Browsing by Author "Priyadarshani, M.R."

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The relative importance of working capital management and its components to SMES’ profitability
(Department of Accountancy, University of Kelaniya, 2015) Priyadarshani, M.R.
The focal point of extant research is the importance of working capital management (WCM), measured by cash conversion cycle (CCC), and all its components (inventory, accounts receivables and accounts payables) on the profitability of predominantly large firms (Deloof, 2003; Padachi, 2006; Garcia-Teruel and Martinez-Solano, 2007; Banos-Caballero et al., 2010). Such research has been carried out on the implicit assumption that large firms have the necessary resources (e.g. financial, technology and personnel) to manage all components of working capital. Literature on SMEs, however, suggests that such firms have limited resources compared to their large firm counterparts that may prevent them from managing all components of working capital. For example, research has found that SMEs are poorly managed due to the lack of management competence of their owner-managers (Gockel and Akoena, 2002; Pansiri and Temtime, 2008). The Small Business Research Centre (1992) also found management skills to be one of the barriers to SMEs’ growth. The nature of the relationship between WCM and profitability depends on the strategy that the firm decides to pursue (Weinraub and Visscher, 1998; Garcia-Teruel and Martinez-Solano, 2007; Nazir and Afza, 2009). A firm can also adopt a conservative strategy to WCM which advocates an increase in investment in working capital. This strategy is adopted with the view of stimulating sales by increasing both inventories and receivables in order to increase profitability. An increase in inventories can prevent production disruptions (Garcia-Teruel and Martinez-Solano, 2007). The relationship between WCM measured by the CCC and profitability was found to be negative and significant by Raheman et al. (2010), Hayajneh and Yassine (2011) and Karaduman et al. (2011), consistent with the aggressive strategy of WCM. However, a positive and significant relationship was reported by Raheman and Nasr (2007), Mathuva (2010), Nobanee and Alhajjar (2009) and Stephen and Elvis (2011), which supports the conservative strategy of WCM.
Working Capital Management and Its Impact on Profitability: A Study of Selected Listed Hotels and Travels Companies in Sri Lanka
(Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2016) Priyadarshani, M.R.; Abeywardhana, D.K.Y.
The management of working capital can be defined as an accounting approach that emphasize on maintaining proper levels of both current assets and current liabilities. The management of working capital relates managing inventories, accounts receivable, accounts payable and cash. Working Capital Management (WCM) is a powerful element in any organization. For the reason behind that, the main working capital components such as Average Collection Period (ACP), Average Payable Period (APP), Inventory Conversion Period (ICP) and Cash Conversion Cycle (CCC) are directly impact to the firm’s performance. Consequently in this study also used these variables as the independent variables. Return on Assets (ROA) is used as a measure of profitability as well as dependent variable. Current Ratio (CR), Debt Ratio (DR), Firm Size (SIZE) and Sales Growth (GROWTH) are the control variables that used in present study to compute the WCM impact on profitability. This paper analyzes the WCM and its impact on profitability in Sri Lanka for the period of 2011 to 2015. The population consists with 38 hotel and travel companies listed in Sri Lankan Colombo Stock Exchange and the sample contains 20 companies of the above mentioned population. Pearson’s correlations and ordinary least square regression method were used to establish the relationship between WCM and firm’s profitability. This study finds that positive relationship between return on assets and ICP, CCC and CR. On the other hand present study suggests that there is a negative relationship between ROA and ACP, APP, DR, SIZE and GROWTH of firms. Among these variables, ICP and SIZE are highly significant to the profitability. Based on the key findings from this study it has been evident that managers can create a value for the enhancement of shareholder’s wealth by increasing the number of days inventory conversion to a maximum level and reducing the number of days accounts receivables and accounts payables to a reasonable level. This study recommend to the management in setting longer credit period policy for this sector to achieve higher profitability and they can maintain optimum high level of inventory in order to reduce the cost of possible breaks in the production process and loss of business due to the scarcity of inputs in production. Furthermore, firms can take short to pay their creditors in as much as they can build up strong relationships with these creditors. Also firm can get the sustainable competitive advantage by the effective and efficient utilization of the firm resources through the increment of the cash conversion cycle to its maximum. In so doing, the profitability of the firms is expected to increase.