An empirical study on relationship between working capital management and profitability of listed manufacturing companies in Sri Lanka

Abstract

Efficient working capital management is an important component of financial management. Therefore, this study investigates the relationship between working capital management and the profitability of manufacturing listed companies in the Colombo Stock Exchanges in Sri Lanka during the period of 2009 - 2013. For this study a sample of 29 manufacturing listed companies were taken from the Colombo Stock Exchanges. Cash Conversion Cycle (CCC) was used as a comprehensive measure for working capital management. Average collection period, Average inventory period and Average payable period were taken as indicators for CCC, and Return on Assets (ROA) was taken as an indicator for the profitability of the companies. Correlations and regression analysis were used to analyze the data. The result revealed that CCC has a positive significant relationship with ROA. Therefore the researchers conclude that working Capital management (WCM) has a positive significant relationship with profitability of listed manufacturing companies in Sri Lanka.