Abstract:
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.
