Abstract:
The objective of this research is to provide empirical evidence on the
Relationship between Working Capital Management (WCM) and Corporate
Profitability of Manufacturing and Pharmaceutical and Chemical companies
in Sri Lanka. The Regression analysis is used as analytical techniques and the
sample data collected for the period of Six years from 2010-2016 for 10
manufacturing companies and for 10 pharmaceutical and chemical companies
listed in Colombo Stock Exchange (CSE). This study measures corporate
profitability using Return on Assets (ROA) and independent variables are
Inventory Turnover period (ITP), Average Collection Period (ACP) and
Average Payable Period (APP) and control variables are firm size, debt ratio
and sales growth. For pharmaceutical and chemical sector ITP and total assets
shows significantly positive relationship with profitability and ACP, and APP
is significantly negative with profitability. In contrast, for the manufacturing
sector, ACP shows significantly negative relationship with profitability. This
study suggests that Pharmaceutical and Chemical sector should focus on
reducing the ACP and APP to increase the profitability thereby maximize the
wealth of shareholders of the company. The firms in manufacturing sector
should reduce the ACP to increase their profitability.
