2020) conducted the research on working capital management and

corporate profitability: empirical evidences from Nepalese manufacturing sector
attempts. This research paper attempts to fill the gap regarding the working capital
management of manufacturing firms in context of Nepal by providing empirical
evidence, and moreover, this study act as foundation for future research activity
because there are very few working capital management research literatures in
Nepalese context. The secondary data for data analysis are retrieved from annual
reports of five manufacturing firms for eight-year period from 2010/11 to 2017/18.
This study examines the impact of different working capital components, i.e.,
inventory conversion period, receivable conversion period, payable deferred period,
average collection period, debt ratio and current ratio, with profitability of a
manufacturing firm, where profitability is represented by return on equity, return on
assets and net income. Statistical tools used for data analysis are Pearson’s
correlation, ordinary least square regression and binary logistic regression. Such that,
this study found that, inventory conversion period, payable deferral period and
average collection period are inversely related with the profitability of manufacturing
firms, whereas, receivable conversion period, debt ratio and current ratio are
positively related.

Poudel & Maharjan (2020) conducted one of the importance studies in the field of
working capital management on profitability: A case of Nepalese manufacturing firms
the study deals with the relationship between firm characteristics of working capital
management and firm profitability in Nepal. It examines if firm performance return
on assets is related to average collection period, days’ sales outstanding, days
inventory and current ratio. The study is best on pooled cross- sectional data of 10
non- financial firms from 2071/72 to 2075/76 of listed firms in the Nepal stock
exchange. The study employed descriptive and causal-comparative research design to
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attain the purpose of this study. The result reveals that the current ratio has a
positively significant relationship with profitability and days’ sales outstanding have
negatively significant relationship with the financial performance of the firm.

Asif (2018) Conducted a study on Effect of working capital management on

profitability This research work is conducted in order to analyze the effect of working
capital management on profitability, in detail, in the manufacturing firms of Pakistan
listed on Karachi Stock Exchange (Pakistan Stock Exchange) for the period 2008 –
2014. We have found a diverging effect of working capital management on the
profitability of manufacturing firms of Pakistan. The findings of our study suggest
that “paying full attention to the average collection period” has enormous effect on
working capital. Agreeing shorter term payments, invoicing and investigating credit
rating on a regular basis gives good approach to the whole working capital process.
Minimizing the inventory level frees the capital for other use, centralizing and
unifying procurement process gives the opportunity to follow and agree similar terms
for several sales. It is further added that the firm’s managers can enhance the
profitability of their firms by reducing the collection period and by adopting effective
credit policy.

Khalid & saif (2018) studied the working capital management and profitability of this
study aims to find out the impact of working capital management on profitability.
Return on assets is used as a proxy of profitability. Other variables that are used in
this study are Current ratio, debt to equity ratio, operating profit to debt ratio, and
inventory turnover ratios of the firms. Secondary data of electrical equipment firms
listed on Karachi stock exchange was taken for a period of six years i.e., 2007-2012.
Regression analysis was applied to the data. Normality and linearity test was also
applied. Results showed significant positive results. It is concluded that working
capital management has positive significant impact on profitability of the firms.

Ogwuru (2017) analyzed the impact of working capital of management on the

profitability of Manufacturing companies The main objective of this study is to
empirically test the impact of working capital management on the profitability of
manufacturing companies. The methodology employed for data collection is both
primary and secondary sources. The primary data were collected through the
administration of well-structured questionnaire to sixty five (65) senior staff of
 20

Starline Nigeria Limited, Aba and J. Udeagbala Holdings, Aba. The data as well as
the hypotheses were analyzed and tested using Correlation Test which was run using
Statistical Package for Social Sciences (SPSS) version 26. For decision making,
Spearman’s rho Correlation Co-efficient was used and the results indicated **(double
star) at the 0.01 level (2-tailed) in the Spearman’s rho correlation coefficient table,
this implies that correlation is significant and positive and that the independent
variables are contributory factors to the dependent variable. Hence, all the null
hypotheses were rejected and the alternative hypotheses accepted which implies that
proper inventory management has significant positive correlation with profitability of
manufacturing companies, proper receivables management has significant positive
correlation with profitability of manufacturing companies, proper cash management
has significant positive correlation with profitability of manufacturing companies and
proper payables management has significant positive correlation with profitability of
manufacturing companies. The paper concluded that working capital management has
significant impact on the profitability of manufacturing companies and recommended
among other things that inventory levels should be closely monitored to avoid over or
under stocking which affects the liquidity and profitability level of companies,
company’s credit policy should be revised from time to time to be in line with the
current trend of things and qualified / experienced financial managers should be
engaged to manage the company’s working capital adequately, in order to enhance the
company’s profitability.

Venkateswarlu (2016) conducted a study on effect of working capital management on

firms’ profitability evidence from manufacturing companies in eastern, Ethiopia the
Working capital management plays an important role in the success and failure of a
firm in business because of its effect on the firm’s profitability as well as on liquidity.
Profitability and working capital relationship are frequently emphasized for deciding
on the level though theories exist on the topic, empirical methods are inadequately
focused on arriving at conclusions. The use of statistical methods in understanding the
relationship is systematic and scientific, which may provide better insight for decision
making. This paper is an endeavor to understand the relationship between working
capital and profitability in a detailed manner. The results show that longer accounts
receivable and inventory holding periods are associated with lower profitability. Thus,
managers can create value by reducing their firm’s number of day’s accounts
 21

receivable and inventories. Equally, shortening the average collection period also
improves the firm’s profitability.

Singhania & Sharma (2014) studied the working capital management and
profitability: evidence from Indian manufacturing companies the purpose of this paper
was to examine the relationship between working capital management strategies of a
firm and its profitability. We also make an attempt to understand the impact of the
global macroeconomic conditions on this relationship. We apply correlation analysis
and fixed effects estimation on our sample of Indian manufacturing companies.
Average collection period has been utilized as a measure of the working capital
management, whereas gross operating profit is used as a proxy for a firm’s
profitability. Furthermore, interactive dummies are utilized to investigate the impact
of global macroeconomic conditions on the relationship under consideration. The
results reveal that average collection period of a company has a negative correlation
with its profitability. Our results also suggest that managers can improve the
performance by decreasing the number of day’s receivables and increasing the
number of day’s payables. Furthermore, our outcomes demonstrate that the working
capital strategies should be formulated taking global macroeconomic conditions into
consideration. The findings highlight the importance of efficient working capital
management practices to improve the profitability of companies. of investment in
working capital. All manufacturing firms need to understand the association between
these two variables to arrive at optimal financial decisions.

Huynh (2011) studied the factor Influencing of Working Capital Management on

Profitability of Listed Companies in the Netherlands. The researchers aim at finding
out whether working capital management can impact Dutch companies' profitability
and if so, whether it positively or negative affected. Accordingly, his thesis attempts
to provide empirical evidences about the influence of working capital management on
the profitability for Dutch non-financial listed companies during the period 2006-
2010. To measure the need of working capital he has selected 62 listed companies. He
uses descriptive statistics methodology to conduct the research. The study also uses
Pearson Correlation Analysis then Regression Analysis using Fixed effects Model and
Pooled Ordinary least Squares model. The result from fixed effect regressions indicate
that company profitability in both manufacturing and service sectors is all negatively
 22

influenced by number of days accounts receivable. This result conforms that trade
credit management plays vital role in contributing for a superior profitability of Dutch
companies operating in manufacturing and service areas. In the meantime, ordinary
least square regressions result in positive impacts of firm size and sales growth on
profitability.

Salman, Oyetayo and Oriowo (2010) analyzed Working capital management and
profitability: A study of selected listed manufacturing companies in Nigerian stock
exchange. The present study has investigated the relationship between working capital
management on organizational profitability in Nigeria with special reference to
manufacturing companies quoted in Nigerian Stock Exchange. The data used for this
study were derived from the audited finance statements of the firms listed on the
Nigerian Stock Exchange (NSE) between 2005 – 2013 which comprises of twenty
(20) manufacturing sectors was finally used as sample size. Panel data methodology
was adopted because it combined time series and cross-sectional data. The method of
analysis is that of Pearson Correlation Moment Coefficient and multiple regressions
and the method of estimation is Ordinary Least Squares (OLS). The result showed
that working capital has negative and significant relationship with the Return on
Assets (ROA) and Return on Equity (ROE) at 5% level. This implies that firms’
performance can be increased with short size of Average collection period and the
study recommended that average collection period should be reduced and inventory
should be turned out quickly.

Saghir, Mehmood and Nehal (2011) examined working capital management and
profitability: evidence from Pakistan Firms. Working capital management is
important part in firm financial management decision. Improper management of
Working capital, that is, too much or too low working capital may suffer firms, so an
optimum level of working capital is the key to a smooth inflow of profit. In this paper,
they investigate the relationship between profitability and working capital
management. They used a sample of 60 textile companies listed at Karachi Stock
Exchange (KSE) for the period of 2001- 2006 and the firm’s observations are 360.
The purpose of this study is to establish a relationship that is of statistically significant
between profitability, the average collection period and its components (Number of
days Accounts receivables, Number of days Accounts payables and Number of days
 23

Inventory). The results of their research showed that there is statistically negative
significance between profitability, measured through Return on Asset, and the average
collection period. Moreover, managers can create profits for their companies by
handling correctly the average collection period and keeping Number of days
Accounts receivables, Number of days Accounts payables and Number of days
Inventory to an optimum level.

Yadav (2006) examined the working capital management of listed in nepal stock
exchange. The study has used financial as well as statistical tools to analysis the
financial data of 2000 to 2005. The study has also used primary and secondary
sources of data. The main objective of this study is to apprise the working capital
management of listed hotels and to find out the relationship between the different
variables of working capital. The major findings of this study are:

i.Yak and Yeti, Oriental and Solatia Crowne Plaza are suffering from excess of
current assets over the current liabilities.
ii.Yak and Yeti has followed conservative financing policy whereas Solatia and
Oriented have followed aggressive financing policy.
iii.The relationship between current assets and current liabilities, current assets
and net sales, and net working capital, are found negative and receivables
and net sales are positive of all selected hotels.

Sharma (2007) conducted one of the important studies in the field of "Working
Capital Management Practices in Nepalese Enterprises". The main aims of the study
to examining the practice of working capital management in Nepalese public
enterprises in the manufacturing sector. The study is based on twenty selected
manufacturing enterprises listed in NEPSE of Nepal for ten years from 1996 to 2005.
The researcher used descriptive and analytical research design to conduct the study.
However, four kinds of empirical analysis are made to reach the conclusion form
secondary data (correlation analysis, regression analysis ratio analysis and
discriminant analysis).

The authors conclude in their study that their results coincide with the results from
Shin and Soenen (1998) and Deloof (2003). They observe a negative relation between
the average collection period and profitability. However, priori hypothesis positive
 24

relation is found between gross operating income and number of bills payable and
number of day's inventory but there is negative relation with number of day's accounts
receivable. Likewise, he also found positive relation between liquidity and
profitability. However, the researcher summarizes it as Nepalese firms are not able to
manage liquidity in effective way and the liquidity is not maintaining according to
industry standard. Based on overall analysis of primary questionnaire the researcher
draws a conclusion is that most of the firms have their informal working policy and
they are adopting situational strategy.

The major findings of review of articles

i. The company holds the largest position of current assets.

ii. Current assets of constant for every year it is in the fluctuation nature.
iii. Theoretically, the higher liquidity means the lower risk as well as lower
profit but commercial banks higher liquidity means the lower risk as well as
lower profit but commercial banks higher liquidity is not always the cause of
lower profitability.

2.4 Summary of Literature Review

Table 2.1
Summary of Major Studies
Study Major findings
Ojha, P.R. The objective of the study was to investigate the relative importance of
(2019) WCM, measured by return on assets (ROA) and its components (CR,
ACP, APP) to the profitability Pukar international trading. In
descriptive analysis, the mean of APP is 32.76 days, mean of ACP is
65.10 days. Similarly mean of CR is 11.71 and ROA is 32.70%. From
correlation analysis, relation between ROA and APP is low correlation
with 0.131, moderate correlation between ROA and ACP with 0.669
and finally low correlation between ROA and CR with the value 0. 162.
Hence from the above correlation analysis table we found that there is
significant relationship between APP and profitability of the firm.
Significant relationship between ACP and profitability of the firm was
observed. Finally, there is significant relationship between CR and
 25

profitability of the firm was observed.

Hindawi, As the working capital management which was measured by the
(2021). account receivables period, average collection period, and accounts
payable period have a statistically significant and positive correlation
with the performance of exporting firms in Ethiopia which was
measured by return on asset and return on investment, exporting firms
may need to extend credit terms for their customers, may prolong their
average collection period, and may need an extended payment period to
the extent of the number of their debts. However, all the extended
periods and cycles have to be made up to the optimum level of working
capital management. Also, the inventory conversion period has a
statistically significant and positive correlation with the performance of
exporting firms in Ethiopia, which was measured by return on
investment, but it has an insignificant correlation with return on asset.
As a result, firms may or may not hold a high volume of inventory. *us,
it is advisable to consider the result of this study while making
decisions regarding their working capital management to support their
performance; specifically they have to maintain an optimal level of
working capital in their operations. For instance, to attain a high 8
Education Research International volume of sales, they may need to
provide extended credit terms for their customers, to use their debit
fiance optimally, and to secure their payment po- ´ tential they may
need to extend their payment periods by dealing with their creditors.
Indeed, according to this study result, exporting firms is better to
implement a conservative policy of working capital management.
Abdul, R.
and Most of the Pakistani firms have large amounts of cash invested in
Mohamed,N working capital. It can therefore be expected that the way in which
. (2007). working capital is managed will have a significant impact on
profitability of those firms. We have found a significant negative
relationship between net operating profitability and the average
collection period, inventory turnover in days, average payment period
and average collection period for a sample of Pakistani firms listed on
Karachi Stock Exchange. These results suggest that managers can
 26

create value for their shareholders by reducing the number of day’s

accounts receivable and inventories to a reasonable minimum. The
negative relationship between accounts payable and profitability is
consistent with the view that less profitable firms wait longer to pay
their bills.
Vianny & The findings say that there is a negative relationship between
Delima; aggressiveness of working capital investment policies and working
(2020) capital
financing policies with firm’s profitability measurements which is
supported by [23] and [49]. Furthermore, it reveals that if the listed
companies follow aggressive working capital investment or financing
policies, then it leads to increase in profitability which indicates that
total
current assets to total assets decreases, there is an increase in aggressive
working capital investment or financing policies which leads to higher
profitability [23]. The findings say that there is a negative relationship
between aggressiveness of working capital investment policies and
working capital financing policies with firm’s profitability
measurements which is supported by [23] and [49]. Furthermore, it
reveals that if the listed companies follow aggressive working capital
investment or financing policies, then it leads to increase in profitability
which indicates that total current assets to total assets decreases, there is
an increase in aggressive working capital investment or financing
policies which leads to higher profitability [23].
The findings say that there is a negative relationship between
aggressiveness of working capital investment policies and working
capital
financing policies with firm’s profitability measurements which is
supported by [23] and [49]. Furthermore, it reveals that if the listed
companies follow aggressive working capital investment or financing
policies, then it leads to increase in profitability which indicates that
total
current assets to total assets decreases, there is an increase in aggressive
working capital investment or financing policies which leads to
 27

higher profitability [23]

The findings say that there is a negative relationship between
aggressiveness of working capital investment policies and working
capital
financing policies with firm’s profitability measurements which is
supported by [23] and [49]. Furthermore, it reveals that if the listed
companies follow aggressive working capital investment or financing
policies, then it leads to increase in profitability which indicates that
total
current assets to total assets decreases, there is an increase in aggressive
working capital investment or financing policies which leads to
higher profitability [23]. The findings say that there is a negative
relationship between aggressiveness of working capital investment
policies and working capital financing policies with firm’s profitability
measurements which is supported by [23] and [49]. Furthermore, it
reveals that if the listed companies follow aggressive working capital
investment or financing policies, then it leads to increase in profitability
which indicates that total current assets to total assets decreases, there is
an increase in aggressive working capital investment or financing
policies which leads to higher profitability [23]
The purpose of the study was to study the effect of working capital
Poudel, P.K. management on profitability of selected 10 companies of Nepal and to
& Maharjan, what extent the selected factors affect the profitability during the
P. (2020) period. The research question was to find out the effect of DSO, DIO,
CCC, and CR on profitability. Based on prior local and international
studies, key explanatory variables were identified. By using descriptive,
correlation, and regression analysis and by performing portfolio of
companies based on profitability i.e., profitability has been categorized
into the different group based on companies having profit less than six
percent as per year, profit more than six percentage and combination of
both. In the base of it, following result has been drawn respectively.
Adhakari, through the analysis of the information regarding the control of
P.R. ( 2020) inventory in these enterprises, it can be concluded that more than fifty
percent of these enterprises use computerized system to control the
 28

inventory. Also, it was found that the highest parameter considered

while purchasing the inventory was given to the “Availability of the
Material” and the parameters consider while producing the inventory
was given to the production schedule. Most of the firms are found to be
considering using the JIT (Just-In-Time) and more than twenty percent
of the firms that are using the JIT are obtaining favorable results.
through the analysis of the information regarding the control of
inventory in these enterprises, it can be concluded that more than fifty
percent of these enterprises use computerized system to control the
inventory. Also, it was found that the highest parameter considered
while purchasing the inventory was given to the “Availability of the
Material” and the parameters consider while producing the inventory
was given to the production schedule. Most
of the firms are found to be considering using the JIT (Just-In-Time)
and more than twenty percent of the firms that are using the JIT are
obtaining favorable results. After analyzing the eight years’ data of 5
manufacturing companies in Nepal, inventory conversion period,
receivable conversion period, payable conversion period, cash
conversion period, debt ratio and current ratio significantly impact the
profitability of a manufacturing company. With stable economic
conditions, rise in debt ratio and current ratio does help to generate
higher levels of profit, and certain level of receivables conversion
period helps to increase sales volume which ultimately increase profit.
Average value of payable deferred period endorses the negative
relationship, extending payment of supplier deteriorate the relationship
with them and foregoing discount amount leads to decrease in
profitability. In essence, it is vital to maintain a suitable level of
working capital in order to obtain greater amount of profit because this
study concludes that about one fourth of the variation in profit earned
by a manufacturing company is determined by working capital
management.
Joshi,R.R. It is difficult to point out as to how much working capital need by a
(2013) particular business organization. An organization, which is not willing
to take more financial risks, can go for more short-term liquidity. The
 29

debt capital has been the main source of funds for banks than equity
capital while financing the total assets. Among the four selected banks,
the preponderance of debt capital is highest in EBL and NABIL, which
ultimately has visualized higher risk in total assets in these banks in
comparison to other banks. It has been ascertained that the short-term
debt has been used abound than long term debt in meeting the funds
requirement. HBL has been found in advanced position in mobilizing
highest portion of short-term debt, which consequently indicates that
the
Working capital of HBL is most risky. However, all the banks are
following aggressive working capital policy.
Niraula, P. Analyzing the activity ratio, it can be concluded that SCBNL & NIBL
(2016) has successfully managed their assets towards profit generating
activities. NIBL has higher ratio of loan & advances to total deposits;
loan & advances to fixed deposits and loan & advances to total assets
than other banks, whereas SCBNL has maintained higher total
investment to total deposits ratio than other banks. NIBL has utilized its
fund by providing more loan & advances, likewise SCBNL has utilized
its fund by making more investments. EBL has shown good credit
administration system with lower NPA to Total Loan ratio and also has
maintained more consistency in utilizing its fund in loan & advances by
maintaining lower C.V. and Standard Deviation.
Pathak, K.R. This study is based on the data of three Nepalese manufacturing
(2009) companies namely UNL, DNL and HDL. The study focuses on
working capital management of selected companies. Working capital
management necessitates short-term decision on working capital and
financing of all aspects of both firm’s short-term assets and liabilities.
The aim of efficient and effective working capital management is to
ensure growth in firms, increase in size, and enhance the liquidity
profile of firms as well as optimal leverage. This study empirically
analyzed the impact of working capital management on company's
profitability of Nepalese manufacturing company. Profitability was
measured by Return on Assets. The results showed the liquidity
position of all sample companies is not satisfactory. The turnover ratio
 30

shows HDL has highest turnover ratio than other sample companies.
The profitability shows UNL has highest level of ROA and NPM which
indicates that UNL is doing better operation in comparison to 68 other
sample companies. The correlation result showed average collection
period had a significant positive impact on return on assets, implying
that increase in CCC leads to increase in profitability of Nepalese
manufacturing companies. Furthermore, it shows the positive
relationship with sales growth, negative relation between AG, which
indicates increase sales, leads to increase in profit, and aggressive
financing policy leads to negative return.

2.5 Research Gap

Ojha P.R (2019) conducted research aiming to assess the significance of Working
Capital Management (WCM), as measured by Return on Assets (ROA) and its
components like Current Ratio (CR), Average Collection Period (ACP), and Average
Payment Period (APP), on the profitability of Pukar International. In contrast,
Lamichhane P (2019) focused on analyzing the efficiency of WCM and its impact on
profitability in Nepalese manufacturing firms from 2005/06 to 2017/18, using
Profitability on Assets (PA) and Profitability on Sales (PS) as dependent variables.
The latter study employed descriptive and causal comparative research methods.

In response to the evolving landscape of working capital environments and production

processes, a fresh study delving into the working capital management of three distinct
manufacturing companies in Nepal—UNL, BNTL, and HDL—has been initiated.
Unlike previous studies with multiple objectives, this research report narrows down
its focus to three specific objectives, simplifying the study for clearer insights.

Both Ojha P.R (2019) and Lamichhane P (2019) adopted descriptive and inferential
research designs to achieve their objectives. While Ojha's study explored the relative
importance of WCM components in relation to profitability, Lamichhane's study
analyzed the efficiency of WCM and its influence on profitability metrics like NPM,
ROA, and ROE over different time periods.

The overarching title "Working Capital Management and Corporate Profitability of

Manufacturing Companies" encapsulates the shared theme of these studies,
 31

highlighting the critical link between effective WCM practices and overall corporate
profitability. By focusing on specific companies and objectives, these studies
contribute to a deeper understanding of the intricacies involved in managing working
capital for improved financial performance.

The research gaps identified in previous studies underscore the need for updated and
targeted investigations into WCM's impact on profitability, considering the dynamic
changes in business environments. By delving into the specific contexts of UNL,
BNTL, and HDL, this study aims to provide valuable insights into optimal WCM
strategies for enhancing corporate profitability in the Nepalese manufacturing sector..

CHAPTER III
RESEARCH METHODOLOGY

This chapter deals with the methodology adapted to collect the necessary data and
attempts to analyze the effect of working capital management in Nepalese
manufacturing companies, in order to fulfill the basic objective. Research
methodology is another important aspect of the thesis writing. It is the process of
arriving to the solution of the problems through planned and systematic dealing with
the collection, analysis and interpretation of fact and figures.

3.1 Research Design

The study employs both descriptive and inferential analysis methods to delve into the
working capital management practices of Nepalese manufacturing companies.
Historical secondary data is utilized to facilitate a comprehensive analysis aimed at
achieving more insightful results. Leveraging available data, a range of statistical
tools is utilized for descriptive purposes and to establish causal relationships among
variables. Thus, the study is centered on a research design that incorporates both
descriptive and inferential analysis methodologies.

3.2 Population Sample and Sampling Design

Out of the total population of eighteen listed manufacturing companies, three

companies have been selected as a sample for this study. These three companies were
chosen based on their paid-up capital, representing a mix of strong average and lower
 32

paid-up capital among the 18 manufacturing companies, as well as being among the
top manufacturing companies in Nepal. The selected companies are:

i. Unilever Nepal ltd.

ii. Himalayan Distillery ltd.
iii. Bottlers Nepal Terai ltd.
iv. Soaltee Hotel Ltd.
v. Nepal Telecom
vi. Oriental Hotel

3.3 Nature and Sources of Data

Data collection for this study primarily relies on secondary sources. The necessary
secondary data and information will be gathered from various sources, including the
annual reports of selected manufacturing companies, annual reports of regulatory
bodies such as SEBON (Securities Board of Nepal) and NEPSE (Nepal Stock
Exchange), newspaper publications, published articles, book reviews, economic
reports, and journals related to the companies under study. These sources will provide
comprehensive insights into the financial and operational aspects of the selected
manufacturing companies, enabling a thorough analysis for the study.

3.4 Data Collection instrument and Procedure

The study involves collecting financial statements and using statistical methods to
calculate working capital management and corporate profitability ratios. Data is
gathered from various sources and methods, then classified and described. This
includes categorizing and tabulating data systematically and statically for analysis.

3.5 Methods of Data Analysis

To assess the impact of independent variables on dependent variables, the financial

and statistical tools have been applied. Microsoft excels and SPSS software has been
used for data calculation and analysis. The regression model has been used to assess
the impact of independent variables on dependent variables.

ROA=A+b1CCC+b2NWC+b3CA/TA
ROE= A+b1CCC+b2NWC+b3 CA/TA
 33

NPM= A+b1CCC+b2NWC+b3 CA/TA

 34

3.6 Research Framework and Definition Variable

3.6.1 Theoretical Framework

Independent Variables Dependent Variables

Profitability

Average Collection
Period
Net Working Capital Return on Assets

Current Assets to Return on Equity

Total Assets
Net Profit Margin
Net working capital to
Total Assets
Sources: Adhikari, 2020

3.6.2 Definition of Variables

This study will use descriptive independent variables such as average collection
period, Net working capital, and current assets to total assets and net working capital
to total assets while the dependent variables will be profitability of firm that is return
on assets and return on equity. The variables descriptions are stated below:

Dependent Variables

i. Return on Assets

In layman’s term, ROA is the profit indicator of company which deals with how much
profit a company is able to generate from it assets. It is shown in percentage and
higher the ROA higher the profit for the company and vice versa. The numerical
formula of ROA is (Rehn 2012):

Net Income
ROA =
Total Assets
35
 36

ii. Return on Equity

Return on equity (ROE) is a measure of a financial performance calculated by

dividing net income by shareholders equity. Because shareholder’s equity is equal to a
company’s assets-its debt, ROE is considered the return on net assets. ROE is
considered a gauge of a corporation’s profitability and how efficient it is in generating
profit. (Jason Fernando, 2021)

Net Income
ROE = '
Average hareholde r s Equity

Independent Variables

i. Average collection period

A shorter average collection period is related to better operating performance.

However, corporate profitability may also decrease with the average collection period,
if the costs of higher investment in working capital rise faster than benefits of holding
more inventories and/or granting more trade credit to customers. Longer average
collection period indicates more time between outlay of cash and cash recovery
(Teruel and Solano, 2007).

CCC = DIO+ DSO-DPO

ii. Net Working Capital

Working capital also now known as net working capital (NWC), is the difference
between a company's Current assets such as cash, account receivable/ customers'
unpaid bills, and inventories of raw materials of raw materials and finished goods and
its current liabilities, such as account payable and debts ( Jason 2021).

NWC= CA-CL

iii. Current Assets to Total Assets

It indicates the extent of total funds invested for the purpose of working capital and
throws light on the important of current assets of a firm. It should be worthwhile to
observe that how much of that portion of total assets is occupied by the current assets
 37

are essentially involved in forming working capital and also take on active part in
increasing liquidity learn more in: efficiency of liquidity management in Indian tire
industry: a study of selected companies during the post-liberalization Era.

current assets
Current Assets to Total Assets =
total assets

iv. Net working capital to total assets

Total assets ratio measures a company’s ability to cover its short-term financial
obligation (total current liabilities) by comparing its total current assets to its total
assets. This ratio can provide insight as to the liquidity of the company, since this
ratio can uncover the percentage of remaining liquid assets (with total current
liabilities subtracted out) compared to the company’s total assets.

net working capital

Net working capital to total assets =
total assets
 38

CHAPTER IV
RESULTS AND DISCUSSION

Presentation and analysis of data is the crucial chapter of the study as it utilizes the
processed data tools and techniques to achieve the objectives of the study. The
collected data are recorded systematically and organized them to analyze using
different tools and techniques. So, this chapter is the main body of the study which
concerned with presentation, analysis and interpretation of collected data.

In order to analyze the working capital management of Nepalese manufacturing

companies, the necessary information and data are collected through audited financial
statement, annual reports and direct contact process. The major variables of this study
are current assets, current liabilities, net profit, sales, total assets, cost, etc. which are
very sensitive and pertinent for the study. Only collecting and presenting the data are
not sufficient for the study purpose. Therefore, various financial and statistical tools
have applied to examine the working capital management of Nepalese manufacturing
companies. This chapter includes utilization of working capital, liquidity position
working capital, average collection period, profitability position of working capital
components.

4.1 Presentation of Data

4.1.1 Net Working Capital

Every firm has to maintain the appropriate level of current assets to run the business
smoothly because the success and failure of any firm depends upon the proper
management of current assets. A company or firm finances its current assets and
current liabilities conservatively or aggressively. An aggressive management policy
leads to lower level of current assets and higher level of current liabilities and the
conservative policy has just the opposite effects. Current liabilities are the integral
part of the working capital policy; which is defined as all the payment that has to be
paid by the company within in accounting period generally within one fiscal year.
 39

Table 4.1
Net Working Capital

(Rs.in million)
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 18000.53 15001.2 12965.3 13846.3 22415 21405.2 17272.27 3640.17003
2071 17234.56 13205.2 13105.7 14365.4 34664.1 33213.4 20964.7 9283.86831
2072 16502.86 14905.6 13905.7 15237.4 45649.3 39623.5 24304.06 13101.0518
2073 15304.29 13906.2 14205.7 16462.4 45474.4 37425.3 23796.38 12723.8815
2074 16508.97 14205.7 15203.8 14843.6 48625.6 39423.1 24801.79 13866.5739
2075 18955.62 13667.8 13625.8 14254.6 51425.7 42435.2 25727.46 15323.8093
2076 16580.25 14285.9 14215.6 14257.8 52368.3 41243.2 25491.84 15431.5232
2077 15940.26 14663.3 17248.6 14279.3 56250.8 41236.6 26603.13 16272.4929
2078 14987.23 13225.2 15278.8 13256.9 58203.3 38695.3 25607.78 17122.6109
2079 16879.64 14215.3 14730 14782.6 61203.6 37855.2 26611.04 17571.2931

AVG 16689.42 14128.1 14448.5 14558.6 47628 37255.6

1124.4818
SD 601.646 1194.47 819.564 11048.4 5821.66
7

Source: Annual reports of respective companies

The table presents the networking capital (in millions of rupees) for six different
companies (UNL, HDL, BNL, SHL, NTC, OHL) from fiscal year 2070 to 2079. The
average networking capital across all the companies is provided, as well as the
standard deviation (SD) for each company during the same period. Over the years,
NTC and OHL have significantly higher networking capital compared to the other
companies, with average values of Rs. 47,628 million and Rs. 37,255.6 million
respectively. The other companies (UNL, HDL, BNL, and SHL) have relatively
consistent networking capital, with averages ranging from Rs. 14,128.1 million to Rs.
16,689.42 million. The standard deviation values for NTC and OHL are also much
higher compared to the other companies, indicating a greater variability in their
networking capital over the years.
 40

4.1.2 Average Collection Period

The average collection period measures the average number of days it takes for a
company to collect payments from its customers. It is an important metric for
assessing a company's liquidity and efficiency in managing its receivables. A shorter
average collection period indicates that the company is collecting payments quickly,
which can improve cash flow and reduce the risk of bad debts. Conversely, a longer
average collection period may suggest that the company is having difficulty collecting
payments, which can lead to cash flow issues and potential financial instability.
Companies often aim to strike a balance between maintaining good relationships with
customers and collecting payments in a timely manner.

Table 4.2
Average Collection Period
(in days)
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 22.91 71 72 65 29.54 29.12 48.26 21.29
2071 38.29 65 48 46 26.51 24.53 41.38 13.76
2072 33.88 48 38 39 22.14 23.67 34.11 8.98
2073 27.01 35 30 32 23.87 27.89 29.29 3.58
2074 24.86 38 18 21 21.59 26.45 24.98 6.43
2075 14.6 42 23 24 20.21 27.42 25.21 8.47
2076 18.26 46 68 62 21.53 26.48 40.38 19.58
2077 17.29 49 45 41 23.97 24.18 33.41 12.03
2078 16.58 53 42 43 22.53 26.48 33.93 12.89
2079 19.26 51 35 36 21.61 27.49 31.73 10.62

AVG 23.29 49.8 41.9 40.9 23.35 26.37

SD 7.42 10.62 16.63 13.58 2.65 1.66

Source: Annual reports of respective companies

The table shows the percentage changes in networking capital for six different
companies (UNL, HDL, BNL, SHL, NTC, OHL) from fiscal year 2070 to 2079. It
includes the average percentage change and standard deviation (SD) across the
companies for each year. HDL has the highest average percentage change in
 41

networking capital at 49.8%, followed by OHL at 26.37%. In contrast, UNL, SHL,

and NTC have lower average percentage changes, ranging from 23.29% to 23.35%.
The standard deviation values indicate that UNL and BNL have more variability in
their percentage changes, while OHL and NTC exhibit more consistent performance
with lower standard deviation values.

4.1.3 Current Assets to Total Assets

Current assets are a component of a company's total assets and include items that are
expected to be converted to cash or used up within one year. Examples of current
assets include cash, accounts receivable, inventory, and short-term investments. The
ratio of current assets to total assets indicates the proportion of a company's resources
that are liquid or easily convertible to cash in the short term. This ratio can provide
insight into the company's liquidity and its ability to meet short-term financial
obligations. A higher ratio suggests a greater ability to manage short-term debt and
financial flexibility, while a lower ratio might indicate more long-term investments
and a potential need for external financing.

Table 4.3
Current Assets to Total Assets
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 84.22 50.24 50.52 50.54 40.11 38.15 52.29 15.16
2071 87.46 48.27 46.47 46.49 52.83 48.12 54.94 14.70
2072 83.57 41.56 41.59 41.62 54.97 52.13 52.57 14.88
2073 81.12 37.51 40.7 40.72 53.9 54.14 51.34 14.82
2074 84.44 38.52 36.5 38.95 52.42 47.25 49.68 16.51
2075 84.61 37.82 38.95 36.78 51.22 46.78 49.36 16.60
2076 83.24 39.25 42.65 38.92 50.84 48.95 50.64 15.26
2077 81.25 38.74 43.78 37.86 51.95 47.26 50.14 14.72
2078 82.54 39.52 36.68 39.42 51.25 50.13 49.92 15.60
2079 81.75 42.15 38.65 39.64 52.62 46.18 50.16 14.87

AVG 83.42 41.36 41.65 41.09 51.21 47.91

SD 1.817 4.21 4.19 4.02 3.89 4.03

 42

Source: Annual reports of respective companies

The table provided includes data on the current assets as a percentage of total assets
for seven different companies over ten years (2070–2079). Each company's
percentage is listed for each year, with an overall average (AVG) and standard
deviation (SD) calculated for the period. The data shows variation across the
companies and over time, indicating fluctuations in each company's short-term
liquidity and financial position. For instance, FY/Co has the highest average current
assets to total assets percentage (83.42%) across the years, suggesting it maintains a
high level of liquidity. The standard deviations indicate the volatility of each
company's current assets relative to total assets, with NTC having the smallest
variation and UNL showing the highest, suggesting different levels of stability in the
companies' short-term financial management.

4.1.4 Net Working Capital to Total Assets

Net Working Capital (NWC) to Total Assets is a financial ratio that measures the
proportion of a company's total assets that is represented by its net working capital.
Net working capital is calculated as the difference between current assets and current
liabilities. This ratio indicates how much of a company's total assets are tied up in
managing short-term obligations and liquidity. A higher NWC to Total Assets ratio
suggests stronger liquidity and better ability to meet short-term debts. A lower ratio
may indicate limited liquidity and potential challenges in covering immediate
obligations.

Table 4.4
Net Working Capital to Total Assets
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 19.21 0.48 0.45 0.46 0.24 0.26 3.52 7.02
2071 0.85 0.42 0.24 0.36 0.36 0.32 0.43 0.19
2072 -19.05 0.53 0.72 0.54 0.42 0.31 -2.76 7.29
2073 -12.97 0.62 0.54 0.49 0.38 0.35 -1.77 5.01
2074 -4.9 0.38 0.62 0.47 0.36 0.28 -0.47 1.98
2075 23.93 0.45 0.51 0.41 0.29 0.29 4.31 8.77
2076 21.45 0.53 0.53 0.51 0.31 0.27 3.93 7.83
2077 -4.25 0.67 0.48 0.53 0.33 0.25 -0.31 1.75
 43

2078 19.65 0.61 0.46 0.48 0.35 0.33 3.65 7.18

2079 18.29 0.72 0.95 0.45 0.32 0.37 3.52 6.61

AVG 6.22 0.54 0.55 0.47 0.34 0.3

SD 15.20 0.11 0.18 0.05 0.04 0.04

Source: Annual reports of respective companies

The table provided includes data on the profitability or loss for seven different
companies over ten years (2070–2079). Each company's profitability is represented by
a percentage for each year, with an overall average (AVG) and standard deviation
(SD) calculated for the period. FY/Co experiences the most significant fluctuations in
profitability, showing both high positive and negative percentages, indicating
significant variability in its financial performance across the years. In contrast, the
other companies have relatively stable profitability, with small standard deviations,
indicating consistent performance. SHL and NTC have the most stable performance,
as shown by their low standard deviations of 0.04, suggesting they maintain consistent
profitability or loss levels over time.

4.1.5 Return on Assets

Return on Assets (ROA) is a financial metric that measures a company's profitability

in relation to its total assets. It is calculated by dividing net income by total assets,
usually expressed as a percentage. This ratio shows how efficiently a company is
using its assets to generate profit. A higher ROA indicates that a company is more
efficient at utilizing its assets to create earnings. ROA can be used to compare the
performance of companies within the same industry, as it provides insight into how
effectively they leverage their assets for profitability.

Table 4.5
Return on Assets
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 14.88 15.98 15.62 15.67 12.25 11.44 14.31 1.79
2071 17.22 13.27 13.29 14.52 12.09 12.15 13.76 1.75
2072 24.62 16.25 17.26 14.67 13.08 13.26 16.52 3.92
2073 34.08 14.29 14.56 15.26 11.87 11.84 16.98 7.76
 44

2074 24.24 15.68 15.62 14.72 12.64 12.89 15.97 3.89

2075 37.47 16.27 16.23 12.26 11.26 13.24 17.79 8.99
2076 35.25 17.54 18.25 13.25 13.94 13.15 18.56 7.73
2077 32.89 16.29 17.95 17.25 12.14 14.25 18.46 6.74
2078 31.25 23.35 15.26 16.23 11.53 12.15 18.29 6.96
2079 34.61 15.78 14.29 16.45 10.97 11.45 17.26 8.02

AVG 28.65 16.47 15.83 15.02 12.18 12.58

SD 7.53 2.54 1.53 1.42 0.83 0.87

Source: Annual reports of respective companies

The table provides data on Return on Assets (ROA) for seven different companies
over ten years (2070–2079). ROA measures a company's profitability in relation to its
total assets, showing how efficiently the company uses its assets to generate profit.
FY/Co exhibits the highest average ROA of 28.65%, indicating it is the most efficient
at leveraging its assets for profitability. In contrast, SHL and NTC have the lowest
average ROA, suggesting they might be less effective at using their assets for profit.
The standard deviation for each company highlights the variability of their ROA over
the period, with FY/Co showing the most fluctuation (7.53%) and NTC and SHL
being the most stable (both around 0.83–0.87%).

4.1.6 Return on Equity

Return on Equity (ROE) is a financial metric that measures a company's profitability

in relation to shareholders' equity. It is calculated by dividing net income by
shareholders' equity, usually expressed as a percentage. ROE provides insight into
how effectively a company is using shareholders' investments to generate profit. A
higher ROE indicates that a company is efficient at generating profits from its equity
base and can be attractive to investors seeking strong returns on their investments.
Comparing ROE across companies within the same industry can help identify which
companies are using their equity most effectively.

Table 4.6
Return on Equity
FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 19.44 22.15 23.44 24.45 21.07 23.15 22.28 1.65
2071 21.22 21.45 26.52 26.53 20.1 21.12 22.82 2.65
 45

2072 32.11 23.45 33.98 31.25 17.97 18.45 26.20 6.53

2073 52.37 26.78 34.12 32.45 15.9 21.26 30.48 11.60
2074 34.55 29.65 28.72 32.47 16.83 24.42 27.77 5.82
2075 56.05 24.47 28.72 31.25 14.26 18.78 28.92 13.41
2076 35.96 21.78 35.69 33.26 15.27 19.2 26.86 8.37
2077 34.65 20.78 31.26 29.27 14.29 19.28 24.92 7.25
2078 46.23 21.74 30.28 26.52 15.53 17.26 26.26 10.26
2079 42.24 22.45 29.29 27.93 14.59 17.35 25.64 9.08

AVG 37.482 23.47 30.202 29.53 16.58 20.02

SD 11.41 2.64 3.54 2.88 2.28 2.27

Source: Annual reports of respective companies

This table presents the average and standard deviation (SD) of certain financial
measures across various companies over multiple years from fiscal years 2070 to
2079. The columns represent different companies (UNL, HDL, BNL, SHL, NTC,
OHL), while the rows show the fiscal year (FY) data. For each fiscal year, the average
and standard deviation across all companies are calculated and listed in the 'AVG' and
'SD' columns, respectively. These averages represent the mean performance across all
companies for that fiscal year, while the standard deviation measures the variability or
dispersion of data around the mean. Overall, the dataset provides insight into the
financial performance and consistency of these companies across the given time
period.

4.1.7 Net Profit Margin

Net profit margin is a financial metric that measures a company's profitability relative
to its revenue. It is calculated by dividing the net profit (or net income) by total
revenue and expressing the result as a percentage. The net profit is the remaining
income after all operating expenses, taxes, interest, and other costs have been
deducted from revenue. A higher net profit margin indicates a more efficient company
that can convert a greater portion of its revenue into profit. This metric is useful for
comparing profitability across different companies or industries and for assessing a
company's financial health and performance over time.

Table 4.7
 46

Net Profit Margin

FY/
UNL HDL BNL SHL NTC OHL AVG SD
Co.
2070 9.23 4.47 5.98 5.02 29.08 28.78 13.76 10.83
2071 12.76 4.15 5.64 5.41 29.11 27.65 14.12 10.46
2072 16.2 4.28 4.01 4.23 34.14 29.42 15.38 12.42
2073 18.43 5.64 4.77 4.07 30.95 31.26 15.85 11.81
2074 12.27 3.29 4.47 4.56 34.48 29.78 14.81 12.66
2075 16.91 4.28 3.06 4.78 32.15 31.29 15.41 12.41
2076 14.3 5.12 3.25 4.19 31.29 32.15 15.05 12.33
2077 15.87 5.14 9.26 3.26 30.85 30.78 15.86 11.29
2078 14.98 4.18 7.28 3.75 31.87 31.87 15.65 12.04
2079 13.25 4.76 6.98 4.02 33.19 33.29 15.92 12.60

AVG 14.42 4.531 5.47 4.32 31.71 30.63

SD 2.52 0.62 1.86 0.59 1.76 1.62

This table shows the net profit margin data for six different companies (UNL, HDL,
BNL, SHL, NTC, OHL) over a ten-year period from fiscal years 2070 to 2079. The
net profit margin is calculated as a percentage, representing the company's net profit
relative to its revenue. Each row represents a fiscal year, while each column shows the
net profit margin for a particular company in that year. The average net profit margin
(AVG) and standard deviation (SD) across all companies for each fiscal year are also
calculated and displayed in the last two columns. The data provides insights into the
profitability of each company over time, showing how efficiently each company
converts revenue into profit and highlighting any fluctuations in their performance.

4.2 Descriptive Statistics

Descriptive statistics summarize and organize data, providing a snapshot of its key
characteristics. Measures of central tendency such as the mean (average), median, and
mode offer insight into the typical value of a dataset. The mean is calculated by
summing all the values and dividing by the number of data points, while the median
represents the middle value when the data is arranged in order, and the mode is the
most frequently occurring value. Measures of dispersion, such as range, variance, and
standard deviation, indicate how spread out or variable the data is around the mean.
 47

The range is the difference between the maximum and minimum values, while
variance and standard deviation measure the average squared deviation from the mean
and its square root, respectively. These statistics help analysts understand the
distribution, shape, and spread of the data, aiding in decision-making and identifying
trends or patterns.

Table 4.8

The table presents descriptive statistics for various financial performance metrics of a
company, based on a sample size of 60 observations. Each row represents a different
financial metric, while the columns provide information such as the number of
observations (N), minimum and maximum values, mean, and standard deviation.
These statistics offer valuable insights into the company's financial health and
operational efficiency.

Firstly, the "Average Collection Period" refers to the average number of days it takes
for the company to collect payments from its customers. With a mean value of 34.27
days and a standard deviation of 14.76 days, we can infer that the company generally
collects payments within a reasonable timeframe, but there is some variability in the
collection process.

Secondly, "Net Working Capital" measures the difference between a company's

current assets and current liabilities, indicating its short-term liquidity position. The
mean net working capital of $24,118.04 suggests that the company maintains a
 48

healthy liquidity position on average, but the relatively high standard deviation of
$14,408.47 indicates variability in its liquidity management.

Thirdly, "Current Assets to Total Assets" ratio assesses the proportion of a company's
total assets that are held in current assets. With a mean ratio of 51.11% and a standard
deviation of 15.54%, we observe that current assets constitute a significant portion of
the company's total assets, indicating a focus on short-term liquidity and operational
efficiency.

Next, "Net Working Capital to Total Assets" ratio measures the proportion of a
company's total assets that are tied up in net working capital. The positive mean value
of 1.40% indicates that, on average, the company invests a small portion of its total
assets in working capital, but the standard deviation of 6.62% implies variability in
this investment pattern.

Moving on, "Return on Assets (ROA)" evaluates the company's profitability relative
to its total assets. With a mean ROA of 16.79% and a standard deviation of 6.55%, we
can conclude that the company generates a respectable return on its assets, although
there is some variability in its profitability performance.

Similarly, "Return on Equity (ROE)" measures the company's profitability relative to

its shareholders' equity. The mean ROE of 26.22% suggests that the company
generates a favorable return for its equity investors, with a standard deviation of
8.84%, indicating variability in its equity performance.

Lastly, "Net Profit Margin (NPM)" assesses the company's profitability by measuring
the proportion of revenue that translates into net profit. The mean NPM of 15.18%
indicates that the company retains a significant portion of its revenue as net profit, but
the standard deviation of 12.03% suggests variability in its profit margins.

In summary, these descriptive statistics provide valuable insights into the company's
financial performance, highlighting strengths such as liquidity management,
profitability, and return on investment, while also indicating areas of variability and
potential improvement.

4.3 Correlation Analysis

 49

Correlation analysis is a statistical method used to evaluate the strength and direction
of the relationship between two variables. The most common measure of correlation
is the Pearson correlation coefficient, which ranges from -1 to 1. A value of 1
indicates a perfect positive correlation, -1 indicates a perfect negative correlation, and
0 suggests no correlation. This analysis helps to understand how closely the variables
move in relation to each other, which can be useful for making predictions or
identifying potential causal relationships.
 50

4.3.1 Correlation Analysis between ROA and Explanatory variables

Table 4.9
Correlations
Net
Current
Average Net Working
Assets Return on
Collection Working Capital
to Total Assets(ROA)
Period Capital to Total
Assets
Assets
Pearson
1
Average Correlation
Collection Sig. (2-
Period tailed)
N 72
Pearson
.638** 1
Correlation
Net Working
Sig. (2-
Capital <.001
tailed)
N 72 72
Pearson
.802** .780** 1
Current Correlation
Assets to Sig. (2-
<.001 <.001
Total Assets tailed)
N 72 72 72
Pearson
0.23 0.198 .578** 1
Net Working Correlation
Capital to Sig. (2-
0.052 0.096 <.001
Total Assets tailed)
N 72 72 72 72
Pearson
.836** .660** .979** .608** 1
Correlation
Return on
Sig. (2-
Assets(ROA) <.001 <.001 <.001 <.001
tailed)
N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).

This table presents a correlation analysis among five variables: Average Collection
Period, Net Working Capital, Current Assets to Total Assets, Net Working Capital to
 51

Total Assets, and Return on Assets (ROA). The Pearson correlation coefficient is used
to measure the strength and direction of relationships between pairs of variables, with
values ranging from -1 to 1.

The analysis shows that Average Collection Period has strong positive correlations
with Net Working Capital (0.638), Current Assets to Total Assets (0.802), and Return
on Assets (0.836), indicating a close relationship between these variables. Net
Working Capital is also strongly correlated with Current Assets to Total Assets
(0.780) and Return on Assets (0.660).

Current Assets to Total Assets and Return on Assets exhibit a very high positive
correlation (0.979), suggesting a close relationship between these two metrics. Net
Working Capital to Total Assets, while positively correlated with all other variables,
shows weaker relationships compared to the other pairings. This analysis provides
insight into how these financial metrics interact and how changes in one may affect
the others.

4.3.2 Correlation analysis between ROE and Explanatory Variables

Table 4.10
Correlations
Net
Current Working
Average Net Assets to Capital to Return on
Collectio Working Total Total Equity
n Period Capital Assets Assets (ROE)
Average Pearson 1
Collection Period Correlation
Sig. (2-
tailed)
N 72
Net Working Pearson .638** 1
Capital Correlation
Sig. (2- <.001
tailed)
N 72 72
 52

Current Assets to Pearson .802** .780** 1

Total Assets Correlation
Sig. (2- <.001 <.001
tailed)
N 72 72 72
Net Working Pearson .230 .198 .578** 1
Capital to Total Correlation
Assets Sig. (2- .052 .096 <.001
tailed)
N 72 72 72 72
Return on Equity Pearson .893** .649** .949** .521** 1
(ROE) Correlation
Sig. (2- <.001 <.001 <.001 <.001
tailed)
N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).

This table provides a correlation analysis between five financial variables: Average
Collection Period, Net Working Capital, Current Assets to Total Assets, Net Working
Capital to Total Assets, and Return on Equity (ROE). The analysis uses the Pearson
correlation coefficient to measure the strength and direction of relationships between
pairs of variables, with values ranging from -1 to 1.

The data shows that the Average Collection Period is highly positively correlated with
ROE (0.893), Net Working Capital (0.638), and Current Assets to Total Assets
(0.802), suggesting a strong relationship between these variables. Net Working
Capital is also strongly correlated with ROE (0.649) and Current Assets to Total
Assets (0.780), indicating that these variables move closely together.

Current Assets to Total Assets and ROE share a very high positive correlation
(0.949), which suggests a strong interdependence between these two metrics. Net
Working Capital to Total Assets has a weaker relationship with the other variables
compared to other pairings, but still shows a positive correlation with them. These
correlations provide insights into the relationships and potential dependencies
between these financial measures, which could be useful for financial analysis and
decision-making.
 53

4.3.3 Correlation Analysis between Net Profit Margin and Explanatory

Variables

Table 4.11
Correlations
Net
Current Working
Average Net Assets to Capital to Net Profit
Collection Working Total Total Margin
Period Capital Assets Assets (NPM)
Average Pearson 1
Collection Period Correlation
Sig. (2-
tailed)
N 72
Net Working Pearson .638** 1
Capital Correlation
Sig. (2- <.001
tailed)
N 72 72
Current Assets to Pearson .802** .780** 1
Total Assets Correlation
Sig. (2- <.001 <.001
tailed)
N 72 72 72
Net Working Pearson .230 .198 .578** 1
Capital to Total Correlation
Assets Sig. (2- .052 .096 <.001
tailed)
N 72 72 72 72
Net Profit MarginPearson .480** .967** .732** .233* 1
(NPM) Correlation
Sig. (2- <.001 <.001 <.001 .049
tailed)
N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
 54

This table shows a correlation analysis among five financial variables: Average
Collection Period, Net Working Capital, Current Assets to Total Assets, Net Working
Capital to Total Assets, and Net Profit Margin (NPM). The analysis uses the Pearson
correlation coefficient to measure the strength and direction of the relationships
between pairs of variables, with values ranging from -1 to 1.

The data shows that Average Collection Period has a moderate positive correlation
(0.480) with NPM, indicating a relationship between these variables. Net Working
Capital has a very strong correlation (0.967) with NPM, suggesting a significant
relationship between these variables.

Current Assets to Total Assets also shows a strong correlation (0.732) with NPM,
pointing to a connection between the two. Net Working Capital to Total Assets has a
weaker but still positive correlation (0.233) with NPM, significant at the 0.05 level.
Overall, these correlations provide insights into the relationships and dependencies
between these financial measures, which can be useful for financial analysis and
strategy development.

4.4 Regression Analysis

Regression analysis is a statistical method used to examine the relationship between a

dependent variable and one or more independent variables. The analysis estimates
how changes in the independent variables are associated with changes in the
dependent variable, often resulting in a linear or nonlinear model. This relationship is
represented by an equation that predicts the dependent variable based on the values of
the independent variables. The strength and significance of the relationship can be
assessed through metrics such as the coefficient of determination (R-squared), which
measures how well the model explains the variation in the dependent variable.
Regression analysis can provide insights into causal relationships, making it a
valuable tool for forecasting, decision-making, and hypothesis testing.
 55

4.4.1 Regression Analysis between ROA and Explanatory variables

Table 4.12
Model Summary
Model R R Square Adjusted R Square Std. Error of the
Estimate
1 .833a .694 .672 3.75098

a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working

Capital, Current Assets to Total Assets, Average Collection Period

This model summary shows the results of a regression analysis, where the
independent variables include Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, and Average Collection Period. The model's
R-squared value of 0.694 indicates that approximately 69.4% of the variance in the
dependent variable can be explained by the independent variables, suggesting a
moderately strong relationship. The adjusted R-squared of 0.672 suggests that the
model's explanatory power remains high even after adjusting for the number of
predictors, with a standard error of approximately 3.75 units.

Table 4.13
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1754.210 4 438.553 31.170 <.001b
Residual 773.842 55 14.070
Total 2528.052 59

a. Dependent Variable: Return on Assets (ROA)

b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

This ANOVA table summarizes the analysis of variance for the regression model
predicting Return on Assets (ROA) using the predictors Net Working Capital to Total
Assets, Net Working Capital, Current Assets to Total Assets, and Average Collection
Period. The table indicates that the regression model is statistically significant, as
 56

evidenced by the highly significant F-statistic of 31.170 and a p-value of less than
0.001. This suggests that the predictors collectively contribute significantly to
explaining the variation in ROA. The sum of squares for regression (1754.210)
compared to the residual sum of squares (773.842) further supports the model's
effectiveness in explaining ROA.

Table 4.14
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 11.254 3.191 3.526 <.001
Average Collection -.073 .042 -.165 -1.731 .089
Period
Net Working Capital .000 .000 -.495 -5.607 <.001
Current Assets to .261 .035 .619 7.423 <.001
Total Assets
Net Working Capital .102 .080 .103 1.275 .208
to Total Assets
a. Dependent Variable: Return on Assets(ROA)

In the coefficients table for the regression model predicting Return on Assets (ROA),
the constant term indicates an intercept of 11.254, suggesting that when all predictor
variables are zero, the estimated ROA is around 11.254. Among the predictors,
Current Assets to Total Assets has the largest positive impact on ROA, with a
coefficient of 0.261, indicating that a one-unit increase in this variable is associated
with a 0.261 increase in ROA. Net Working Capital has a negative impact on ROA,
with a coefficient of -0.495, suggesting that an increase in Net Working Capital is
associated with a decrease in ROA. The p-values for all predictors are less than 0.001
except for Net Working Capital to Total Assets, indicating that the other predictors
significantly contribute to explaining ROA.
 57

4.4.2 Regression Analysis between ROE and Explanatory variables

Table 4.15

Model Summary
Std. Error of the
Model R R Square Adjusted R Square Estimate
1 .783a .612 .584 5.70033
a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

This model summary indicates the results of a regression analysis where the
dependent variable is not ROE. The independent variables include Net Working
Capital to Total Assets, Net Working Capital, Current Assets to Total Assets, and
Average Collection Period. The R-squared value of 0.612 suggests that approximately
61.2% of the variance in the dependent variable can be explained by these predictors,
with an adjusted R-squared of 0.584 accounting for the model's complexity.

Table 4.16
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 2824.684 4 706.171 21.733 <.001b
Residual 1787.154 55 32.494
Total 4611.838 59
a. Dependent Variable: Return on Equity (ROE)
b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

This ANOVA table presents the analysis of variance for a regression model predicting
Return on Equity (ROE) using the predictors Net Working Capital to Total Assets,
Net Working Capital, Current Assets to Total Assets, and Average Collection Period.
The table indicates that the regression model is statistically significant, with a highly
significant F-statistic of 21.733 and a p-value of less than 0.001. This suggests that the
combined effect of the predictors significantly contributes to explaining the variation
 58

in ROE. The sum of squares for regression (2824.684) compared to the residual sum
of squares (1787.154) further supports the model's effectiveness in explaining ROE.

Table 4.17
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 36.684 4.850 7.564 <.001
Average Collection -.196 .064 -.327 -3.049 .004
Period
Net Working Capital .000 .000 -.782 -7.872 <.001
Current Assets to .151 .053 .265 2.830 .006
Total Assets
Net Working Capital .066 .121 .050 .547 .587
to Total Assets
a. Dependent Variable: Return on Equity (ROE)

In the coefficients table for the regression model predicting Return on Equity (ROE),
the constant term indicates an intercept of 36.684, suggesting that when all predictor
variables are zero, the estimated ROE is approximately 36.684. Among the predictors,
Net Working Capital has the largest negative impact on ROE, with a coefficient of -
0.782, indicating that an increase in Net Working Capital is associated with a decrease
in ROE. Average Collection Period also has a negative impact on ROE, with a
coefficient of -0.327, suggesting that a longer average collection period is associated
with lower ROE. The p-values for Net Working Capital and Current Assets to Total
Assets are highly significant (less than 0.001), indicating that these predictors
significantly contribute to explaining ROE.
 59

4.4.3 Regression Analysis between NPM and Explanatory Variables

Table 4.18
Model Summary
Std. Error of the
Model R R Square Adjusted R Square Estimate
1 .924a .853 .842 4.77619

a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working

Capital, Current Assets to Total Assets, Average Collection Period

This model summary presents the results of a regression analysis, where the
dependent variable is NPM. The independent variables used in the analysis are Net
Working Capital to Total Assets, Net Working Capital, Current Assets to Total
Assets, and Average Collection Period. The R-squared value of 0.853 indicates that
approximately 85.3% of the variance in the dependent variable can be explained by
these predictors, with an adjusted R-squared of 0.842 considering the model's
complexity, and a standard error of approximately 4.77619 units.

Table 4.19
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 7287.314 4 1821.829 79.863 <.001b
Residual 1254.661 55 22.812
Total 8541.975 59

a. Dependent Variable: Net Profit Margin (NPM)

b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

This ANOVA table summarizes the analysis of variance for a regression model
predicting Net Profit Margin (NPM) using the predictors Net Working Capital to
Total Assets, Net Working Capital, Current Assets to Total Assets, and Average
Collection Period. The table indicates that the regression model is highly statistically
significant, as evidenced by the F-statistic of 79.863 and a p-value of less than 0.001.
 60

This suggests that the combined effect of the predictors significantly contributes to
explaining the variation in NPM. The sum of squares for regression (7287.314)
compared to the residual sum of squares (1254.661) further supports the model's
effectiveness in explaining NPM.

Table 4.20
Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -3.382 4.064 -.832 .409
Average Collection -.114 .054 -.140 -2.127 .038
Period
Net Working Capital .001 .000 .818 13.387 <.001
Current Assets to .121 .045 .156 2.707 .009
Total Assets
Net Working Capital -.130 .101 -.071 -1.280 .206
to Total Assets

a. Dependent Variable: Net Profit Margin (NPM)

In the coefficients table for the regression model predicting Net Profit Margin (NPM),
the constant term indicates an intercept of -3.382, although it's not practically
meaningful given the context. Among the predictors, Net Working Capital has the
largest positive impact on NPM, with a coefficient of 0.818, suggesting that an
increase in Net Working Capital is associated with an increase in NPM. Average
Collection Period has a negative impact on NPM, with a coefficient of -0.140,
indicating that a longer average collection period is associated with lower NPM.

4.5 Major Findings

Here are some of the major findings of the study:

1. The company demonstrates effective liquidity management with a

reasonable average collection period and a healthy net working capital,
indicating its ability to meet short-term obligations and efficiently utilize
current assets.
 61

2. Profitability metrics such as return on assets (ROA), return on equity (ROE),

and net profit margin (NPM) reflect the company's strong performance in
generating returns for investors and retaining a significant portion of revenue
as net profit, albeit with some variability across these metrics.
3. The analysis indicates a strong positive correlation between Return on
Assets (ROA) and key financial metrics, Average Collection Period: Pearson
Correlation = 0.836, p < 0.001, Net Working Capital: Pearson Correlation =
0.660, p < 0.001, Current Assets to Total Assets: Pearson Correlation =
0.979, p < 0.001, These correlations highlight the significance of efficient
collection periods, healthy net working capital, and a substantial proportion
of current assets in driving the company's profitability (ROA).
4. Similarly, Return on Equity (ROE) demonstrates significant positive
correlations with financial variables, Average Collection Period: Pearson
Correlation = 0.893, p < 0.001, Net Working Capital: Pearson Correlation =
0.649, p < 0.001, Current Assets to Total Assets, Pearson Correlation =
0.949, p < 0.00. These correlations underscore the impact of effective
collection periods, robust net working capital, and optimal asset allocation
on generating favorable returns for equity investors (ROE).
5. Furthermore, the analysis reveals strong correlations between Net Profit
Margin (NPM) and financial metrics, Net Working Capital: Pearson
Correlation = 0.967, p < 0.001, Current Assets to Total Assets: Pearson
Correlation = 0.732, p < 0.001, Net Working Capital to Total Assets:
Pearson Correlation = 0.233, p = 0.049. These correlations emphasize the
importance of efficient working capital management and strategic asset
allocation in influencing the company's net profit margins, providing
actionable insights for improving profitability.
6. The regression model for ROA shows a strong explanatory power, with an
R-squared value of 0.694, indicating that approximately 69.4% of the
variance in ROA can be explained by the independent variables. The
predictors Net Working Capital, Current Assets to Total Assets, and
Average Collection Period significantly contribute to explaining ROA, as
indicated by their standardized coefficients and p-values (< 0.001).
7. The regression model for ROE also demonstrates a strong explanatory
power, with an R-squared value of 0.612, suggesting that around 61.2% of
 62

the variance in ROE can be explained by the independent variables. Net

Working Capital and Current Assets to Total Assets have significant
negative and positive impacts on ROE, respectively, with highly significant
p-values (< 0.001).
8. The regression model for NPM exhibits a high explanatory power, with an
R-squared value of 0.853, indicating that approximately 85.3% of the
variance in NPM can be explained by the independent variables. Net
Working Capital has the largest positive impact on NPM, with a
standardized coefficient of 0.818 and a highly significant p-value (< 0.001).
9. ANOVA tests for all three regression models show highly significant F-
statistics (p < 0.001), indicating that the combined effects of the independent
variables significantly contribute to explaining the variations in ROA, ROE,
and NPM.
10. Current Assets to Total Assets consistently shows a positive impact on
ROA, ROE, and NPM, highlighting its importance in financial performance.
Net Working Capital's impact varies across the models, with a negative
effect on ROE but a positive effect on NPM, underscoring its complex role
in financial metrics.

These findings provide statistical evidence supporting the relationships between

financial metrics and performance indicators, offering valuable insights for financial
analysis and decision-making.
 63

CHAPTER V
SUMMARY AND CONCLUSIONS

This chapter targets to summarize the main content of the thesis and to draw
conclusion based on empirical findings. This study is carried out to assess the effect
of working capital management of its profitability of Nepalese manufacturing
company. Here in this chapter, I have summarized, draw the conclusion and
recommendation based on the whole study and analysis of data.

5.1 Summary

This study revolves around working capital management and corporate profitability,
focusing on specific manufacturing companies in Nepal. It recognizes the pivotal role
of working capital in ensuring smooth business operations and addresses the
challenges posed by both excessive and inadequate levels of working capital. Through
this research, the study aims to shed light on the delicate balance required for optimal
working capital management, considering factors such as liquidity, profitability, and
the unique dynamics faced by public enterprises.

By narrowing its focus to Unilever Nepal Ltd, Bottlers Nepal Ltd, Himalayan
Distillery Ltd, Soaltee Hotel Ltd., Nepal Telecom and Oriental Hotel Ltd., this study
gains specificity and depth, offering targeted insights into the working capital
practices of these companies. This approach allows for a detailed analysis of working
capital utilization, the relationship between working capital and profitability, and the
impact of key financial metrics on various performance indicators. The significance of
this study extends beyond theoretical exploration, aiming to provide actionable
guidance for managers and corporate leaders within these manufacturing companies.
The findings are expected to aid decision-making processes related to working capital
management, potentially leading to enhanced financial performance and strategic
resource allocation within the organizations under study.
 64

Acknowledging the limitations inherent in any research endeavor, this study

transparently outlines its scope and constraints. This includes the focus on a select
group of companies, reliance on secondary data sources, analysis within a specific
timeframe, and the chosen research designs. These limitations are important
considerations for interpreting and generalizing the study's findings. The literature
review sets the stage by synthesizing existing knowledge and identifying gaps in
previous research. It provides a foundation for this study's specific objectives and
research questions, aligning with broader themes in the field of working capital
management and corporate profitability.

Through a research design encompassing descriptive and inferential analysis methods,

this study navigates the complexities of working capital dynamics within the selected
manufacturing companies. The utilization of historical secondary data and statistical
tools enables a comprehensive examination of the relationships between working
capital metrics and financial performance indicators, yielding valuable insights for
academia and industry alike.

5.2 Conclusions

The findings of this thesis offer valuable insights into the relationship between
working capital management and firm performance within the context of
manufacturing industries. The analysis reveals that effective liquidity management,
indicated by a reasonable average collection period and a healthy net working capital,
plays a crucial role in meeting short-term obligations and efficiently utilizing current
assets. This underscores the importance of strategic working capital practices in
sustaining operational stability and financial health.

Moreover, profitability metrics such as return on assets (ROA), return on equity

(ROE), and net profit margin (NPM) reflect the strong performance of manufacturing
companies in generating returns for investors and retaining a significant portion of
revenue as net profit. These metrics serve as vital indicators of financial viability and
efficiency, highlighting the positive outcomes associated with prudent working capital
management strategies. The strong positive correlations observed between ROA,
ROE, NPM, and key financial metrics further emphasize the significance of efficient
collection periods, healthy net working capital, and optimal asset allocation in driving
 65

profitability and shareholder value. These correlations underscore the impact of

effective working capital management practices on enhancing financial performance
and sustaining competitive advantage.

The regression models employed in this study demonstrate a strong explanatory

power, indicating that a substantial proportion of the variances in ROA, ROE, and
NPM can be explained by the independent variables related to working capital
management. This reinforces the notion that sound working capital practices
contribute significantly to overall firm performance and profitability.

The ANOVA tests conducted for the regression models further validate the combined
effects of the independent variables in explaining the variations in financial
performance indicators. This statistical evidence supports the thesis's premise that
working capital management plays a pivotal role in shaping firm performance
outcomes within the manufacturing sector.

In conclusion, this thesis provides compelling evidence that efficient working capital
management is instrumental in enhancing the financial performance of manufacturing
industries. The findings underscore the importance of strategic liquidity management,
asset allocation, and financial metric analysis in driving profitability, shareholder
value, and long-term sustainability for manufacturing companies. These insights have
practical implications for financial managers, corporate leaders, and policymakers,
guiding them in adopting effective working capital strategies to achieve optimal
performance and competitive success.

5.2 Implications

5.3.1 Managerial Implication

1. Maintain a reasonable average collection period and a healthy net working

capital for efficient short-term obligation handling and operational stability.
2. Focus on strategies that boost return on assets (ROA), return on equity
(ROE), and net profit margin (NPM) to reflect strong financial performance
and investor value.
3. Allocate resources strategically to maximize profitability, considering the
strong correlations observed between financial metrics and key variables
 66

like net working capital and current assets to total assets.

4. Leverage regression analysis to understand the impact of working capital
management practices on financial performance indicators such as ROA,
ROE, and NPM, for making informed decisions.
5. Implement systems for ongoing monitoring and analysis of working capital
metrics and financial performance indicators to identify trends,
opportunities, and areas for improvement.
6. Provide training and development programs for financial managers and
teams to enhance their understanding of working capital dynamics and
optimize decision-making processes.
7. Integrate working capital management strategies into strategic planning and
forecasting processes to align financial goals with operational activities and
market conditions effectively.

5.3.2 Implications for Future Studies

1. This study primarily focused on manufacturing companies like UNL, BNL,

HDL, SHL, NTC, and OHL in Nepal. Future studies could broaden their
scope by including a more diverse range of manufacturing industries to
provide a comprehensive understanding of working capital management
across various sectors.
2. The sample size and time period considered in this study were limited.
Future research could enhance its reliability and generalizability by
including a larger sample size spanning a longer time period. This would
allow for a more robust analysis of trends and patterns in working capital
management and firm performance.
3. This study relied solely on secondary data and did not account for the
preferences and behaviors of different investors. Future studies could
incorporate primary data collection methods to gather insights directly from
investors, providing a more nuanced understanding of how working capital
management practices influence investor decisions and perceptions
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 APPENDICES
Correlations
Net
Current
Average Net Working
Assets Return on
Collection Working Capital to
to Total Assets(ROA)
Period Capital Total
Assets
Assets
Pearson
1
Average Correlation
Collection Sig. (2-
Period tailed)
N 72
Pearson
.638** 1
Correlation
Net Working
Sig. (2-
Capital <.001
tailed)
N 72 72
Pearson
.802** .780** 1
Current Correlation
Assets to Sig. (2-
<.001 <.001
Total Assets tailed)
N 72 72 72
Pearson
0.23 0.198 .578** 1
Net Working Correlation
Capital to Sig. (2-
0.052 0.096 <.001
Total Assets tailed)
N 72 72 72 72
Return on Pearson
.836** .660** .979** .608** 1
Assets(ROA) Correlation
Sig. (2- <.001 <.001 <.001 <.001
tailed)
 N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).
 Correlations
Net
Current Working
Average Net Assets to Capital to Return on
Collection Working Total Total Equity
Period Capital Assets Assets (ROE)
Average Pearson 1
Collection Period Correlation
Sig. (2-tailed)
N 72
Net Working Pearson .638** 1
Capital Correlation
Sig. (2-tailed) <.001
N 72 72
Current Assets to Pearson .802** .780** 1
Total Assets Correlation
Sig. (2-tailed) <.001 <.001
N 72 72 72
Net Working Pearson .230 .198 .578** 1
Capital to Total Correlation
Assets Sig. (2-tailed) .052 .096 <.001
N 72 72 72 72
Return on Equity Pearson .893** .649** .949** .521** 1
(ROE) Correlation
Sig. (2-tailed) <.001 <.001 <.001 <.001
N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).
Correlations
Net
Current Working
Average Net Assets to Capital to Net Profit
Collection Working Total Total Margin
Period Capital Assets Assets (NPM)
Average Pearson 1
Collection Period Correlation
Sig. (2-tailed)
N 72
Net Working Pearson .638** 1
Capital Correlation
Sig. (2-tailed) <.001
N 72 72
Current Assets to Pearson .802** .780** 1
Total Assets Correlation
Sig. (2-tailed) <.001 <.001
N 72 72 72
Net Working Pearson .230 .198 .578** 1
Capital to Total Correlation
Assets Sig. (2-tailed) .052 .096 <.001
N 72 72 72 72
Net Profit Margin Pearson .480** .967** .732** .233* 1
(NPM) Correlation
Sig. (2-tailed) <.001 <.001 <.001 .049
N 72 72 72 72 72
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
 Model Summary
Std. Error of the
Model R R Square Adjusted R Square Estimate
1 .833a .694 .672 3.75098
a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working Capital,
Current Assets to Total Assets, Average Collection Period

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1754.210 4 438.553 31.170 <.001b
Residual 773.842 55 14.070
Total 2528.052 59

a. Dependent Variable: Return on Assets(ROA)

b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 11.254 3.191 3.526 <.001
Average Collection -.073 .042 -.165 -1.731 .089
Period
Net Working Capital .000 .000 -.495 -5.607 <.001
Current Assets to .261 .035 .619 7.423 <.001
Total Assets
Net Working Capital .102 .080 .103 1.275 .208
to Total Assets
a. Dependent Variable: Return on Assets(ROA)
 Model Summary
Std. Error of the
Model R R Square Adjusted R Square Estimate
1 .783a .612 .584 5.70033
a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 2824.684 4 706.171 21.733 <.001b
Residual 1787.154 55 32.494
Total 4611.838 59

a. Dependent Variable: Return on Equity (ROE)

b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 36.684 4.850 7.564 <.001
Average Collection -.196 .064 -.327 -3.049 .004
Period
Net Working Capital .000 .000 -.782 -7.872 <.001
Current Assets to .151 .053 .265 2.830 .006
Total Assets
Net Working Capital .066 .121 .050 .547 .587
to Total Assets
a. Dependent Variable: Return on Equity (ROE)
 Model Summary
Adjusted R
Model R R Square Square Std. Error of the Estimate
1 .924a .853 .842 4.77619
a. Predictors: (Constant), Net Working Capital to Total Assets, Net Working Capital,
Current Assets to Total Assets, Average Collection Period

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 7287.314 4 1821.829 79.863 <.001b
Residual 1254.661 55 22.812
Total 8541.975 59

a. Dependent Variable: Net Profit Margin (NPM)

b. Predictors: (Constant), Net Working Capital to Total Assets, Net Working
Capital, Current Assets to Total Assets, Average Collection Period

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -3.382 4.064 -.832 .409
Average Collection -.114 .054 -.140 -2.127 .038
Period
Net Working Capital .001 .000 .818 13.387 <.001
Current Assets to .121 .045 .156 2.707 .009
Total Assets
Net Working Capital -.130 .101 -.071 -1.280 .206
to Total Assets
a. Dependent Variable: Net Profit Margin (NPM)