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Subject: search.filters.subject.Working Capital Management

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    The Relationship between Working Capital Management and Corporate Profitability: Comparison between Manufacturing and Pharmaceutical Chemical companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Kavishan, D.; Abeywardhana, D.K.Y.
    The objective of this research is to provide empirical evidence on the Relationship between Working Capital Management (WCM) and Corporate Profitability of Manufacturing and Pharmaceutical and Chemical companies in Sri Lanka. The Regression analysis is used as analytical techniques and the sample data collected for the period of Six years from 2010-2016 for 10 manufacturing companies and for 10 pharmaceutical and chemical companies listed in Colombo Stock Exchange (CSE). This study measures corporate profitability using Return on Assets (ROA) and independent variables are Inventory Turnover period (ITP), Average Collection Period (ACP) and Average Payable Period (APP) and control variables are firm size, debt ratio and sales growth. For pharmaceutical and chemical sector ITP and total assets shows significantly positive relationship with profitability and ACP, and APP is significantly negative with profitability. In contrast, for the manufacturing sector, ACP shows significantly negative relationship with profitability. This study suggests that Pharmaceutical and Chemical sector should focus on reducing the ACP and APP to increase the profitability thereby maximize the wealth of shareholders of the company. The firms in manufacturing sector should reduce the ACP to increase their profitability.
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    A Study on Relationship between Working Capital Management and Firms’ Performance: Comparison between Manufacturing Sector and Food & Beverage Sector in Colombo Stock Exchange
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Karunarathne, R.M.H.L.; Karunarathne, W.V.A.D.
    This study examines the relationship between working capital management (WCM) on firms’ performance and also compare the correlation results in between manufacturing sector and the food and beverage sector firms in Sri Lanka. The goal of WCM is to ensure that the firm is able to continue its operations and that it has adequate cash flows to satisfy both maturing shortterm debt and upcoming operational expenses at minimal costs, and consequently, increasing corporate profitability (Angahar & Alematu, 2014). Though empirical evidence exists on the topic, yet there is an uncertainty in determining the optimum level of WCM, especially in Sri Lankan context. Since WCM may be different from industry to industry, firms have to adopt an appropriate WCM approach which is favorable to particular industrial sector. Hence this study compare the relationship between WCM and the firm’s performance of eighteen manufacturing firms and eighteen food & beverage firms listed in the CSE. Data were gathered from annual reports of the sampled firms for the period 2011-2015. The WCM measured in terms of Inventory Turn-over Days (ITD), Average Receivable Days (ARD), Average Payable Days (APD), Cash Conversion Cycle (CCC) and Sales Growth Rate (SGR) whereas performance was measured by the return on assets (ROA). According to the data analysis, there was a negative correlation between ROA and CCC, ITD, ARD. In addition to that, there was a positive correlation between APD and SGR with ROA. There was a significant relationship between WCM and firms’ performance in manufacturing and food & beverage sector. Keeping an optimal level of liquidity of the manufacturing and food & beverage sector and the value of the managers of companies in the manufacturing and food & beverage sector will have to increase the value of the firm thereby controlling the level of optimal working capital position.
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    Impact on Working Capital Management on Firm Performance
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Rasadeepani, U.G.G.; Rathnasiri, U.A.H.A.
    Working capital has an effect on firm profitability as well as on liquidity position. Working capital is described as the capital available to meet the dayto- day operations and, depending on the industry, it could be a relatively high percentage of the total assets of the organization. Management of working capital is an important component of corporate financial management because it directly affects the profitability of the firm. This paper investigates the relationship between the working capital and the firm’s profitability for a sample of 15 Sri Lankan manufacturing companies listed on the Colombo Stock Exchange(CSE) for the period of 4 years from 2012-2015. The secondary data analyses by applying correlation, descriptive and multiple regression analysis. The main objective of this research to identify the relationship between working capital management and firms financial performance and other secondary objectives to identify relationship between average inventory period, average receivable period, average payable period, current ratio, quick ratio and return on assets of the firms. The results shows that there is a relationship between variables of the working capital and profitability of the firm. There is a negative relationship between average inventory period and profitability of the firm and positive relationship between average receivable period, average payable period, current ratio and quick ratio against profitability of the firm. This paper highlights the importance of managing working capital components to ensure an improvement in firm’s profitability and to operate effectively and efficiently.
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    Working Capital Management and Its Impact on Profitability: A Study of Selected Listed Hotels and Travels Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Priyadarshani, M.R.; Abeywardhana, D.K.Y.
    The management of working capital can be defined as an accounting approach that emphasize on maintaining proper levels of both current assets and current liabilities. The management of working capital relates managing inventories, accounts receivable, accounts payable and cash. Working Capital Management (WCM) is a powerful element in any organization. For the reason behind that, the main working capital components such as Average Collection Period (ACP), Average Payable Period (APP), Inventory Conversion Period (ICP) and Cash Conversion Cycle (CCC) are directly impact to the firm’s performance. Consequently in this study also used these variables as the independent variables. Return on Assets (ROA) is used as a measure of profitability as well as dependent variable. Current Ratio (CR), Debt Ratio (DR), Firm Size (SIZE) and Sales Growth (GROWTH) are the control variables that used in present study to compute the WCM impact on profitability. This paper analyzes the WCM and its impact on profitability in Sri Lanka for the period of 2011 to 2015. The population consists with 38 hotel and travel companies listed in Sri Lankan Colombo Stock Exchange and the sample contains 20 companies of the above mentioned population. Pearson’s correlations and ordinary least square regression method were used to establish the relationship between WCM and firm’s profitability. This study finds that positive relationship between return on assets and ICP, CCC and CR. On the other hand present study suggests that there is a negative relationship between ROA and ACP, APP, DR, SIZE and GROWTH of firms. Among these variables, ICP and SIZE are highly significant to the profitability. Based on the key findings from this study it has been evident that managers can create a value for the enhancement of shareholder’s wealth by increasing the number of days inventory conversion to a maximum level and reducing the number of days accounts receivables and accounts payables to a reasonable level. This study recommend to the management in setting longer credit period policy for this sector to achieve higher profitability and they can maintain optimum high level of inventory in order to reduce the cost of possible breaks in the production process and loss of business due to the scarcity of inputs in production. Furthermore, firms can take short to pay their creditors in as much as they can build up strong relationships with these creditors. Also firm can get the sustainable competitive advantage by the effective and efficient utilization of the firm resources through the increment of the cash conversion cycle to its maximum. In so doing, the profitability of the firms is expected to increase.
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    Working Capital Management and Profitability: Comparative Study between Manufacturing Companies and Hotels Listed in Colombo Stock Exchange of Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Patabendige, A.P.D.M.; Abeywardhana, D.K.Y.
    Working capital is a company’s surplus of current assets over current liabilities, and it measures the extent to which it can finance any increase in turnover from other fund sources (Hill, 2013). Working capital management is relating to maintain a balance between current assets and current liabilities. It ensures the proper liquidity position of the company in order to settle the short term obligations and operating expenses. This study examines whether there is any impact of working capital management on profitability for the selected manufacturing companies and hotels listed on Colombo Stock Exchange (CSE) in Sri Lanka. Profitability measures by using Return on Asset (ROA) and working capital management measures by using Inventory Control Period (ICP), Average Collection Period (ACP), Average Payment Period (APP) and Cash Conversion Cycle (CCC). And also debt ratio, credit ratio and firm size used as control variables. Data collected from the annual reports of selected companies for 5 year period from 2010 to 2014. Data analyzed by using both correlation analysis and panel data regression models. This study compared the manufacturing sector and hotel & travel sector based on the result of the analysis. Based on the findings of this study, ACP has significant impact on profitability for the selected manufacturing firms. That means if a firm spend more time for collect money from its customers, then companies can increase their profits. For the hotel sector, ACP and APP have negative relationship with the Return on Asset and ICP has positive relationship with the ROA. This study suggests that manufacturing companies in Sri Lanka can maximize their profit by increasing the average collection period.
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    Effect of Working Capital Management on the Performance of Listed Food Beverage Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Silva, A.M.P.K.; Perera, H.A.P.L.
    This study investigated the relationship between the efficient working capital management and the performance of Food & Beverage Companies in Sri Lanka. To achieve the objectives of the study, the researcher used secondary data of eighteen Food & Beverage Companies using annual reports published during the period 2009-2015. The dependent variable, return on asset is used as the measures for the Performance. The key independent variables used in the analysis are receivables, stocks, cash and payables. The SPSS & E-views were used to analyze the collected data by the researcher. According to the outputs generated through statistical packages there is a significant relationship between Credit Ratio & the Return on Asset, which is the measure of the profitability. Similarly, there is a significant relationship between Debt Collection period, Credit Payable Period, Cash Conversion Cycle and & the Return on Asset. In addition, the results showed that there is a significant negative relationship between ratio of debt collection period, Cash Conversion Cycle and profitability. As well as there is positive relationship between ratio of Creditor payable period, Current ratio and Profitability. The results also show that there is a significant relationship between working capital and return on assets of selected companies. It means that when the working capital decreases it will lead to increase profitability of the firms. Further it was recommended that the selected companies adequately plan and control their credit policy, day to day operations and outstanding by the level of managers with the discussions, board meetings, suggestions and proposals so as to achieve the profitability.
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    Impact of Working Capital Management on Firm Performance: Comparative Analysis between Listed Manufacturing & Plantation Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Shanka, G.K.C.N.; Abeywardhana, D.K.Y.
    This study examines the relationship between the Working Capital Management (WCM) and the firms’ performance. This research uses data from 2010 to 2016 and examine two sectors (manufacturing and plantations) listed in Colombo Stock Exchange (CSE). Ordinary least squares regression and fixed effect model have been used to estimate the relationship between variables. The results showed that different sector may give different results in determining the relationship between the working capital and the firms’ performance. The study finds a negative relationship between profitability and number of day’s receivable in both manufacturing and plantation sectors. And negative relationship between number of day’s inventory holding of manufacturing firms, but positive relationship between profitability and no of day’s inventory holding in plantation sector firms, but a positive relationship between profitability and number of days accounts payable settlement in manufacturing companies. However Plantation Company’s result shows negative relationship between No of days payables settlements with profitability. The present study reveals that shortening of the cash conversion cycle negatively affects the profitability of Sir Lankan manufacturing companies but negatively affect the profitability of Sri Lankan plantation companies. Current ratio used as a variable shows positive relationship with profitability of plantation companies and negative relationship with the profitability of the manufacturing companies in Sri Lanka. Results can be strengthened if the firms manage their working capital in more efficient way it will ultimately increase profitability of these companies.
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    The Impact of Working Capital Management on Profitability of Sri Lankan Manufacturing Companies
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Dharmasena, N.W.G.N.P.; Abeywardhana, D.K.Y.
    This study investigates the impact of the Working Capital Management on profitability of Sri Lankan manufacturing companies. To achieve the objectives of the study, the researcher used secondary sources of data for a sample of 20 manufacturing companies using panel data analysis for the period of 2011-2015. The dependent variable Return on Assets (ROA) is used as a measure of profitability. The key independent variables used in the analysis are the Inventory Conversion Period (ICP), Average Collection Period (ACP), Average Payment Period (APP) and Cash Conversion Cycle (CCC). In this study pooled Ordinary Least Squares (OLS) method regression used for analysis. The impact of WCM on firm’s profitability is modeled using OLS regression equation to obtain the estimates. The results show that there is a positive relationship between ACP and profitability as well as APP and Profitability of Sri Lankan manufacturing companies. Therefore it implies that increase the number of days of accounts receivable, leads to increase profitability. Further this suggests that account receivable management is the significant factor in predicting profitability of the manufacturing sector companies in Sri Lanka. As a conclusion we can say that APP is the best measurement in determining profitability of manufacturing companies in Sri Lanka.
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    Impact of Working Capital Management on Profitability of Manufacturing Sector Small and Medium Sized Enterprises (SMEs) in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Bandara, A.W.D.Y.; Thilakarathne, P.M.C.
    Working Capital Management (WCM) is the management of short-term financing requirements of companies. WCM impacts on both profitability and liquidity of the companies. This study aims to investigate the impact of working capital management on profitability of manufacturing sector small and medium sized enterprises in Sri Lanka. This study makes use of twenty manufacturing sector small and medium enterprises in Sri Lanka for the period from 2010 to 2015. Study used secondary data, data were collected from selected companies audited financial statements of relevant years. Multiple regression model was used to investigate the relationship between working capital management and companies’ profitability. The working capital was measured by cash conversion cycle (CCC), average number of day-sales of inventories (INV), average number of day-sales accounts receivable (AR) and average number of accounts payable (AP) as independent variables and the profitability was determined by return on assets (ROA) as dependent variable. Finally, researcher finds that the positive relationship between CCC and AP with ROA and AR is negatively related with ROA. So, the CCC, AR and AP are significant factors to determine the impact profitability of manufacturing small and medium sized enterprises in Sri Lanka. The INV is not a significant factor. Therefore, INV does not impact on profitability of manufacturing small and medium sized enterprises in Sri Lanka.
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    The Impact of Working Capital Management on Profitability in Listed Manufacturing Companies in Sri Lanka
    (Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Bandara, A.B.M.M.H.; Thilakarathne, P.M.C.
    Working Capital Management has its influence on liquidity as same the profitability. Several studies (Deloof, M., 2003., Raheman A and M Nasr, 2007.),given emphasizing the importance of the short-term finance in firms. The purpose of this research is investigates the impact of working capital management on profitability of manufacturing companies in Sri Lank? The trend in working capital needs and its implication to profitability of firms are examined to identify the causes for any significant differences desirable among the industries. Hence the present study was used regression analysis to examine the hypotheses frame worked for the period of seven years from 2010-2016 with the total 182 observations and data collected from annual financial statements. Working capital management were measured using inventory period, trade receivable, trade payable, cash conversion cycle and current ratio. Return on assets applied to measures of profitability Found of this study showed a positive significant relationship between inventory turnover period, trade receivable period, and significant negative relationship with ROA. These findings of the study can be used cash conversion cycle enhancing it will lead to reducing profitability of the firm, and managers supports to create a positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level. The study also finds a significant negative relationship between accounts payable and profitability which is consistent with the view that less profitable firms delay long time to pay their bills.