Abstract:
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.
