Automobile industry is one of the fundamental industries in Pakistan. It helps economy by procuring foreign currencies through export, it provides more employment opportunities to people both directly and indirectly and some other industries like cement, stone, iron and fabrics are depended on this industry. In Pakistan there were three passenger vehicle manufacturers, three commercial and heavy transport vehicle manufacturers, two 2 wheeler and 3 wheeler vehicles manufacturers and three car assembling manufacturers in the year 2013.
Among them Toyota, Suzuki and Honda passenger vehicles and they are leading manufacturers in the field of automotive industry. (R. Rajavathana & L. Ganesamoorthy, 2013). Financial management is considered to be the life blood of a business. The finances of the company may be categorized as long-term financial requirements and short term or daily financial requirement.
Long term financial requirement makes up the capital structure of a firm and mostly comprises of debt and equity. The daily requirement of fund is called Working Capital. (Dr. Gitika Mayank*, 2014). Working Capital Management contains handling the relationship between a firm’s short-term assets and short-term liabilities. In case of working capital management, the company has to do a blance between profitability and liquidity.
Liquidity means the capability to take care of short term obligation, if a company focuses on too much of liquidity then its funds, stock and other current assets increase in number, locking up too much of fund and thereby affecting profitability. (Dr. Gitika Mayank*, 2014).
Working capital signifies to a firm’s investment in short term assets, cash, short term securities, accounts receivable and inventories (Weston & Brigham 2004) known as current assets (SEN and ORUC, 2009). Working capital management efficiency can be measured though cash conversions cycle that is the timedifference of investment in cash to the realization of cash from sales income. There is optimistic relationship between cash conversions cycle and investment; for higher cycle large investments are required for working capital (Deloof, 2003). No doubt working capital is the main role in the body of a firm due to which it needs more and more care and improvement to meet the daily challenges with the passage of time. For this purpose only new and better changes can bring the potential in the firms. Enterprise resource planning (ERP) is the factor that showing better results in the working capital efficiency of the firm.
ERP the computerized software interlinked all the departments of a firm through a single computer. This software saves the time of communication by linking all departments; managers, administration, human resource, marketing, sales, ware house, production and accounts etc. with each other for decision making, billing, arrangements of raw materials and management that leads the firm to minimization of cost of various hidden expenses (Anjum and Rehman, 2010). Resultantly time reduces from the production to sale of product e.g. in maintaining record of inventory, production levels, orders situation etc.
(Larsen and Myers, 1997). The dynamic nature of short-term business emporium, the daily need to substituting current assets, and liquidation current liabilities help to clarify the importance of working capital management and financial executive duties. The main purpose of working capital management on profitability and liquidity position of firms also refers the importance of working capital management (Nobanee, Abdullatif, & Al Hajjar, 2011).
The insistent working capital policy refers to maintain the lower amount of working capital elements, which accompanied with high risk of liquidity and high return on working capital investment. Conservative working capital management strategy point out keeping higher volume of the working capital requirements, which connects with lower liquidity risk and lower return on working capital investment. (Ebrahim Mansoori & Datin Dr.
Joriah Muhammad,, 2012)