Abstract:
Working capital management is a very essential component of corporate finance
because it directly affects the liquidity and profitability of the firm and it is a key
factor in determining financial performance of the firms. A firm is required to
maintain a balance between liquidity and profitability while conducting its day to
day operations. Liquidity is a precondition to ensure that firms are able to meet its
short-term obligations and its continued flow can be guaranteed from a profitable
venture. Therefore working capital management concept is important to fund the
difference between short-term assets and short-term liabilities. This study is to
investigate the relationship between working capital management and financial
performance of listed Manufacturing companies in Sri Lanka. For the purpose
of this study 28 listed manufacturing firms in Colombo stock exchange were
incorporated as sample. The Data were collected from firm’s annual reports over
the period of 2011 to 2017 from the CSE website. Cash conversion cycle, current
ratio and current liabilities to total assets ratio used to measure the working capital
management whereas return on assets used to measure financial performance. The
hypotheses are examined by using correlation analysis and regression analysis.
The overall result reveals that there is a significant relationship between working
capital management and financial performance.
