Abstract:
Working capital management (WCM) is an integral part of financial management
and management of working capital may have a significant impact on the profitability. This
study explores the effect of working capital management on firm profitability in Sri Lanka
covering the period of 5 Years from 2011 to 2015, based on a sample drawn from the listed
manufacturing companies. The sample comprises of 25 manufacturing companies listed on
the Colombo stock exchange (CSE). In order to examine the effects of WCM on the firm
profitability, the ROA and ROE were used as measures for profitability. WCM was measured
using the number of days of inventory, number of days of receivables and number of days of
payables, considering these WCM ratios, jointly cash conversion cycle (CCC) was
estimated. Data of the selected firms which are listed in the CSE were obtained from their
websites. Pearson's correlation and regression analysis are used in drawing empirical
evidence to answer the research questions of the study. The results depict that there is
negative association and impact between CCC and profitability, measured by ROE and ROA.
Which indicate that, as the cash conversion cycle increases it would tend to reduce the
profitability of the company. The results revealed that, CCC is significantly impact on return
on asset (p=0.014) at the significant level 0.05. And cash conversion cycle is significantly
negative correlated with return on asset (-2.504*) at the level 0.05.
