1st ICARE Student's Conference - 2015
Permanent URI for this collectionhttp://repository.kln.ac.lk/handle/123456789/10239
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Item The effect of the working capital management on profitability of Sri Lankan companies(Department of Accountancy, University of Kelaniya, 2015) Dharmasena, N.W.G.N.P.Most firms have a large amount of cash invested in working capital, as well as substantial amounts of short- term payables as a source of financing. Therefore working capital mainly affect for the company profitability and liquidity. A well-managed working capital promotes a company’s wellbeing on the market in terms of liquidity and it also acts in favor for the growth of shareholders value (Jeng - Ren, Li & Han-Wen, 2006). Management of these short- term assets and liabilities warrants a careful investigation since the working capital management plays an important role for the firm’s profitability & risk as well as value (Smith, 1980). The main objective of this research is to find out the relationship between working capital management and company profitability. To collect the required financial data of these firms was obtained from the companies’ annual reports from CSE. Consequently, the sample data begins in 2010 and ends in 2014. The effects of working capital management on the firm's profitability are modeled using the following OLS regression equations to obtain the estimates. This study expects most of the Sri Lankan companies have large amounts of cash invested in working capital. It can be expected that the way in which working capital is managed will have a significant impact on profitability of those firms.Item 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.Item The relationship between working capital management and profitability of business(Department of Accountancy, University of Kelaniya, 2015) Bandara, A.B.M.M.H.The working capital management is important because of its effects on the firm’s profitability and risk, and consequently its value. Specifically, working capital investment involves a tradeoff between profitability and risk. Working capital management is direct impact on liquidity and profitability, in attention to the liquidity management process may cause severe difficulties and losses due to adverse short-run developments even for a firm with favorable long-run prospects. The purpose of this research is to provide empirical evidence on the effects of working capital management on the profitability of listed companies of the manufacturing sector in Sri Lanka. Working Capital Management has its effect on liquidity as well on profitability of the firm. In this research, I have selected the Sri Lankan manufacturing firms which are listed in the Colombo stock exchange for a period of 5 years from 2009 – 2014. Data collection will be mainly based on secondary evidence methods including annual reports and financial statements and, previous financial statements. This study uses the effect of different variables of working capital management including the Average collection period, Inventory turnover in days, Average payment period and cash conversion cycle from operating activities, total current assets and total current liabilities on the Net operating profitability of having Sri Lankan manufacturing firms. Empirical evidence relating working capital management and profitability in general supports the fact that aggressive working capital policies enhance profitability. This suggests that reducing working capital investment is likely to lead to higher profits.