International Journal of Economics, Finance and Management Sciences

2017; 5(2): 121-128

http://www.sciencepublishinggroup.com/j/ijefm
doi: 10.11648/j.ijefm.20170502.16
ISSN: 2326-9553 (Print); ISSN: 2326-9561 (Online)

Relationship Between Working Capital Management

Efficiency and Profitability: A Comparative Study on Square
Pharmaceuticals Limited and Beximco Pharmaceuticals
Limited, in Bangladesh
Rejaul Karim1, Md. Abdullah Al-Mamun2, Md. Tota Miah1
1
Department of Business Administration, Varendra University, Rajshahi, Bangladesh
2
Department of Business Administration, Pabna University of Science and Technology, Pabna, Bangladesh

Email address:
rkarimreja@gmail.com (R. Karim), mamunfin38@yahoo.com (Md. A. Al-Mamun), totamgtru@gmail.com (Md. T. Miah)

To cite this article:

Rejaul Karim, Md. Abdullah Al-Mamun, Md. Tota Miah. Relationship Between Working Capital Management Efficiency and Profitability: A
Comparative Study on Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited, in Bangladesh. International Journal of
Economics, Finance and Management Sciences. Vol. 5, No. 2, 2017, pp. 121-128. doi: 10.11648/j.ijefm.20170502.16

Received: January 19, 2017; Accepted: February 10, 2017; Published: March 9, 2017

Abstract: Pharmaceutical is an important adjunct of industrialization in Bangladesh. This paper examines the effects of
working capital management efficiency on the profitability of the two leading pharmaceuticals companies of Bangladesh -
Square Pharmaceuticals Limited (SPL) and Beximco Pharmaceuticals Limited (BPL) and to make a comparison of financial
efficiency between these two firms. The secondary data for a period of ten years (2006-2015) have been analyzed by using
correlation, t-test, and different profitability, liquidity and solvency ratios. The study reveals that there is a significant relationship
between working capital management efficiency and profitability of both of the firms. The study also finds Square
Pharmaceuticals Limited is more efficient in working capital management than Beximco Pharmaceuticals Limited. The financial
performance of Beximco Pharmaceuticals Limited should be improved immediately through the efficient management of
working capital to increase its profitability.
Keywords: Pharmaceuticals Industry, Profitability, Working Capital Management Efficiency, Bangladesh

1. Introduction
Working capital management has become very important in Assets-liability miss-match may occur, which may increase
financial management because of its effects on the firm’s the firm’s profitability in the short-run but at a risk of its
profitability, risk and consequently the value of the firm. insolvency. On the other hand, too much focus on liquidity
There are several important reasons why the management of will be at the expense of profitability of the firm. “In addition,
working capital is important to both small and large efficient WCM will allows firms to redeploy underutilized of
organizations. firm’s resources to higher-valued use in which could
“A well designed and implemented working capital heightening of firm’s performance [3]”.
management policy is expected to contribute positively to the
creation of a firm’s value [1]”. “Current assets of many 2. Objectives of the Study
companies, accounts for over half the total assets and are even
higher in the companies in the distribution sector [2]”. The broad objective of the study is to examine effects of
However, a company is required to maintain a balance working capital management on the profitability of the
between liquidity and profitability while conducting it day to pharmaceuticals industry in Bangladesh. The specific
day operation. This required that a business must be run both objectives of the study are:
efficiently and profitably. In the process, i. To assess the relationship between working capital
122 Rejaul Karim et al.: Relationship Between Working Capital Management Efficiency and Profitability: A Comparative
Study on Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited, in Bangladesh

management and profitability of selected Pharmaceuticals loans, and economic growth rate, as independence variables.
companies. The study found that the CCC, return on assets and operating
ii. To have an overall idea about the efficiency of working cash flow are significant determinants and positively related
capital management in pharmaceuticals industry in to the WC, while leverage and firm size are significant but
Bangladesh. negatively related to the WC [6].
iii. To make comparisons between profitability of Square Salawu and Alao (2014) studied the factors determining the
Pharmaceuticals Ltd. and Beximco Pharmaceuticals Ltd. WC in the listed manufacturing firms in Nigeria for the
periods 2000-2009. Various financial variables such as sales,
3. Hypothesis of the Study purchases, inventory, creditors, debtors and total assets were
extracted from the results showed that the significant factors
To meet our prime objective of this study, we formulated to determining WC included sales growth, size of the firm, gross
following hypothesis. domestic product, and leverage. The proportion of fixed assets
H 0 : Working capital management has no significant to total assets and the net trading cycle also determined WC
influence on the profitability. but were not significant at the 0.05 level. The second tendency
H 1 : Working capital management has significant influence is related to policy or approach of WC. Most of the following
on the profitability. studies tested the association of policies such as aggressive,
conservative, investment and financing policies and
profitability and liquidity to determine which policy or
4. Literature Review approach prefers [7].
Efficient management of working is the key area of A study conducted by Akoto et al. (2013) on the
financial management and plays a significant role in any relationship between working capital management practices
industry. A number of researchers in home and abroad have and profitability of all the 13 listed manufacturing firms in
conducted research on the subject of working capital and its Ghana for the period from 2005 to 2009. The study used return
various components. Review of some related previous on equity (ROE) as a proxy for profitability. The results
research work has been carried out to make a clear idea about revealed that there is a significantly negative relationship
working capital management efficiency and its various between profitability and accounts receivable days. However,
components. The working capital meets the short-term he conclude that firms’ cash conversion cycle (CCC), current
financial requirements of a business enterprise. It is a trading asset ratio, size, and current asset turnover significantly
capital, not retained in the business in a particular form for positively influence the profitability [8].
longer than a year. The money invested in it changes form and Quayyum (2011) conducted a study on companies of cement
substance during the normal course of business operations. industry listed in Dhaka stock Exchange (DSE) and found a
The need for maintaining an adequate working capital can significance relationship between the profitability indices and
hardly be questioned. Just as circulation of blood is very various liquidity indices as well as working capital components
necessary in the human body to maintain life, the flow of form data of the period from year 2005 to 2009 [9].
funds is very necessary to maintain business. If it becomes Azam and Haider (2011) conducted a study on
weak, the business can hardly prosper and survive. Working Non-Financial Institutions listed in KSE-30 index which
capital starvation is generally credited as a major cause if not covers the period for the year 2001 to 2010. Their study
the major cause of small business failure in many developed reveals that there is a significance impact of working capital
and developing countries [4]. The success of a firm depends management on firms’ performance and it is concluded that
ultimately, on its ability to generate cash receipts in excess of managers can increase value of shareholder and return on
disbursements. asset by reducing their inventory size, cash conversion cycle
Study done by Kasiran, Mohamad, and Chin, (2015) on and net trading cycle. Increase in liquidity and time period to
working capital management efficiency of small and medium supplier will also lead firms’ overall performances [10].
enterprises in Malaysia for the time period of year 2010 - Generally, working capital refers to a company’s
2013. The results reveal that the selected small medium investment in current assets – cash, short-term securities,
enterprise company was less efficient in managing their accounts receivable and inventories. However, for the
working capital during this study period. They addressed purposes of working capital management, the more
results as alarming signals towards SME industry in Malaysia descriptive term is net working capital, which refers to the
since inefficient management of working capital could current assets minus current liabilities, which are typically
become a major cause of SME failure [5]. accounts payable and other obligations due within one year. It
Abbadi and Abbadi, (2013) examine the determinants of is also explained as follows: “Current assets, commonly called
WC for Palestinian industrial firms. They used a sample of 11 working capital, represent the portion of investment that
industrial firms that are listed on the Palestine Securities circulates from one form to another in the ordinary conduct of
Exchange for the time period of 2004 to 2011. Their model business [11]”. This idea embraces the recurring transaction
includes WC as the dependent variable, while there are some from cash to inventories to receivables and back to cash. As
financial and economic variables, such as CCC, operating cash substitutes, marketable securities are considered part of
cash flow, leverage, firm size, return on assets, interest rate on working capital.
 International Journal of Economics, Finance and Management Sciences 2017; 5(2): 121-128 123

Filbeck and Krueger (2005), defined working capital Working Capital Management has a positive impact on
management as “it is the difference between resources in cash Profitability [17].
or readily convertible into cash (Current assets) and Afza and Nazir, (2007) studied the relationship among the
organizational commitments for which cash soon will be aggressive/conservative working capital policies and
required (current liabilities) [12]”. profitability as well as risk of firms for 208 public limited
Lazaridis and Tryfonidis (2006) investigated relationship companies listed at KSE for the period of 1998-2005. Their
between working capital management and corporate investigative results found the negative relationship between
profitability of listed companies in the Athens Stock working capital policies and profitability [18], validating the
Exchange. The results of the article showed that there was a findings of Carpenter and Johnson (1983) and found no
statistically significant relationship between profitability and significant relationship between the level of current assets and
cash conversion cycle. Moreover managers could create liabilities and risk of the firms [19].
profits for their companies by handling correctly the cash Among all the problems of financial management, the
conversion cycle and keeping each different components problems of working capital management have probably been
(accounts receivables, accounts payables, inventory) to an recognized as the most crucial one. It is because of the fact
optimum level [13]. that working capital always helps a business concern to gain
Raheman and Naser, (2007) studied the effect of different vitality and life strength and to maximize profit.
variables of working capital management including the
Average Collection Period, Inventory Turnover in Days, 5. Data Sources
Average Payable Period, Cash Conversion Cycle and Current
Ratio on the Net Operating Profitability of Pakistani Firms. In order to meet the objectives of the study, data were
By using Pearson’s correlation and regression analysis he collected from secondary sources mainly from audited
found that there was a strong negative relationship between financial report of the selected pharmaceuticals companies.
variables of Working Capital Management and Profitability. The data were mainly collected from the secondary source
He also finds that as the cash conversion cycle increases, it covering ten years’ (i.e., from 2006 to 2015) audited financial
leads to decrease in profitability of the firm and managers can reports of the two sample companies - Square Pharmaceutical
create a positive value for the shareholders by reducing the Limited and Beximco Pharmaceutical Limited.
cash conversion cycle to a possible minimum level [14].
Extensive research works on working capital management 6. Research Methodology
have been done in both public and private sectors including
Multinational Companies in Bangladesh. Sayaduzzaman in The study adopted the diagnostic research design.
2007 in his in-depth research article “Working Capital Diagnostic research tries to determine the association of the
Management: A study on British American Tobacco subject matter with something else (Kothari, 2004). We have
Bangladesh Company Limited” mentions that the efficiency used a correlative design to investigate the effect of working
of working capital management of British American Tobacco capital management on the profitability of the two
Bangladesh Company Ltd. is highly satisfactory due to the pharmaceuticals company in Bangladesh.
positive cash inflows and planned approach in managing the The methodology of this study is to find out the dependency
major elements of working capital. He found that working of profitability ratios over many other working capital
capital management helps to maintain all around efficiency in components and liquidity positions i.e. on various ratios and
operations [15]. conversion cycles. To cover the liquidity, profitability, and
Chowdhury and Amin (2007) have conducted an intensive activity position, few ratios and conversion periods relating
research on working capital management practices in liquidity of the firm have been considered. And for the
pharmaceutical companies listed in Dhaka Stock Exchange purpose of the analysis, t–test about Pearson’s coefficient of
(DSE). They found in their study that pharmaceutical firms correlation between working capital and profitability has been
operating in Bangladesh deal efficiently with their liquidity conducted. We have calculated some of important liquidity
preferences and investment criteria and this is due to the and profitability ratios to reveal the liquidity and profitability
competitive nature of this industry [16]. position of our two selected firms.
Rahman, (2011) investigated the relationship between
working capital management and profitability of DSE listed 7. Findings and Analysis
textile mills in Bangladesh conducted for time period of
2006-2008. In his empirical study he finds that profitability In our comparative study, we have evaluated return on
and Working Capital Management position of the Textiles investment (ROI), return on equity (ROE), receivables
Industry in Bangladesh are not satisfactory. The study also collection period (RCP), inventory turnover period (ITP),
reveals that correlation exists between working capital accounts payable period (APP), and cash conversion cycle
management and profitability. The study brings to fore that (CCC) of two selected firms.
124 Rejaul Karim et al.: Relationship Between Working Capital Management Efficiency and Profitability: A Comparative
Study on Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited, in Bangladesh

Table 1. Descriptive Statistics.

Square Pharmaceuticals Limited (SPL)

ROI (%) ROE (%) RCP (days) ITP (days) APP (days) CCC (days)
Mean 10.61 13.58 14.33 117.99 15.81 116.52
SD 2.24 1.41 1.96 25.36 12.52 29.54
CV 21.16 10.40 13.70 21.49 79.21 25.35
Beximco Pharmaceuticals Limited (BPL)
ROI (%) ROE (%) RCP (days) ITP (days) APP (days) CCC (days)
Mean 3.15 4.56 49.58 234.03 43.83 239.78
SD 0.60 0.76 12.57 67.00 13.95 66.23
CV 18.98 16.69 25.35 28.63 31.83 27.62

Source: Analysis of Annual Reports of SPL and BPL of the Year 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, and 2015

Table 1 shows the descriptive statistics of the collected

variables. The difference between the mean of return on Table 2. Correlation table of SPL and BPL.
investment (ROI) of SPL and BPL is very large i.e. SPL has Square Pharmaceuticals Limited (SPL)
10.61% and BPL has only 3.15%. The table also shows a RCP ITP APP CCC
significance differences between ROEs of SPL and BPL ROI 0.218 -0.028 0.503 -0.222
ROE 0.548 0.235 0.500 -0.26
having the value of 13.58% and 4.56%. So, in the context of
Beximco Pharmaceuticals Limited (BPL)
profitability SPL is more efficient to earn profit than BPL. The RCP ITP APP CCC
table also shows SPL has standard deviation (SD) of ROI is ROI -0.095 -0.608 -0.664 -0.493
2.24% and that of ROE 1.41% and BPL has SD of ROI is ROE 0.003 -0.423 -0.461 -0.330
0.60% and that of ROE is 0.76% which means SPL has more
profitability with more variability of returns but BPL has less The Table 2 shows the correlations of Return on Investment
profitability and less variability of returns. In case of (ROI) and Return on Equity with Receivables Collection
coefficient of variance (CV) of SPL has CV of ROI is 21.16% Period (RCP), Inventory Turnover Period (ITP) Average
and that of ROE of 10.40% and BPL has CV of ROI is 18.98% Payment Period (APP) and Cash Conversion Cycle (CCC) of
and that of ROE is 16.69%. In our comparative study we see both of SPL and BPL. In the case of SPL we see the
that receivables collection period (RCP) of SPL has correlation of ROI with RCP is 0.218 which indicates very
significant lesser value of mean is 14.33 days with SD of 1.96 low positive and ROE with RCP is 0.548 indicates moderate
days and CV of 13.70 days than BPL with mean of 49.58 days, positive correlation. In case of ITP we see mixed result that is
SD of 12.57 days and CV of 25.35 days. That means SPL has ROI and ITP are very low negatively correlated with the value
smooth and efficient policy to collect receivables within of -0.028 and ROE and ITP are very low positively correlated
shortest period of time than BPL. The average time needed to with the value of 0.235. The correlation of APP with ROI is
convert raw-materials into finished product for SPL is 117.99 0.503 which indicates moderate positive correlation between
days and for BPL is 234.03 days, also SPL has smaller value them and APP with ROE is also moderate positively
of SD and CV than that of BPL which represents the efficiency correlated which is 0.500. In the case of SPL, ROI and CCC
of the management of SPL. The average APP of BPL is 43.83 are very low negatively correlated which is -0.222 and ROE
days and that of SPL is only 15.81 days which indicates BPL and CCC are moderate positively correlated which indicates
takes more time pay its dues than that of SPL. But in case of that the larger value of CCC the smaller amount of ROI and
cash conversion cycle (CCC), SPL has the mean of 116.52 ROE.
days and BPL has the mean of 239.78 days which represents In case of BPL we see mixed result in the correlation of
BPL requires less time to convert the cash into cash through RCP with ROI and ROE that the correlation between ROI and
the process. At last our fond result says that management of RCP is very low negative which is -0.095 and ROE and RCP
SPL is more efficient than that of BPL. are very low positively correlated which is 0.003. The
Pearson’s Coefficient of Correlation between Working correlation between ITP and ROI is -0.608 means they are
Capital and Profitability of the Firm: moderate negatively correlated and ROE and ITP are also low
Pearson’s coefficient of correlation is the degree and type of negatively correlated which is -0.423. APP is negatively
relationship between any two or more quantities (variables) in correlated with both of ROI and ROE. APP and ROI are
which they vary together over a period. In the general sense of moderate negatively correlated which is -0.664 and ROE and
finance we see the inverse relationship between liquidity and APP are low negatively correlated with the value of -0.461. In
firm’s profitability i.e. the larger volume of working capital the case BPL we see that CCC has negative correlation with
the lower profitability of the firm and vice-versa. Here ROI both ROI and ROE. ROI and CCC are moderate negatively
and ROE are treated as the indicator of profitability and RCP, correlated with the value of -0.493 and CCC and ROE are also
ITP, APP and CCC are considered as indicators of liquidity- low negatively correlated with the value of - 0.330. Here, it
the efficiency of working capital management. also expresses that the larger value of the CCC smaller amount
of ROI and ROE.
 International Journal of Economics, Finance and Management Sciences 2017; 5(2): 121-128 125

Table 3. T-test for Equality of Means (Assumed equal variance).

95% Confidence Interval of the Difference

T- value P-Value Mean Difference Std. Error Difference
Lower Upper
ROI 10.161 0.000 7.46207 .73438 5.91921 9.00494
ROE 17.765 0.000 9.01491 .50745 7.94880 10.08102
RCP -8.764 0.000 -35.248 4.022 -43.698 -26.799
ITP -5.122 0.000 -116.035 22.655 -163.630 -68.439
APP -4.727 0.000 -28.018 5.928 -40.471 -15.564
CCC -5.375 0.000 -123.266 22.933 -171.447 -75.085

*At 5% level of significance

Above table 3 shows the t-test for measuring the mean Profitability, liquidity and solvency ratios are calculated
differences of SPL and BPL of our selected variables. The through the evaluation of the audited annual reports of the two
table shows that t-value of ROI is 10.161 and P-value is 0.00 sample firms - Square Pharmaceuticals Limited and Beximco
which indicates that the difference between means of ROI of Pharmaceuticals Limited for the ten years period of 2006 to
SPL and BPL is significant at 0.00% which is below the 2015. As our attempt is to find out a comparative result of our
significance level of 0.05. Similarly the differences of the two sample firms, we have gone through the comparative
means of ROE, RCP, ITP, APP and CCC of SPL and BPL are analysis of some important ratios i.e. profitability ratios,
statistically significant which represents two separate firms liquidity ratios, and solvency ratios.
have different profitability capacity and different working Liquidity Ratios
capital management efficiency. As a result, we cannot accept The liquidity ratios measure the ability of an enterprise to
our null hypothesis. It implies that a relation exists between meet its short-term obligations and reflect the short-term
working capital management efficiency and profitability of financial strength of an enterprise. Liquidity is a pre-requisite
both firms and which is statistically significant. for the very survival of an enterprise.
Ratio Analysis
Table 4. Liquidity Ratios of SPL and BPL.

Current Ratio Quick (Acid Test) Ratio Net Working Capital Ratio Current Assets to Fixed Assets Net Working Capital to Total Asset
SPL BPL SPL BPL SPL BPL SPL BPL SPL BPL
Mean 1.75 2.02 0.90 1.02 0.75 1.02 0.45 0.42 0.13 0.14
SD 0.53 0.65 0.34 0.58 0.53 0.53 0.16 0.09 0.05 0.07
CV 0.30 0.32 0.38 0.56 0.71 0.64 0.36 0.21 0.36 0.49

Source: Analysis of Annual Reports of SPL and BPL of the Year 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, and 2015

Table 4 shows that the average current ratio is 1.75:1 in SPL table also shows that the net working capital to total assets
2.02:1 in BPL. It is seen from the table that SPL has the ratios for the selected pharmaceuticals for the study period is
current ratio below the norm (2:1) and BPL has the ratio above 0.12:1 in SPL and which is 0.19:1 in BPL. SD for both of the
the norm and the differences in SDs and CVs are firms is 0.03 and CV of SPL is 0.22 and BPL is 0.14. From the
insignificance. Our calculation also shows that the average calculated ratios it is seen that the ratio of net working capital
quick (or acid test) ratio is 0.90:1 in SPL and 1.02:1 in BPL. It to total assets of our two samples firms have insignificant
is seen from the table that SPL has the quick ratio below the difference.
norm (1:1) and BPL has the ratio above the norm which Profitability Ratios
signifies that SPL has an uncertainty to meet the short term Profitability is a measure of efficiency. It also indicates
obligations from its most liquid assets and BPL has sufficient public acceptance of the product and shows that the firm can
most liquid assets to meet the short-term liabilities. But the produce competitively. The profitability ratios measure the
differences in SDs and CVs are insignificant. performance of profit of an enterprise. In other words the
We also see in the table that BPL has a higher average ratio profitability ratios are designed to provide answers to
of net working capital ratio of 1.02:1 as compared with that of questions such as what is the rate of profit. The analysis of the
SPL of 0.75:1. SD of SPL and BPL is same of 0.53 and CV is profitability ratio is important for the shareholders, creditors,
also varies between these two firms where SPL with 0.71 and prospective investors, bankers and the government alike. For
BPL with 0.64. The above table shows that the average ratio of our comparative analysis between selected two sample
current asset to fixed assets is 0.45:1 in SPL and0.42:1 in BPL. pharmaceuticals – Square Pharmaceuticals Ltd. And Beximco
It is seen from the table that the ratios of current asset to fixed Pharmaceuticals Ltd. We have analyzed Gross profit margin
assets are very close to each other. SD of SPL is 0.08 and 0.05 ratios, returns on investment, net profit margin ratios and
in BPL; the CV of SPL is 0.19 and 0.10 in BPL. Our calculated operating profit ratios.
126 Rejaul Karim et al.: Relationship Between Working Capital Management Efficiency and Profitability: A Comparative
Study on Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited, in Bangladesh

Table 5. Profitability Ratios of SPL and BPL.

Gross Profit Operating Profit Return on Investment Return on Equity Return on Asset
Net Profit Margin
Margin Margin (ROI) (ROE) (ROA)
SPL BPL SPL BPL SPL BPL SPL BPL SPL SPL BPL SPL
Mean 36.69% 46.43% 19.54% 22.35% 16.36% 13.63% 10.61% 3.15% 13.58% 4.56% 10.61% 3.12%
SD 0.91% 2.62% 2.89% 2.38% 1.56% 1.72% 2.24% 0.60% 1.41% 0.76% 2.24% 0.60%
CV 2.49% 5.64% 14.79% 10.64% 9.57% 12.62% 21.16% 18.98% 10.41% 16.69% 21.16% 19.18%

Source: Analysis of Annual Reports of SPL and BPL of the Year 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, and 2015

Table 5 shows that BPL has the higher average gross profit
margin of 46.43% than 36.69% of SPL over the study period. Table 6. Solvency Ratios of SPL and BPL.
Standard deviation (SD) of gross profit of BPL is also higher, Debt to Equity Ratio
which is 2.62% than that of SPL of 0.91% and in case of SPL BPL
coefficient of variance (CV), BPL also has significantly Mean 0.36 0.46
SD 0.11 0.15
higher value of 5.64% than that of SPL which is 2.49%. The
CV 0.30 0.34
results show that SPL has lower but stable and increasing Debt to Total Assets Ratio
trend in gross profit ratio than that of BPL. In the above table SPL BPL
we see that the average operating profit margin of the SPL is Mean 0.27 0.31
19.54% and that of BPL is 22.35%. SD of BPL for the SD 0.07 0.06
CV 0.27 0.21
ten-year study period is 2.38% which is also lower than that of
SPL which is 2.89% and in case of CV SPL also has higher Source: Analysis of Annual Reports of SPL and BPL of the Year 2006, 2007,
value of 14.79% than that of SPL of 10.64%. Our calculation 2008, 2009, 2010, 2011, 2012, 2013, 2014, and 2015
also shows that the average net profit in SPL is16.36% and in
BPL it is 13.63%. SD of BPL is 1.72% which is also The table 6 shows the solvency ratios of our two sample
insignificantly higher than that of SPL which is 1.56% and in firms for the ten-year study period. It is revealed from the
case of CV BPL also has higher value of 12.62% than that of table that the average debt-equity ratio in SPL is 0.36:1 and
SPL of 9.57%. 0.46:1 in BPL. The standard deviation of SPL is 0.11 and that
In the table it is also seen that the return on equity (ROE) of of BPL is 0.21. The CV in SPL is 0.30 and 0.34 in BPL. The
the sample pharmaceuticals for the study period the average result shows that BPL has more debt proportionate to the
ratio of SPL is significantly higher with 10.61% than that of equity capital as compared with SPL.
BPL with only 3.15%. SPL has also the higher SD which is It is also observed from the table that the average debt to
2.24% which in the BPL is 0.60% but in case of CV, the total assets ratio for the study period is 0.27:1 in SPL and that
differences is insignificant between two sample firms has. The of BPL is 0.31:1. SD for SPL is.07 and for BPL is 0.06 and CV
average return on equity of SPL is 13.58% which is of SPL is 0.27 and which 0.21 for BPL. The calculated ratios
significantly higher than that of BPL which is only 3.15%. indicate the claim of creditors on total assets of BPL is higher
From our calculated results and differences of mean, standard than SPL with the proportionate to total assets. In case of SD
deviation and coefficient of variance it is observed that there is and CV are also significantly differ from each other as BPL
a significant difference in return on Shareholder’ equity has the more value than SPL.
between SPL and BPL and which indicates SPL is also very
efficient than BPL. The above table also shows that the 8. Conclusion
average return on total assets (ROA) is 10.61% in SPL and
3.12% in BPL. SD of SPL is 2.24% and BPL is 0.60% and CV The present study attempt to analyze the effect of working
is also varies between these two firms where SPL has 21.16% capital management efficiency on the firms’ profitability of
and BPL with 19.18%. From the above calculated table it is selected pharmaceuticals firms – Square Pharmaceuticals
observed that there is significant difference in the averages of Limited and Beximco Pharmaceuticals limited in Bangladesh.
return on asset (ROA) between SPL and BPL which expresses On the basis of our found result we can conclude that our
that SPL is more efficient in managing the return on assets study shows there is a significant relationship between these
than BPL. variables. The study also reveals that the financial position
Solvency Ratios and operational performance of the Square Pharmaceuticals
Solvency of an organization represent the ability to meet its Limited is better and efficient than Beximco Pharmaceuticals
debts and other obligations within due time. The long-term Limited in about every cases of different ratios and various
solvency of a company is an important aspect to the present conversion period in production cycle in our ten-year study
and future long-term creditors, banks, debenture holders etc. period. The inefficiency of financial management may be a
The long-run solvency of a company can be measured by the major cause for such a poor position of BPL where the
use of two important solvency ratios named debt to equity financial management of SPL shows very impressive records
ratio and debt to total assets ratio. to manage working capital of the firm.
The followings are the recommendations from the
 International Journal of Economics, Finance and Management Sciences 2017; 5(2): 121-128 127

researchers based on the findings of the study that can be cost and wastage and improving operating and
taken into the consideration by managers to improve the management performance. Supply of working capital
performance of the pharmaceuticals firms. should be adequate.
I. The financial management department of BPL This study confined the analysis of data of only two firms of
specially purchase, sales and inventory management pharmaceuticals industry in Bangladesh. This is our main
have to be motivated, so that they act all the tasks limitations of our study. A wider research in measuring the
cordially, efficiently and honestly. factors that might influence the efficiency of working capital
II. The Pharmaceuticals firms should regularly make use management across a larger sample of pharmaceuticals
of ratio analysis and measure should be taken to companies in Bangladesh is very important.
improve undesirable ratios at least as to the point of Future research can be done to highlight this issues by taken
industry’s average. into consideration a larger sample to represents a wider
III. Qualified, trained and experienced management perspective towards working capital management efficiency
personnel should be appointed. in pharmaceuticals industry in Bangladesh particularly with a
IV. Government regulations should be flexible and policy longer years observation. Thus this study is left for future to be
should be realistic. further explore.
V. Operational efficiency should be increased by reducing
Appendices
Table A1. Variables of ratio analysis and the formulas used to calculate them.

Sl. No. Variables Formula Used for Calculation

Liquidity Ratios
1. Current Ratio Current assets/ Current Liabilities
2. Quick (or Acid Test) Ratio Liquid assets (Quick assets)/ Current Liabilities
3. Net Working Capital Ratio Net working capital/ Current Liabilities
4. Current Assets to Fixed Assets Current assets/ Fixed assets
5. Net Working Capital to Total Assets Net Working Capital/ Total Assets
Solvency Ratios
6. Debt-Equity Ratio Total debt/Total Equity
7. Debt to Total Assets Ratio Total debt/ Total Assets
Profitability Ratios
8. Gross Profit Margin Gross Profit/Sales
9. Net Profit Margin Net Profit/Sales
10. Operating Profit Ratio Operating Profit/Sales
11. Return on Equity (ROE) Net profit/Average Equity
12. Return on Asset (ROA) Net profit/Average Assets
Activity Ratios
13. Receivables Collection Period (RCP) Credit Sales/Accounts Receivables
14. Inventory Turnover Period (ITP) Cost of Goods Sold/ Ave. Inventory
15. Average Payable Period (APP) Cost of Goods Sold/Accounts Payable
16. Cash Conversion Cycle (CCC) RCP+ITP-APP

Table A2. Result of Pearson’s Coefficient of Correlation of our variables - ROI with RCP, ITP, APP and CCC of SPL.

Return on Receivables Collection Inventory Turnover Average Payable Cash Conversion

Investment (ROI) Period (RCP) Period (ITP, in days) Period (APP) Cycle (CCC)
Return on Investment (ROI) 1
Receivables Collection Period (RCP) .218 1
Inventory Turnover Period (ITP, In days) -.028 .457 1
Average Payable Period (APP) .503 .501 -.076 1
Cash Conversion Cycle (CCC) -.176 -.978** -.563 -.454 1

**. Pearson Correlation is significant at the 0.01 level (2-tailed), N=10.

128 Rejaul Karim et al.: Relationship Between Working Capital Management Efficiency and Profitability: A Comparative
Study on Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited, in Bangladesh

Table A3. Result of Pearson’s Coefficient of Correlation of our variables - ROI with RCP, ITP, APP and CCC of BPL.

Return on Receivables Collection Inventory Turnover Average Payable Cash Conversion

Investment (ROI) Period (RCP) Period (ITP, In days) Period (APP) Cycle (CCC)
Return on Investment (ROI) 1
Receivables Collection Period (RCP) .548 1
Inventory Turnover Period (ITP, In days) .235 .457 1
Average Payable Period (APP) .500 .501 -.076 1
Cash Conversion Cycle (CCC) -.529 -.978** -.563 -.454 1

**.Pearson Correlation is significant at the 0.01 level (2-tailed), N=10.

Bangladesh. Journal of Business and Technology (Dhaka), 6

(1), 37-47.
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