Abstract:
Working capital management is important part in firm financial management decision. An
optimal working capital management is expected to contribute positively to the creation of firm
value. To reach optimal working capital management firm manager should control the tradeoff
between profitability and liquidity accurately. The objective of this study is to investigate the
relationship of corporate profitability and working capital management. We used a sample of 30
Manufacturing companies listed in the Colombo Stock Exchange (CSE) for the period of 2003-
2007. The dependent variable, Return on total assets is used as a measure of profitability and the
relationship between working capital management and corporate profitability is investigated
using panel data analysis. The results of this research showed that there is statistical significance
between profitability and the cash conversion cycle. Moreover managers can create profits for
their companies by handling correctly the cash conversion cycle and keeping each different
component (accounts receivables, accounts payables, inventory) to an optimum level.
