Browsing by Author "Herath, M.S."

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    Impact of Working Capital Management on Profitability: An Assessment
    (Uva Wellassa University of Srilanka, 2011) Herath, M.S.; Kulathunga, K.M.M.C.B.
    Note: See the PDF Version Working capital management (WCM) means planning and controlling current assets and current liabilities to eliminate the risk of inability to meet short term obligation on one hand and avoid excessive investment in current assets on the other hand (Eljelly, 2004).Working capital management is an important part of financial management decisions of the firms. This study contributes to the literature by examining the impact of Working Capital Management on the profitability. The study also sheds light on the relationship of working capital components with profitability. The research carried out by mil consulting on the Challenges of Sri Lankan Corporate Finance reveals that 68% of the respondents had reported that they have been impacted by longer cash generation cycles. It means that there is an unnecessary tie up of capital in working capital. Most firms have invested large amount of cash in working capital and a considerable amount of short term payables have used as a source of finance (Deloof 2003). Moreover, according to the rel/cfo Asia survey (2006) which was carried out to evaluate the Asian working capital improvements based on over 725 Asian companies, the Asian companies have unnecessarily tied up in working capital. Many research articles have found that, the managers spend a considerable time on day-today working capital decisions since current assets are short-lived investments and hence, continuously convert into other asset types (Rao, 1989). Therefore, it is important to assess whether the time spend on managing working capital is effective or not. Thus, the primary objective of this study was to identify the relationship between working capital management and profitability. The secondary objective of this study was to evaluate the effect of different components of working capital management on profitability.
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    Working Capital Management and Profitability ; Case on Companies Listed in Colombo Stock Exchange
    (Uva Wellassa University of Sri Lanka, 2011) Herath, M.S.; Kulathunga, K.M.M.C.B.
    Working capital management is an important part in firms financial management decisions. This study contributes to the literature by examining the impact of Working Capital Management on the profitability. The study also sheds light on the relationship of working capital components with profitability. For this study panel data of 38 firms for the period of 2000-2009, that consists of five different sectors which are listed in Colombo stock exchange has been used. Cash conversion cycle, (receivable collection period, inventory turnover period and account payable period) have been used as independent variables while GP is used as independent variable. Debt ratio, sales and sales growth have been used as controllable variables. Collected data were analyzed using descriptive statistics, correlation coefficient and multiple regression model. The study found significantly negative relationship between working capital management and profitability. Furthermore, this research found negative relationship between average collection period and inventory turnover in days with profitability and positive relationship between average payment period with profitability. Final result reveals that reducing cash conversion period results to increase profitability.