AbstractThe objective of this paper is to compare the working capital efficiency of Pakistan's textile and cement industries for the period 2001-2008. Working capital efficiency is measured using three index values, namely, performance index (PI), utilization index (UI), and efficiency index (EI). In the second part, EBIT is associated with working capital variables, namely accounts receivable in days (AR), accounts payable in days (AP), inventory in days (Inv) and current ratio. Firm size (natural logarithm of sales) and debt are used as control variables. This study is based on secondary data and the number of observations is 400. The data sources are State Bank of Pakistan and annual reports of companies. Data analysis methods consist of regression analysis and index numbers. The main finding of the study is that working capital management of cement industry is better than that of textile industry. There is wide variation in managing the working capital efficiency of companies. Regression analysis shows that there is a positive relationship between current ratio and EBIT. EBIT showed a significantly negative relationship with accounts payable in days and accounts receivable in days, while a significantly negative relationship with inventory in days. EBIT showed a significant positive relationship with firm size but an insignificant negative relationship with debt ratio. Where as EAT showed significant negative relationship. The cement industry is earning more EBIT through tight control of credit to customers, making advance payments to accounts payable and reducing inventories within days. Larger companies with less debt also earn more profits.I. IntroductionThe main focus of finance books is the study of long-term financial decisions. Worki...... middle of paper ......rmance: an analysis of Mauritian small manufacturing enterprises. International Review of Business Research Papers, Vo.2 No. 2. Pp. 45 -58Raheman, A. and M. Nasr. 2007. Working capital management and profitability: Case of Pakistani companies. International Review of Business Research 3 (2): 275–96. Shipping costs, manufacturing exports, and economic growth. Radelet S and Sach J (1998). Shin H and L Soenen (1998). Working capital efficiency and corporate profitability. Financial Practice and Education 8: 37-45. Vishnani, S, & Shah, B. K. (2007). “The Impact of Working Capital Management Policies on Business Performance: An Empirical Study” Global Business Review; 8(2) pp 267.281Weinraub HJ and S Visscher (1998). Industry practice relating to aggressive and conservative working capital policies. Journal of financial and strategic decisions 11(2): 11-18.