Measuring the Relationship between Working Capital Management and Profitability of Pharmaceuticals Industry in Bangladesh

Abstract

This study has been initiated as an effort to understand and show the working capital management practices of the Pharmaceutical Industry in Bangladesh. The objective of the study is to measure the relationship between working capital management and the profitability of the Pharmaceuticals industry in Bangladesh. I applied a panel regression model to identify the effects of working capital variables on firm profitability. Profitability is measured by the return on assets(ROA) and the return on equity(ROE). Results indicate that, in the case of both fixed effects and random effects panel regression models, only payables turnover ratio(PTR)and the current ratio are statistically significant whether we use ROA or ROE as profitability indicators. The conclusion can be made that none of the working capital components can influence the earnings of the Pharmaceuticals industry in Bangladesh except the payable turnover ratio and current ratio.