The Impact of Financial Leverage and Working Capital Management on Financial Performance: An Analysis Before and During the Economic Crisis: Evidence from Listed Companies in The Food, Beverage, and Tobacco Industries of Sri Lanka

Abstract

Introduction: This investigation focuses on examining whether financial leverage and working capital management impact on financial performance of companies, particularly before and during the economic crisis. Special attention is given to financial performance indicators such as Return on Assets and Return on Equity.

Methodology: This study analyzes panel data covering ten companies over ten years of the Food, Beverage, and Tobacco sector. Here, the company was selected based on market capitalization. Using a quantitative approach, secondary data has been obtained from the annual reports of the selected companies for this study. The independent variables are Total Debt Ratio, Inventory Conversion Period, Average Receivable Period, Average Payable Period, and the dummy variables are Covid-19, Economic Crisis, and Full Crisis Period. Control variables are Firm Size, Sales Growth, and Asset’s Tangibility. Also, a t-test and regression were mainly used for the analysis.

Findings: According to t-test results, there is no statistical difference between pre-crisis and during-crisis groups. In the regression analysis, it was found that the economic crisis and Covid-19 have impacted the financial performance of the Food, Beverage, and Tobacco sector.

Conclusion: It highlights the importance of effective financial leverage and working capital management practices to enhance resilience even during economic crises. It also provides valuable guidance for managers, investors, and policymakers seeking to enhance performance during challenging periods and provides a foundation for future research on capital strategies in emerging economies during economic crises.