AN INVESTIGATION OF THE ROLE OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY. LIQUIDITY. SOLVENCY AND ORGANIC GROWTH OF SMALL AND MEDIUM ENTERPRISES IN SRI LANKA.

Abstract

The efficient management of working capital could detennine profitability. liquidity and solvency. value added levels and the ultimate organic grov.1h state of enterprises. Inefficiencies associated with working capital management could make an adverse impact on the growth trajectory. The present study examines the impact of efficient working capital management on the ultimate dynamic of organic groW1h of the Dirisavi Board listed finns in Sri Lanka. In order to determine the efficiency of Working Capital Management. three indexes have been used including Perfonnance Index (PI), Utilization Index (UI) and Efficiency Index (EI). The statistical samples of the study are the firms accepted in 4 sectors and a total number of 25 finns were selected as the sample. The study period was 04 years commencing from January 2009 to December 2012. To measure the relationship between efficient working capital management and organic growth. the researcher used seven independent variables and nine dependent variables. Reb'fession, correlation and Anova (GLM) methods of analysis was employed to analyze data. The study found that there were relationships between efficient working capital management and the contributory variables along growth pathways of listed firms in Sri Lanka. The degree of relationship between efficient working capital management and organic growth was dissimilar among sectors. Further working capital policy and strategy which encompassed the inventory conversion period, debtors and creditors conversion periods culminating in the cash conversion cycle wcre all equal predictors of organic growth. The current assets to total assets ratio : used as a control variable. made a contribution to ultimate organic groW1h. This study would help to understand the importance of efficient working capital management. which sectors organic groW1h is highly effected and how the working capital components contribute to organic growth of the firms.