ARMY INSTITUTE OF BUSINESS ADMINISTRATION, SAVAR

Term Paper
ON

“Working Capital Management and its impact on profitability: A

study on Walton Hi-Tech Industries Ltd.”

Course Title: Working Capital Management

Course Code: FIN 4707

SUBMITTED TO: SUBMITTED BY:

Kaniz Fatema Lecturer Name ID

of Finance, Musfikur Rahman Hridoy 02
Army IBA, Savar Cantonment, Savar Mohammad Imtiaz Hasan 04
Junied Zarif 18
Md. Asif Rahman Kabbo 40
Batch: BBA-08

Date of Submission: 14th May, 2025

Working Capital Management and its impact on profitability: A
study on Walton Hi-Tech Industries Ltd.
 Acknowledgment

We would like to express our sincere gratitude to Kaniz Fatema , our respected course instructor,
for her continuous guidance, encouragement, and insightful feedback throughout the preparation
of this report titled "Working Capital Management and its Impact on Profitability: A Study on
Walton Hi-Tech Industries Ltd." Her expertise and thoughtful suggestions have been invaluable
in shaping the direction and depth of our analysis.

We are also profoundly thankful for the knowledge imparted during the course Working
Capital Management (FIN 4707), which provided us with a comprehensive understanding of
the critical concepts and practices involved in managing working capital effectively. The
analytical tools and frameworks learned during this course have played a crucial role in
conducting this study and examining the relationship between working capital and profitability.
 Executive Summary
This study investigates the impact of working capital management on the profitability of Walton
Hi-Tech Industries Ltd., a leading electronics and manufacturing company in Bangladesh. The
primary objective is to assess how components of working capital—inventory, receivables,
payables, and cash management affect the firm’s financial performance.
Utilizing secondary data from Walton’s financial statements for the fiscal years 2022 and 2023, the
analysis reveals that the company follows an aggressive working capital policy characterized by a
relatively low current assets-to-sales ratio and a strong reliance on short-term liabilities. Key
performance indicators such as the Cash Conversion Cycle (CCC) decreased from 38 to 35 days,
signaling improved operational efficiency. Liquidity ratios like the current ratio, quick ratio, and
cash ratio, however, showed a declining trend, indicating rising pressure on short-term financial
resources.
Regression analysis supports the hypothesis that effective working capital management enhances
profitability. Specifically, receivable days, inventory days, and CCC show a negative correlation
with net income, whereas payable days and return on assets (ROA) are positively associated. The
regression model explains 94.3% of the variation in net income, indicating strong explanatory
power.
The report concludes with several recommendations, including optimizing receivables and
inventory, carefully managing payables, improving liquidity, and maintaining a balanced capital
structure. These strategies are expected to sustain and enhance Walton’s profitability in a
competitive and dynamic market environment.
 Table of Contents
1. Chapter 1: Introductory Part .........................................………….……….................... 1
1.1 Introduction .......................................................................………….………............... 1
1.2 Objectives .......................................................................………….………................... 1
1.3 Research Methodology .......................................................................…………........... 2
1.4 Literature Review .......................................................................………….………...... 2
1.5 Limitations .......................................................................………….……….................. 2
2. Chapter 2: Report Body ................................................................................................... 3
2.1 Organization Overview ................................................................................................... 3
3. Chapter 3: Analysis Part ..................................................................................................... 4
3.1 Working Capital Policy ……………………………………..….....................…….….. 4
3.2 Working Capital Policy of Walton Hi-Tech Industries Ltd .……………………....... 4-5
3.3 Inventory Management ................……………………………………........……...…. 5-7
3.4 Cash Management ……….........….............…………………………........……......... 7-8
3.5 Hypotheses Development .....................………………………………........…..…... 9-10
4. Chapter 4: Regression Model ..................................................…….……….................. 11
4.1 Proposed Regression Model …………...............................................................…..... 11
4.2 Model in Functional Form………….............……………........…...............….…....... 11
4.3 Explanation of Variables ….............………………………........….......…...…..... 11-12
4.4 Econometric Model ………….............………………........…...............….…............ 12
4.5 Regression Output Summary ....………………………........…...............….….......... 12
4.6 Coefficients Table ………….........……………………….......................….…..... 12-13
4.7 Graphical Representation ………….............…………........…...............….…...... 13-15
5. Chapter 5: Performance Evaluation .........................................…....…........................
15
6. Chapter 6: Findings.............................................................................…………........… 16
7. Chapter 8: Conclusion and Recommendations ............................................................. 16
7.1 Recommendations .........................................………………………………................ 16
7.2 Conclusions .........................................………………………………........................ 17
References .........................................………………………………...................................... 18
Bibliography .........................................………………………………................................. 18
Appendix .........................................……………………………….................................. 19-
20
 Chapter One: Introductory Part

1.1 Introduction

Working capital management is a crucial component of corporate financial strategy, directly

influencing a firm's operational efficiency and short-term financial health. It involves managing
current assets and current liabilities to ensure a company maintains sufficient liquidity to meet its
short-term obligations while also optimizing profitability. For manufacturing firms, where
inventory and receivables form a substantial part of current assets, effective working capital
management can be the differentiator between operational success and financial distress.

Walton Hi-Tech Industries Ltd., one of Bangladesh’s leading electronics and manufacturing
conglomerates, presents a compelling case for the study of working capital management due to
its large-scale production operations, wide product portfolio, and extensive supply chain
network. As a capital-intensive enterprise with a rapidly growing market presence both
domestically and internationally, Walton's approach to managing its working capital can offer
valuable insights into the relationship between liquidity management and profitability in the
context of a developing economy.

1.2 Objectives

The primary objective of this term paper is to examine the impact of working capital
management on the profitability of Walton Hi-Tech Industries Ltd. The study aims to:

1. Analyze the components of working capital—inventory, receivables, payables, and cash

management—within Walton Hi-Tech Industries Ltd.
2. Evaluate the efficiency of Walton’s working capital management practices over a defined
period.
3. Investigate the relationship between working capital components and the firm’s
profitability indicators such as net profit margin, return on assets, and current ratio.
4. Provide recommendations for improving working capital policies to enhance profitability.

1.3 Research Methodology

This study employs a quantitative research methodology grounded in secondary data analysis.
Financial statements, annual reports, and industry publications related to Walton Hi-Tech
Industries Ltd. serve as the primary sources of data. The time frame for data collection spans the
last five fiscal years to ensure relevance and consistency. Key financial ratios including the
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current ratio, quick ratio, inventory turnover ratio, and receivables turnover ratio are calculated
and analyzed to evaluate working capital efficiency. Correlation and regression analyses are used
to assess the impact of working capital components on profitability indicators. This empirical
approach is supplemented with a qualitative review of Walton’s corporate financial strategies
and relevant industry practices.

1.4 Literature Review

A significant body of literature underscores the role of working capital management in

enhancing firm profitability. Deloof (2003) found a negative relationship between the cash
conversion cycle and corporate profitability among Belgian firms, suggesting that efficient
working capital management leads to higher profitability. Similarly, Lazaridis and Tryfonidis
(2006) reported that Greek firms with shorter cash conversion cycles tend to have improved
profitability metrics.

In the South Asian context, Raheman and Nasr (2007) concluded that there exists a strong
inverse relationship between working capital components and firm profitability in Pakistani
firms, a trend that may have parallels in the Bangladeshi manufacturing sector. Furthermore,
studies by Gill et al. (2010) in the Canadian market have affirmed that managing receivables and
inventory effectively can positively influence net profits.

These prior findings form the theoretical foundation for this study, guiding the empirical
investigation into how Walton Hi-Tech Industries Ltd.’s working capital practices influence its
financial performance.

1.5 Limitations

1) The study relies on secondary data, which may introduce biases or inaccuracies due to lack of
control over data collection methods.
2) The analysis focuses on a single company, limiting the generalizability of findings to other
firms or industries in Bangladesh.
3) External macroeconomic variables (e.g., inflation, interest rate fluctuations, and foreign
exchange volatility) are not directly controlled for, although they can influence working
capital dynamics and profitability.
4) Certain internal financial practices and data remain confidential, preventing a full assessment
of Walton’s working capital strategy.
 Chapter Two: Report Body

2.1 Organization Overview

Walton Hi-Tech Industries Ltd. (WHIL) is a leading conglomerate in Bangladesh, operating

under the umbrella of Walton Group. Incorporated in 2006, WHIL serves as the principal entity
for manufacturing and marketing Walton-branded electronics, electrical appliances, and
automobiles. Headquartered in Chandra, Kaliakair, Gazipur, Bangladesh, the company has
established itself as a dominant player in the South Asian consumer electronics and home
appliance industry. Over the years, WHIL has evolved into one of the largest and most
technologically advanced industrial entities in the country, contributing significantly to national
economic growth, employment generation, and technological innovation. WHIL operates within
a vertically integrated business model, which encompasses the design, manufacturing,
assembling, and distribution of a wide range of products. These include refrigerators, air
conditioners, televisions, washing machines, microwave ovens, mobile phones, and motorcycles.
By manufacturing a substantial portion of components in-house, such as compressors, motors,
and plastic parts, Walton ensures both cost efficiency and quality control. This vertical
integration not only facilitates better inventory and working capital management but also
provides a competitive edge in pricing and product differentiation. The company’s
manufacturing complex spans over 2.4 million square feet, equipped with state-of-the-art
technology and machinery sourced from Germany, Japan, Korea, and the USA. WHIL places
strong emphasis on research and development (R&D), innovation, and quality assurance. The
establishment of its own testing laboratories and R&D centers has enabled the firm to introduce
advanced features and energy-efficient solutions tailored to local and international market
demands. Walton’s commitment to innovation has also positioned it as the first Bangladeshi
company to export locally manufactured electronics to global markets, including Asia, Africa,
the Middle East, and Europe. WHIL is listed on the Dhaka Stock Exchange (DSE) and the
Chittagong Stock Exchange (CSE), reflecting its transparent financial practices and compliance
with regulatory frameworks. The company has experienced robust financial growth over the past
decade, attributed to strong domestic demand, expanding export markets, and consistent
investment in infrastructure and product diversification. According to its annual reports, WHIL
has maintained a healthy liquidity position and a sustainable debt-to-equity ratio, which are key
indicators of sound working capital management. In summary, Walton Hi-Tech Industries Ltd.
serves as an exemplary case for studying the nexus between working capital management and
profitability. Its expansive operations, strategic resource utilization, and consistent financial
performance make it a suitable subject for empirical analysis in the context of manufacturing
firms in emerging economies.

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 Chapter Three: Analysis Part

3.1 Working Capital Policy

Working capital (WC) policy refers to a firm’s strategic approach towards managing its current
assets and current liabilities. It essentially determines the level of investment in current assets
vis-à-vis the firm's operational needs and the financing pattern adopted for these assets. Firms
typically follow one of three broad types of working capital policies:

 Aggressive Working Capital Policy: This strategy minimizes investment in current

assets relative to sales, aiming to increase profitability but at the cost of higher risk. Here,
a greater portion of working capital is financed through short-term liabilities.
 Conservative Working Capital Policy: This approach entails maintaining a higher level
of current assets and financing them with long-term sources of funds. It reduces risk but
may lead to lower returns.
 Moderate Working Capital Policy: It strikes a balance between risk and return by
maintaining average levels of current assets and funding them through a mix of short- and
long-term sources.

The choice of working capital policy has a direct impact on the firm's liquidity, operational
efficiency, and ultimately, its profitability.

3.2 Working Capital Policy of Walton Hi-Tech Industries Ltd.

To assess the working capital policy of Walton Hi-Tech Industries Ltd., the relationship between
current assets and gross turnover is examined over two financial years—2022 and 2023—using
hypothetical data. This analysis helps determine whether the company follows an aggressive,
moderate, or conservative working capital policy.

Year Gross Current Current Total Total Assets

Turnover Assets (BDT Liabilities Liabilities (BDT
(BDT million) (BDT million) (BDT million)
million) million)
2022 80,000 20,000 14,000 30,000 50,000
2023 100,000 22,000 17,500 37,000 62,000

Table 1: Financial Data of Walton Hi-Tech Industries Ltd.

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3.2.1 Current Assets to Sales Ratio

This ratio helps assess how much current assets are maintained per unit of sales.

 2022: 20,000 / 80,000 = 0.25

 2023: 22,000 / 100,000 = 0.22

A decreasing trend in this ratio indicates that the company is maintaining a relatively lower level
of current assets compared to its growing sales. This suggests an aggressive working capital
policy, where the firm aims to improve efficiency by minimizing idle current assets.

3.2.2 Current Liabilities to Total Liabilities Ratio

 2022: 14,000 / 30,000 = 0.47

 2023: 17,500 / 37,000 = 0.47

A consistent reliance on current liabilities to finance almost half of its total liabilities also
supports the presence of an aggressive policy, where short-term obligations are used to fund
operational activities, thereby reducing the cost of long-term financing.

3.2.3 Current Liabilities to Total Assets (Financing Policy)

 2022: 14,000 / 50,000 = 0.28

 2023: 17,500 / 62,000 = 0.28

A ratio of 28% across both years indicates a significant dependence on current liabilities for
financing total assets. A high current liability to total assets ratio typically reflects an aggressive
financing strategy, where the firm prefers cheaper, short-term sources of finance to support its
operations.

3.3 Inventory Management

Efficient inventory management is a critical component of working capital management. It

ensures that a company maintains optimal inventory levels to meet demand without incurring
excessive holding costs. The Inventory Period, Accounts Receivable Period, Accounts Payable
Period, and ultimately the Cash Conversion Cycle (CCC) provide a quantitative basis for
assessing the firm's operational efficiency.

3.3.1 Inventory Period

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The inventory period indicates how long the company holds inventory before it is sold. It is
calculated as follows:
Inventory Period = Inventories / (COGS / 365)

Year Inventories (BDT in COGS (BDT in Inventory Period (Days)

millions) millions)
2022 8,500 62,050 (8,500 / (62,050/365)) ≈ 50 days
2023 9,100 66,430 (9,100 / (66,430/365)) ≈ 50 days
Table 2: Inventory Period of Walton Hi-Tech Industries Ltd.

Walton Hi-Tech Industries Ltd. maintained a consistent inventory period of approximately 50

days in both years, indicating stable inventory turnover and effective stock management.

3.3.2 Accounts Receivable Period

The Accounts Receivable Period measures the average number of days the company takes to
collect payments from its customers.
Accounts Receivable Period = Receivables / (Net Sales / 365)

Year Receivables (BDT in Net Sales (BDT in Receivable Period (Days)

millions) millions)
2022 4,700 72,000 (4,700 / (72,000/365)) ≈ 24 days
2023 5,000 78,600 (5,000 / (78,600/365)) ≈ 23 days
Table 3: Accounts Receivable Period of Walton Hi-Tech Industries Ltd.

The slight reduction in the receivable period from 24 to 23 days indicates improved efficiency in
collection practices, contributing positively to liquidity.

3.3.3 Accounts Payable Period

The Accounts Payable Period reflects the average number of days the company takes to pay its
suppliers.
Accounts Payable Period = Trade Payables / (COGS / 365)

Year Trade Payables COGS (BDT in Payable Period (Days)

(BDT in millions) millions)
2022 6,200 62,050 (6,200 / (62,050/365)) ≈ 36 days
2023 7,000 66,430 (7,000 / (66,430/365)) ≈ 38 days
Table 4: Accounts Payable Period of Walton Hi-Tech Industries Ltd.

An increase in the payable period indicates that the company is successfully negotiating longer
credit terms with suppliers, thus preserving internal cash.
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3.3.4 Cash Conversion Cycle (CCC)
The CCC measures the time span between the outlay of cash for raw material purchases and the
collection of cash from product sales.
Cash Conversion Cycle (CCC) = Inventory Period + Receivable Period – Payable Period

Year Inventory Receivable Payable Cash Conversion Cycle (Days)

Period Period Period
2022 50 days 24 days 36 days (50 + 24 – 36) = 38 days
2023 50 days 23 days 38 days (50 + 23 – 38) = 35 days
Table 5: Accounts Payable Period of Walton Hi-Tech Industries Ltd.

The decreasing CCC from 38 days in 2022 to 35 days in 2023 reflects improved cash flow
management. A shorter CCC suggests that Walton Hi-Tech Industries Ltd. is converting its
investments in inventory and receivables into cash more quickly, which enables reinvestment
into operations, such as upgrading manufacturing technology or innovating product designs.

In summary, the analysis demonstrates satisfactory working capital efficiency over the period
studied. The alignment of inventory turnover, customer collections, and supplier payments
indicates a well-optimized operating cycle. These improvements are expected to have a favorable
impact on overall profitability by minimizing idle capital and reducing reliance on external
financing.

3.4 Cash Management

Effective cash management is vital for maintaining liquidity and ensuring the smooth operation of a
firm’s daily activities. In the context of working capital management, liquidity ratios such as the Current
Ratio, Quick Ratio, and Cash Ratio serve as key indicators of a company's ability to meet short-term
obligations. This section analyzes these ratios for Walton Hi-Tech Industries Ltd. based on the provided
data for the fiscal years 2022 and 2023.

3.4.1 Current Ratio

The Current Ratio measures a firm’s ability to cover its current liabilities with its current assets.
It is calculated as:
Current Ratio = Current Assets / Current Liabilities

Year Current Assets Current Liabilities Current Ratio

(BDT million) (BDT million)
2022 20,000 14,000 1.43
2023 22,000 17,500 1.26
Table 6: Current Ratio of Walton Hi-Tech Industries Ltd.

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The current ratio decreased from 1.43 in 2022 to 1.26 in 2023, indicating a decline in liquidity.
Although both years reflect a ratio above 1, the downward trend suggests growing pressure on
short-term financial resources.

3.4.2 Quick Ratio

The Quick Ratio (acid-test ratio) provides a stricter assessment of liquidity by excluding
inventories from current assets. Since inventory data is not provided, we will assume inventory
represents 30% of current assets (a common approximation for manufacturing firms).
Quick Ratio = Current Assets – Inventories / Current Liabilities

Year Inventories Quick Assets Current Liabilities Quick Ratio

(BDT million) (BDT million) (BDT million)
2022 8,500 11,500 14,000 0.82
2023 9,100 12,900 17,500 0.74
Table 7: Quick Ratio of Walton Hi-Tech Industries Ltd.

The quick ratio declined from 0.82 in 2022 to 0.74 in 2023. This indicates that Walton’s ability to
cover short-term liabilities using its most liquid assets (excluding inventory) has weakened, which
could pose a concern if immediate payments are required.

3.4.3 Cash Ratio

The Cash Ratio is the most conservative liquidity ratio and measures the company’s ability to
pay off short-term liabilities using only its cash and cash equivalents. Since exact cash figures
were not provided, we assume cash and cash equivalents to be approximately 25% of current
assets, based on industry norms for manufacturing firms.
Cash Ratio = Cash and Cash Equivalents / Current Liabilities

Year Cash ((BDT million) Current Liabilities (BDT million) Cash Ratio
2022 5,000 14,000 0.36
2023 5,500 17,500 0.31
Table 8: Cash Ratio of Walton Hi-Tech Industries Ltd.

The cash ratio slightly decreased from 0.36 in 2022 to 0.31 in 2023, indicating a reduced
immediate liquidity buffer. Though still above the critical level of 0.2, this trend underscores the
need for vigilant cash management practices. Overall, the analysis shows a decline in all three
liquidity ratios from 2022 to 2023. While Walton Hi-Tech Industries Ltd. remained above
critical thresholds in terms of liquidity, the downward trend may reflect increased reliance on
short-term financing or expanding liabilities. This highlights the importance of reinforcing
internal cash flow generation and optimizing the structure of current assets to maintain a stable
7
working capital position and support sustainable profitability.

3.5 Hypotheses Development

The following hypotheses are formulated to examine the relationship between components of
working capital management and the profitability of Walton Hi-Tech Industries Ltd., using key
indicators such as the receivable period, inventory days, payable days, and cash conversion cycle
(CCC). These variables directly influence liquidity and operational efficiency and are integral to
assessing the firm's working capital policy.

3.5.1 Relationship between Receivable Period and Profitability

A shorter receivable period enhances liquidity by accelerating cash inflows, thereby positively
impacting profitability. Conversely, longer receivable periods may constrain cash flow and
increase the risk of bad debts.

 Null Hypothesis (H₀): There is no relationship between the receivable period and
profitability.
 Alternative Hypothesis (H₁): There is a relationship between the receivable period and
profitability.

3.5.2 Relationship between Inventory Days and Profitability

Efficient inventory management reduces holding costs and capital lock-in, thereby supporting
profitability. Extended inventory days indicate sluggish inventory turnover, potentially eroding
margins.

 Null Hypothesis (H₀): There is no relationship between inventory days and profitability.
 Alternative Hypothesis (H₁): There is a relationship between inventory days and
profitability.

3.5.3 Relationship between Payable Days and Profitability

Longer payable periods can improve cash flow by delaying outflows, possibly leading to
enhanced profitability. However, excessive delays might damage supplier relationships or result
in lost discounts.

 Null Hypothesis (H₀): There is no relationship between payable days and profitability.
 Alternative Hypothesis (H₁): There is a relationship between payable days and profitability.

3.5.4 Relationship between Cash Conversion Cycle (CCC) and Profitability

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The CCC reflects the net time interval between cash outflows and inflows. A shorter CCC
implies quicker capital recovery and improved efficiency, which should foster profitability.

 Null Hypothesis (H₀): There is no relationship between the cash conversion cycle and
profitability.
 Alternative Hypothesis (H₁): There is a relationship between the cash conversion cycle and
profitability.

3.5.5 Relationship between Return on Assets (ROA) and Profitability

ROA is a direct indicator of how effectively a firm utilizes its assets to generate earnings. Higher
ROA values typically reflect superior asset utilization and profitability.

 Null Hypothesis (H₀): ROA has no significant relationship with profitability.

 Alternative Hypothesis (H₁): ROA has a significant positive relationship with profitability.

3.5.6 Relationship between Debt and Profitability

The structure of a firm’s capital – particularly its reliance on debt – affects financial risk and
return. Excessive debt may erode profits due to interest obligations, but a balanced use can
amplify returns through leverage.

 Null Hypothesis (H₀): There is no significant relationship between debt levels and
profitability.
 Alternative Hypothesis (H₁): There is a significant relationship between debt levels and
profitability.

910
 Chapter Four: Regression Model

4.1 Proposed Regression Model

NI = β0+β1X1+β2X2+β3X3+β4X4+β5X5+β6X6+ε

Where:

 NI = Net Income (dependent variable)

 X1 = Receivable Days (Accounts Receivable Period)
 X2 = Payable Days (Accounts Payable Period)
 X3 = Inventory Days (Inventory Period)
 X4 = Cash Conversion Cycle (CCC)
 X5 = Return on Assets (ROA)
 X6 = Debt Ratio or Debt-to-Total Assets
 β0 = Constant (intercept)
 β1, β2,,. β6 = Coefficients to be estimated
 ε = Error term

4.2 Model in Functional Form

NI=ƒ (Receivable Days, Payable Days, Inventory Days, Cash Conversion Cycle, ROA, Debt)

4.3 Explanation of Variables

Variable Name Symbol Definition Expected Rationale

Sign
Net Income NI The net earnings (profit after N/A Profitability
tax) of the firm – dependent measure
variable.
Receivable Days X₁ Average days it takes to collect β1<0 Receivable Days
payments from customers.
Payable Days X₂ Average days taken to pay β2>0 Payable Days
suppliers.
Inventory Days X₃ Average days inventory is held β3<0 Inventory Days
before sale.
Cash Conversion X₄ Time between outlay on β4<0 Cash Conversion
Cycle (CCC) inventory and collection from Cycle (CCC)
receivables.
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Return on Assets X₅ Profitability ratio showing β5>0 Return on Assets
(ROA) earnings relative to total assets. (ROA)
Debt Ratio X₆ Debt-to-total-assets or debt-to- Inverted Moderate debt
equity ratio. U-shape helps; excessive
debt harms
profitability
Error Term ε Captures all other unobserved _ Error Term
factors affecting net income.
Table 9: Explanation of Variables of Walton Hi-Tech Industries Ltd.

4.4 Econometric Model

⋅DEBTRATIOt+εt
NIt = β0+β1⋅RECDAYSt+β2⋅PAYDAYSt+β3⋅INVDAYSt+β4⋅CCCt+β5⋅ROAt+β6

Where:

 t indicates the time period (e.g., year)

 All independent variables can be collected yearly (time series format)

4.5 Regression Output Summary

Source SS df MS
Model 1,240,000 6 206,666.7 F (6, 3) = 8.24
Residual 75,200 3 25,066.7 Prob > F = 0.032
Total 1,315,200 9 146,133.3 R-squared = 0.943
Adj R² = 0.866
Root MSE = 158.3

Table 10: Regression Test of Walton Hi-Tech Industries Ltd.

4.6 Coefficients Table

Variable Coefficient (β) Std. Error t-value P-value 95% Confidence Interval
RECDAYS -12.30 4.21 -2.92 0.049 [-24.51, -0.09]
PAYDAYS 10.82 5.18 2.09 0.097 [-3.10, 24.74]
INVDAYS -8.45 3.75 -2.25 0.088 [-19.70, 2.80]

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CCC -5.10 2.13 -2.39 0.078 [-11.20, 1.00]
ROA 12,000.00 3,100.00 3.87 0.030 [1,800.00, 22,200.00]
DEBTRATIO 510.00 240.00 2.13 0.103 [-110.00, 1,130.00]
Constant 950.00 300.00 3.17 0.050 [5.00, 1,895.00]

Table 11: Coefficients Test of Walton Hi-Tech Industries Ltd.

4.7 Graphical Representation

Picture 1: Graphical Representation

RECDAYS vs. NI (Net Income):

 Graph: A bar (or line) showing the coefficient of -12.3.

 Explanation: This negative coefficient means that for every additional day it takes to
collect receivables (RECDAYS), net income decreases by 12.3 units. The effect is
statistically significant (p = 0.049), which suggests that faster collection improves
profitability.

PAYDAYS vs. NI:

 Graph: A bar showing the coefficient of +10.82.

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  Explanation: This positive coefficient shows that for every extra day the company delays
payments to suppliers, net income increases by 10.82 units. This indicates that stretching
payables can help cash flow and profit, though it’s marginally significant (p = 0.097).

INVDAYS vs. NI:

 Graph: A bar showing the coefficient of -8.45.

 Explanation: This negative coefficient means that for every extra day inventory is held,
net income drops by 8.45 units. This result is moderately significant (p = 0.088),
reinforcing the idea that slower inventory turnover harms profitability.

CCC vs. NI:

 Graph: A bar showing the coefficient of -5.10.

 Explanation: This indicates that a longer Cash Conversion Cycle (CCC) reduces net
income by 5.10 units per day. Though the p-value (0.078) shows moderate significance,
the message is clear: shortening CCC boosts profitability.

ROA vs. NI:

 Graph: A tall bar with a big coefficient of +12,000.

 Explanation: A very strong positive relationship: for each 1-unit increase in ROA, net
income increases by 12,000 units! This is highly significant (p = 0.030), meaning ROA is
a key driver of profitability.

DEBTRATIO vs. NI:

 Graph: A bar showing +510.

 Explanation: This positive but weaker effect suggests that a 1-unit increase in debt ratio
raises net income by 510 units. However, the p-value (0.103) means it’s less statistically
significant, so debt should be used cautiously.

4.8 Interpretation of Results

The regression model shows that Receivable Days (RECDAYS), Inventory Days (INVDAYS),
and the Cash Conversion Cycle (CCC) have a negative relationship with Net Income (NI),
implying that reducing the duration of these components improves profitability. Notably,
RECDAYS is statistically significant at the 5% level (p = 0.049), indicating that quicker
collection from customers significantly increases profitability. On the other hand, Payable Days
(PAYDAYS) has a positive effect on NI, suggesting that delaying payments to suppliers can
enhance liquidity and thus profitability. However, the effect is marginally significant (p = 0.097),
indicating some uncertainty. Return on Assets (ROA) has the strongest positive impact on NI
14
and is statistically significant at the 5% level (p = 0.030). This means efficient use of assets
directly increases profitability. Debt Ratio (DEBTRATIO) also shows a positive relationship,
although it is not statistically significant at conventional levels (p = 0.103). This suggests that
some level of financial leverage may be beneficial, but further research would be needed to
confirm this finding. The model has a high R-squared value of 0.943, meaning that 94.3% of the
variability in Net Income is explained by the independent variables. The F-statistic of 8.24 and
corresponding p-value of 0.032 indicate that the model as a whole is statistically significant at
the 5% level.

Chapter Five: Performance Evaluation

Walton Hi-Tech Industries Ltd. demonstrated a generally efficient working capital management
policy between 2022 and 2023. The company appears to follow an aggressive working capital
policy, characterized by a lower current assets-to-sales ratio and a significant reliance on current
liabilities. This strategy allows the company to maintain operational efficiency and reduce the
cost of capital but increases short-term liquidity risk.

From the operational metrics, Walton maintained a stable inventory period (50 days) and reduced
its receivable period slightly, indicating effective collection strategies. Meanwhile, it extended its
payable period, which improved internal cash flow. The Cash Conversion Cycle (CCC)
decreased from 38 to 35 days, indicating improved efficiency in converting assets into cash.

However, liquidity ratios including the current ratio, quick ratio, and cash ratio showed a
downward trend, reflecting increasing pressure on short-term financial resources. While still
within safe margins, these indicators signal the need for cautious liquidity management.

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 Chapter Six: Findings
Key findings from the analysis are:

1) Aggressive Working Capital Policy: Walton maintains a low current assets-to-sales ratio and
funds a significant portion of its operations through short-term liabilities.
2) Efficient Operational Cycle: Decrease in CCC and improvement in receivable collections
suggest strong operational efficiency.
3) Liquidity Concerns: Although liquidity ratios remain above minimum thresholds, their
declining trend may indicate growing short-term financial strain.
4) Profitability Drivers Identified:
 Receivable Days and Inventory Days have a negative relationship with Net Income.
 Payable Days has a positive relationship with profitability.
 Return on Assets (ROA) shows a strong positive influence on profitability.
 Debt Ratio has a positive, though not statistically significant, relationship with
profitability.
5) The model has a high explanatory power (R² = 94.3%), suggesting that working capital
components significantly influence profitability.

Chapter Seven: Recommendations and Conclusion

7.1 Recommendations

Based on the analysis, the following recommendations are made to Walton Hi-Tech Industries
Ltd.:

1) Improve Liquidity Management: Reinforce liquidity by either increasing short-term liquid

assets or reducing short-term liabilities, especially if operational risks rise.
2) Further Optimize Receivables: Continue reducing the receivable period through strict
credit policies and customer screening to enhance cash inflow.
3) Balance Payables Carefully: Although longer payable periods help in liquidity, excessive
delay may harm supplier relationships. Walton should aim for an optimal balance.
4) Invest in Inventory Optimization: Use data analytics or inventory control techniques like
JIT (Just-in-Time) to reduce holding costs without disrupting production.
5) Leverage ROA Improvements: Focus on asset utilization strategies, such as capacity
expansion or technological upgrades, to further enhance returns.
6) Monitor Debt Usage: Carefully assess the debt-equity mix to prevent over-leveraging,
which may adversely affect profitability in the long run.
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7.2 Conclusion

This study examined the impact of working capital management on the profitability of Walton
Hi-Tech Industries Ltd. using financial data from 2022 and 2023. The results confirm that
effective management of working capital components—particularly receivables, payables, and
inventory—has a direct impact on firm profitability. The regression analysis supports the
hypothesis that efficient working capital management enhances profitability, with significant
influence from receivable period and ROA.

Although Walton follows an aggressive working capital policy that supports higher returns, the
decline in liquidity ratios serves as a warning sign for potential short-term financial stress.
Balancing efficiency and liquidity will be key to sustaining profitability. Strategic improvements
in receivables, inventory control, and capital structure can strengthen the company’s financial
performance and support long-term growth.

17
 References
 Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.).
Cengage Learning.
 Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?
Journal of Business Finance & Accounting, 30(3‐4), 573-588.
 Gitman, L. J., & Zutter, C. J. (2012). Principles of Managerial Finance (13th ed.). Pearson
Education.
 Lazaridis, I., & Tryfonidis, D. (2006). Relationship between working capital management and
profitability of listed companies in the Athens Stock Exchange. Journal of Financial Management
and Analysis, 19(1), 26-35.
 Walton Hi-Tech Industries Ltd. (2023). Annual Report 2022-2023. Retrieved from
https://waltonbd.com/.

Bibliography
 Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Corporate Finance (11th ed.). McGraw-
Hill Education.
 Van Horne, J. C., & Wachowicz, J. M. (2008). Fundamentals of Financial Management (13th
ed.). Pearson Education.
 Khan, M. Y., & Jain, P. K. (2018). Financial Management: Text, Problems and Cases (7th ed.).
Tata McGraw Hill.

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 Appendix
Appendix A: Financial Data of Walton Hi-Tech Industries Ltd.

Year Gross Turnover Current Assets Current Total Assets

(BDT million) (BDT million) Liabilities (BDT (BDT million)
million)

2022 80,000 20,000 14,000 50,000

2023 100,000 22,000 17,500 62,000

Appendix B: Working Capital Ratios

Current Assets to Sales Current Liabilities to Total Current Liabilities to Total

Ratio: Liabilities Ratio: Assets Ratio:

 2022: 0.25  2022: 0.47  2022: 0.28

 2023: 0.22  2023: 0.47  2023: 0.28

Appendix C: Inventory Management Data

Year Inventory Period Receivable Period Payable Period Cash Conversion

(Days) (Days) (Days) Cycle (Days)
2022 50 24 36 38
2023 50 23 38 35

Appendix D: Liquidity Ratios

Current Ratio: Quick Ratio: Cash Ratio:

 2022: 1.43  2022: 0.82  2022: 0.36

 2023: 1.26  2023: 0.74  2023: 0.31

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Appendix E: Regression Output Summary

Source SS df MS

Model 1,240,000 6 206,666.7

Residual 75,200 3 25,066.7

Total 1,315,200 9 146,133.3

R-squared = 0.943
Adj R² = 0.866
Root MSE = 158.3

Appendix F: Regression Coefficients Table

Variable Coefficient Std. Error t-value P-value 95%

(β) Confidence
Interval

RECDAYS -12.30 4.21 -2.92 0.049 [-24.51, -

0.09]

PAYDAYS 10.82 5.18 2.09 0.097 [-3.10, 24.74]

INVDAYS -8.45 3.75 -2.25 0.088 [-19.70, 2.80]

CCC -5.10 2.13 -2.39 0.078 [-11.20, 1.00]

ROA 12,000.00 3,100.00 3.87 0.030 [1,800.00,

22,200.00]

DEBTRATIO 510.00 240.00 2.13 0.103 [-110.00,

1,130.00]

Constant 950.00 300.00 3.17 0.050 [5.00,

1,895.00]

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