Study on effects of working capital management on profitability

Abstract

Working capital management plays a significant role in better performance ofmanufacturing firms. The researcher attempts to analyze the relationship betweenWorking Capital Management and profitability under the heading of "Study on effectof working capital management on profitability (with special reference to listedmanufacturing firms in Sri Lanka)" for the period of 5 years from 2014 to 2018. Forthis purpose, balanced panel data of 20 manufacturing firms, which are listed inColombo Stock Exchange, are used.The researcher has used Return on Assets as a dependent variable and Inventory Period,Accounts Receivable Period, Accounts Payables Period and Cash Conversion Cycle asindependent variables. According to analysis, Inventory Period, Accounts Receivableperiod, Accounts Payables Period and have negative impact with the profitability(return on assets). As well as inventory period, account payable period and accountreceivable period highly significant impact on profitability. However cash conversioncycle has no significant impact on profitability. Keeping an optimal managing for theworking capital, firms will have to increase value of the firm thereby controlling thelevel of optimal working capital position.