DETERMINANTS OF PROFITABILITY UNDERLINING THE WORKING CAPITAL MANAGEMENT AND COST STRUCTURE OF SRI LANKAN COMPANIES

Abstract

Efficient working capital management is an integral part of the overall corporate strategy to create shareholder value. Researchers investigated the relation between the companies? working capital, cost structure and their profitability. This relationship is examined using correlation and regression analysis. In this research, researchers have selected a sample of 65 Sri Lankan companies listed on Colombo Stock Exchange for a period of 5 years from 2003-2007, researchers have studied the effect of different variables of working capital management and cost structure on the profitability of Sri Lankan Companies including the Debtors turn over in days, Inventory turnover in days, Creditors payable in days, and working capital cycle representing the working capital and Administrative, Selling and Finance expenses representing the cost structure . The results suggest that managers can increase corporate profitability by reducing the number of inventory turn over days and increasing the creditors payable days in order to minimize the length of the working capital cycle. Increase in creditors payable days would give opportunities to the company for further investments. Also it suggests that the spending on selling and distribution would not increase the profitability and more finance cost would hinder the profits of the companies.