Descriptive statistics:

Variables Mean Median Std. Deviation Maximum Minimum

Asset Turnover (AT) 0.6404271 0.5018 0.6420321 3.01 0.0446

Net Profit Margin (NPM) 0.0927235 0.0927 0.192759 0.6847 -1.2849

Return on Asset (ROA) 0.0552929 0.0452 0.0741388 0.5774 -0.0641

Basic Earnings Power (BEP) 0.0711035 0.0705 0.0526573 0.2069 -0.0273

Acid Test Ratio (ATR) 0.9698353 0.7552 0.8256332 3.8107 -0.0822

Absolute Liquidity Ratio (ALR) 0.4499329 0.2295 0.546136 2.6967 -0.037

Aggressive Working Capital Policy 0.3792588 0.343 0.2316443 0.9133 0.0411

Ratio (AWCPR)
Cash Conversion Cycle (CCC) 100.2053 104.5 122.2003 470.25 -397.7

Firm Size 10.72949 10.49 1.703256 14.74 7.26

Growth 0.2192871 0.1309 0.6301581 3.8382 -0.7832

From Table-I, asset turnover shows a mean of 0.6404271 and a standard deviation of 0.6420321. It can be concluded
that the firms are using their assets on an average of 0.6404271 times to generate revenue. The result of net profit
margin depicts the companies on an average generate 9.27% net profit from their sales. The company averagely
generates a net profit by employing its total asset is 5.53%. Basic earning power result interprets on an average the
companies generate 7.11% earnings before any effect of interest and taxes by utilizing their assets.

The acid test ratio result says the companies on average have 0.9698353 times liquid assets comparison to their
current liabilities. Absolute liquidity ratio depicts the companies on an average have 0.4499329 times cash, marketable
securities, and current investment comparison to their liabilities. The aggressive working capital policy shows a mean
of 0.3792588 and a standard deviation of 0.2316443. The CCC states that the companies on average need 100 days to
collect cash from their customers as the companies further invest the amount into their operations. A wide variation is
found in the outcome of maximum and minimum measurements.
The natural logarithm of the total assets of the companies is used to determine the firm size. The mean firm size is
10.73 with a standard deviation of 1.703256. Sales growth shows a mean of 21.93% and a standard deviation of
63.01 %.
 Correlation Analysis:
AT NPM ROA BEP ATR ALR AWCPR CCC Size Growth

AT 1.00

NPM 0.0938 1.00

ROA 0.067 0.4392* 1.00

BEP -0.2182* 0.4785* 0.4981* 1.00

ATR 0.1669 0.1845 0.0426 0.0093 1.00

ALR 0.055 0.1110 0.0618 -0.0292 0.6625* 1.00

AWCPR 0.6460* -0.2375* -0.1394 -0.2377* -0.4952* -0.2385* 1.00

CCC -0.4163* -0.1872 -0.0117 -0.1442 -0.0921 -0.1923 -0.4055* 1.00

Size -0.019 -0.0443 0.1585 0.3730* -0.5390* 0.3796* 0.0355 -0.1216 1.00

Growth 0.1139 0.0119 0.0421 0.0869 0.0381 0.0081 0.1645 -0.0925 0.1220 1.00

* mark indicates the significance at 5%

Asset Turnover (AT) shows a strong positive correlation with AWCPR (0.6460, significant), indicating that an aggressive
working capital policy enhances asset efficiency. Also, Asset Turnover (AT) has a positive correlation with NPM (0.0938),
ROA (0.067), ATR (0.1669), ALR (0.055), and growth (0.1139). Conversely, it is negatively correlated with firm size (-0.019)
and CCC (-0.4163, significant), suggesting that shorter cash conversion cycles increase asset turnover.

Net Profit Margin (NPM) is positively correlated with ROA (0.4392, significant) and BEP (0.4785, significant), highlighting
alignment among profitability metrics. Besides, the positive correlation also occurs among NPM and ATR (0.1845), ALR
(0.111) and growth (0.0119). However, NPM shows a negative correlation with AWCPR (-0.2375, significant), suggesting
that aggressive working capital policies may reduce profit margins. Also, NPM has a negative correlation with CCC (-
0.1872) and firm size (-0.0443).

Return on Asset (ROA) is positively correlated with BEP (0.4981, significant), indicating that higher earning power
supports better asset returns. However, correlations with ATR (0.0426), ALR (0.0618), size (0.1585) and growth (0.0421)
are also positive. Conversely, it is negatively correlated with AWCPR (-0.1394) and CCC (-0.0117), suggesting that shorter
cash conversion cycles provide more return from assets.

Basic Earnings Power (BEP) exhibits strong positive correlations with NPM (0.4785, significant), ROA (0.4981, significant)
and firm size (0.3730, significant). Also, BEP has a positive correlation with growth (0.0896). In contrast, it has a negative
correlation with CCC (-0.1442) and a strong negative correlation with AWCPR (-0.2377, significant) indicating that, an
aggressive working capital policy can increase financial risk and reduce profitability. Weak correlations with ATR (0.0093)
and ALR (-0.0292) imply limited influence from liquidity metrics.

Among the independent variables, ATR and ALR are strongly correlated (0.6625, significant), showing that both liquidity
measures are interconnected. AWCPR is negatively correlated with ATR (-0.4952, significant) and ALR (-0.2385,
significant), suggesting that an aggressive working capital policy reduces liquidity. CCC is negatively correlated with
AWCPR (-0.4055, significant), reflecting shorter cash cycles in firms with aggressive working capital strategies. Firm size
correlates positively with ALR (0.3796, significant) but negatively with ATR (-0.5390, significant), indicating that larger
firms manage liquidity differently. Growth exhibits weak correlations across all variables, showing limited influence on
profitability and working capital metrics as it is a control variable.

Overall, the matrix suggests that working capital policies and firm size significantly influence asset utilization and
profitability, while liquidity measures have varying impacts.

 the negative correlation between AT and firm size can stem from a larger asset base, operational complexity,
diversification Impact, economies of scale, and strategic priorities of big firms that impact their asset
efficiency compared to smaller, more focused organizations.
 the negative correlation between NPM and firm size can occur because larger firms may face higher
operating costs, increased competition, or lower pricing power, which can reduce their net profit
margin.
 the negative correlation between BEP and ALR can occur because firms maintaining higher liquidity may
allocate fewer assets toward revenue-generating activities, reducing their overall earning efficiency.
Literature Review:

Working Capital Management (WCM) describes the process of managing a company's short-term assets and
liabilities to ensure its operational efficiency and liquidity, while maximizing profitability. It is one of the most
important aspects of the firm through which the financial manager can make really a long-term effects on firm’s
profitability by taking effective short-term decisions. Efficient working capital management involves managing
short-term assets and short-term liabilities in a way that provides balance between eliminating potential inability
to cope with short-term debts and avoiding unnecessary holdings in these assets. Some researchers have tried to
explore the association between firms' performance and working capital management in their studies
worldwide. Researchers used several components of working capital in their studies. For example, Cash
Conversion Cycle (CCC) has been used as a component of working capital by Shin & Soenen (1998), Cote and
Latham (1999), Deloof, M. (2003), Johnson and Soenen (2003), Eljelly (2004), Raheman and Naser (2007),
Mohammadi (2009), Sharma and Kumar (2011), Asaduzzaman and Chowdhury (20 4), Safeena et al. (2015) etc. In
addition to CCC, Net operating cash flow ratio (NOCR), current ratio (CR), acid-test ratio (ATR) /quick ratio, cash
ratio (CaR), absolute liquidity ratio (ALR), aggressive working capital policy ratio (AWCPR) have also been used as
components of working capital management (WCM) (Johnson and Soenen, 2003; Eljelly, 2004; Van Horne and
Wachowicz, 2004; Raheman and Nasr, 2007; Safeena et al, 2015; Asaduzzaman and Chowdhury, 2014).

Working capital management is considered as the cornerstone for generating profitability and also maintaining
liquidity through the efficacious management of the cash conversion cycle. Deloof, M. (2003) tried to find out the
association between working capital components and profitability by considering Cash Conversion Cycle (CCC) as
an indicator of the working capital component from 1009 non-financial companies of Belgium throughout 1992-
1996. This study found that firms' profitability tends to be increased when the number of days trade receivables
and inventories decreases. In India, Singhania, Sharma, and Rohit (2013) by studying 82 firms listed with
Bombay Stock Exchange for 2005-12 concluded a negative relationship between cash conversion cycle
and profitability measures i.e. return on assets (ROA), net operating profit (NOP), and gross operating
profit (GOP). A study conducted by Hayajneh and Yassine (2011) investigated the relationship between working
capital efficiency and profitability on the 53 Jordanian manufacturing firms listed in Amman Exchange Market for
the period from 2000 to 2006. Descriptive statistics, Pearson correlation coefficients, ordinary least squares (OLS)
and two-stage least squares (TSLS) regression models were used to analyze the data series in this study. The
study found a negative significant relationship between profitability and the average receivable collection period,
average conversion inventory period and average payment period, and also the cash conversion cycle which
expresses the efficiency of working capital. Regression results of this study recommended the firms to manage its
working capital efficiently to achieve the optimal profitability. Raheman (2007) studied the effect of different
variables of working capital management including the Average Collection Period, Inventory Turnover in Days,
Average Payable Period, Cash Conversion Cycle and Current Ratio on the Net Operating Profitability of Pakistani
Firms. By using Pearson’s correlation and regression analysis he found that there was a strong negative
relationship between variables of Working Capital Management and Profitability. He also found that as the cash
conversion cycle increases, it leads to decrease in profitability of the firm and managers can create a positive
value for the shareholders by reducing the cash conversion cycle to a possible minimum level.
 Cote and Latham (1999) examined how working capital management influences the firms' performance and
showed the efficient management of inventory, trade receivables, and trade payables impact the firms' cash flow
for short period and stimulate firms' profitability for long period. CCC can be kept in good shape by handling
accounts receivables, inventory, and accounts payables efficiently. Padachi (2006) studied the trend of working
capital and its effect on performance in Mauritian firms by analyzing 58 small manufacturing firms for 1998-
2003. He used return on total asset (ROTA) as profitability measure and concluded the negative association of
profitability with inventories days and accounts receivables. He had found in his research study that a firm is
required to maintain a balance between liquidity and profitability while conducting its day to day operations. The
manager of a business entity is in a dilemma of achieving desired trade-off between liquidity and profitability in
order to maximize the value of a firm.

Mallick and Sur (1998) carried out research in the Indian tea industry to assess the influence of working capital
management on profitability. In this research, they measured the interrelation between the nine selected ratios
regarding working capital management and the selected profitability measure which revealed both negative and
positive associations. Sivarama (1999) derived a close association between profitability and working capital
efficiency in the study of working capital management in the Indian paper industry. Ramana et al. (2013)
investigated impact of receivables management on working capital and profitability in India during the between
2001 and 2010 year. The investigation revealed that the receivable management across cement industry is
efficient and showing significant impact on working capital and profitability.

Inefficient management of working capital may drive the firm towards bankruptcy even though profitability
seems positive (Samiloglu and Demirgunes, 2008). Eljelly (2004) explained the significance of working capital
management as it oversees liquidity which helps to satisfy' firms' obligations and run the daily operations
smoothly. Moreover, the researchers found a positive association between firms' size and profitability.

A firm may adopt an aggressive working capital management policy with a low level of current assets or it may
use working capital to finance decisions of the firm in the form of high level of current liabilities as a percentage
of total liabilities. But when firms maintain aggressive working capital, the liquidity position is affected severely.
Consequently, the firms may face the stock out and the regular operations can be interrupted. On the other side
of the coin, the excessive level of current assets badly affects the firms' performance (Van Horne and Wachowicz,
2004 and Nazir and Afra, 2009). Tufail et al. (2013) had found in their study that aggressiveness of working capital
management policies is negatively associated with profitability.

There are few studies in Bangladesh covering WCM and firm performance. Quayyum (2012) studied 28 Dhaka
Stock Exchange (DSE) listed firms of cement, food, pharmaceuticals, and engineering industry for 2005-09 and
concluded that except for food industry all other selected industries have a significant level of relationship
between the profitability indicators i.e. return on asset, net profit margin and working capital measures i.e.
receivables collection period, inventory turnover period, payable deferral period, cash conversion cycle, current
ratio, and quick ratio. Hamid and Akhi (2016) explored this relationship by considering 10 pharmaceuticals and
chemicals companies listed with DSE for the period of 2005-14 and found no significant relationship between
working capital management measured by current ratio, quick ratio, and working capital ratio and profitability
measured by return on assets, return on equity, and return on capital employed. Karim et al. (2017) examined
the relationship for 2 pharmaceuticals companies of Bangladesh i.e. Square Pharmaceuticals Limited and
Beximco Pharmaceuticals Limited and found the existence of significant relationship between working capital
management and profitability for both firms. Sayaduzzaman (2006) studied British American Tobacco Bangladesh
Company Ltd and found that the company has a positive inflow of cash, follows a structured way to handle the
main components of working capital, found satisfactory working capital management, and thus ensures
operational efficiency. Chowdhury and Amin (2007) and Chowdhury (2018) explored the DSE-listed
pharmaceutical companies, and by considering several factors they found that efficacious working capital
management helps to create value for the firm. Hoque, Mia, & Anwar (2015) acknowledged a positive
correlation between profitability and components of working capital by observing DSE-listed cement
manufacturing companies covering the period of 2010-2012. Furthermore, they found in their study, days sales
outstanding (DSO) influence the firms' profitability negatively.

Efficient management of working capital is very essential in the overall corporate strategy in creating shareholder
value. Firms try to maintain an optimum level of working capital that maximizes that value (Deloof, 2003; Howorth &
Westhead, 2003; Afza & Nazir, 2007). A firm seeking to maximize profit should maintain a balance between current
assets and current liabilities and, thus, being up-to-date with the tradeoff between liquidity and profitability (Ani,
Okwo, & Ugwunta, 2012). Scherr (1989, p. 16) claimed that by implementing best practices in working capital,
companies can strengthen strong cash flow levels, improve profitability, budgeting and forecasting process

Maximizing profit or shareholder value are the ultimate objectives for a company, however preserving
liquidity is important too. A company needs to care about profit for their continuity, but at the same time a
company needs to focus on liquidity to prevent insolvency or bankruptcy. This presents a trade-off between
these two objectives, focusing on maximizing profits should not be at the cost of liquidity, and calls for effective
working capital management (Raheman & Nasr, 2007). An optimal working capital management is expected to
contribute positively to the creation of firm value.

The power and fuel industry is one of the most vital sectors in Bangladesh, playing a significant role in driving
industrial growth, ensuring energy security, and contributing substantially to the national GDP. However, this
sector has yet to attract sufficient attention from researchers regarding critical issues like efficiency, sustainability,
and investment dynamics. While some studies have been conducted, they often lack the application of
appropriate, comprehensive, and advanced econometric models to analyze the industry's challenges and
opportunities effectively.

There is an existing study that analyzed the relationship between Working Capital Management (WCM) and Firm
Profitability based on the financial data from 15 listed fuel and power companies on the Dhaka Stock Exchange
(DSE) from 2007 to 2011. By focusing on secondary data from 2019-2023, this study aims to fill the gap by providing
up-to-date insights into the association between working capital management and firm profitability, particularly
within the fast-growing and evolving power and fuel sector of Bangladesh. This study contributes to existing
literature in terms of evaluating the relationship between working capital management and profitability of power
and fuel companies of Bangladesh in emerging economies. Also, the study seeks to confirm the findings of some of
the previous researchers by examining the relationship between working capital management and the profitability
of the sample firms.
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 Padachi, K. (2006). Trends in working capital management and its impact on firms’ performance: An
analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2(2),
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 Asaduzzaman, M. and Chowdhury, T., (2014). Effect of working capital management on firm profitability.
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"Analysis of the power sector in Bangladesh: current trends, challenges, and future perspectives," Bulletin
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