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Effects of working capital management on firm profitability Working capital management is concerned with decisions related to current asset and current liabilities of the firms. The term current asset refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business within one year out of the current assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable,bank overdraft, and outstanding expenses. Since the current liabilities arise in the context of current assets, the major thrust is on the management of current assets. The objective of working capital management is to manage the firm’s current assets and liabilities in such a way that a satisfactory level of working capital is maintained. The mismanagement of working capital may lead to a liquidity crisis and a reduction in profitability. Haq et al. (2011) indicate that working capital management directly affects the profitability of a firm. Deloof (2003) and Wang (2002) emphasised that the way the working capital is managed has a significant impact on the profitability of firms. This implies that working capital management is one of the fundamental decisions that a finance manager makes. Further, working capital is known as life-giving force for any economic unit and its management is considered among the most important function of corporate management. Every organisation whether profit oriented or not, irrespective of size and nature of business, requires necessary amount of working capital. Workingcapital management is one of the most important areas while making the liquidity and profitability comparisons among firms (Eljelly, 2004). There are many studies in the world, (Appuhami, 2008;

Raheman and Nasr, 2007;Uyar, 2009;

Samiloglu and Demirgunes, 2008;

Vishnani and Shah, 2007;

Lazaridis and Tryfonidis, 2006;

Padachi, 2006;

Shin and Soenen, 1998;

Smith and Begemann, 1997 and Jose et al., 1996) that emphasise the importance of working capital management in corporate finance as it directly affects the liquidity and profitability of the firms.However, there are few studies with different outcomes with re ference to Sri Lanka. Niresh (2012) has inconclusive findings. Since there are different finding on the relationship between working capital management and profitability in Sri Lanka as well as in other countries and also manufacturing sector is the first largest sector of the economy of Sri Lanka, there is a gap for further research on the relationship between working capital management and profitability with special reference to manufacturing sector in Sri Lanka. Raheman and Nasr (2007) points out that working capital efficiency is vital especially for manufacturing firms, where a major part of asset is composed of current assets. Therefore, here arises a question that “how does working capital management affect on the profitability of manufacturing firms in Sri Lanka”. Hence, the objective of this research is to investigate the relationship between working capital management and profitability of manufactured firms listed on the Colombo Stock Market and to examine the effects of components of working capital management on the profitability during the period 1998–2013. The paper is organised as follows. The next section reviews the literature for the relevant theoretical and empirical work on working capital management and its effect on profitability. Section 3 presents the sample selection and methodology. The results of the empirical analysis are presented and discussed in Section 4. Section 5 concludes. 营运资金管理是对企业流动资产和流动负债相关的决定。流动资产指的是这 些资产在正常经营过程中可,或将被转换为现金,一年内不接受的价值,不破坏 公司的业务缩减。当前主要的资产是现金,有价证券,应收账款和存货。流动负 债是指那些负债的目的是, 在一开始,要支付日常业务过程中一年的流动资产或 收益的关注。

基本的流动负债是应付账款, 应付票据, 银行透支, 和优秀的费用。

由于流动资产的背景下产生的流动负债,主要推力是流动资产的管理。

营运资本管理的目的是管理公司的流动资产,在这样一种方式,工作满意水 平维持负债资本。

营运资本的管理不善可能导致流动性危机和盈利减少。哈克等 人。

(2011) 表明, 营运资本的管理直接影响公司的盈利能力。

戴鲁夫也 (2003) 和王(2002)强调了营运资本管理的方式对企业的盈利能力产生重大影响。这意 味着,营运资金管理是财务管理的基本决策了。此外,营运资本是赋予生命的力 量, 任何经济单位及其管理是企业管理最重要的功能之一。每一个组织都是利润 导向的或不是,不论大小和性质的业务,需要流动资金需要量。营运资金管理是 最重要的一个方面,流动性和盈利能力比较公司(eljelly,2004)。

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