Abstract:
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.
