The Impact of Working Capital Management on Profitability: Evidence from Listed Companies in Sri Lankan Consumer Staples Sector

Abstract

This study aims to investigate the impact of Working Capital Management on Profitability with special reference to the Consumer Staples Sector firms in Sri Lanka. Further, this sector displayed a considerable growth potential in Sri Lanka. This study is adopted in a quantitative research approach. Data were drawn from a sample of 46 Consumer Staple Sector firms listed in the Colombo Stock Exchange (CSE) for a period of five years commencing from 2014/2015 to 2018/2019. To test the hypothesized relationships between the constructs, the panel data analysis is performed using STATA. The study found that the Inventory Conversion Period has an insignificant negative impact on Profitability. Receivables Collection Period negatively and significantly impact the Profitability. Further, the study observed that the Payables Settlement Period has an insignificant positive impact on Profitability and observed a significant positive impact of the Current Assets Ratio on Profitability. The findings are useful to investors, managers and shareholders when making decisions regarding the firm’s profitability under aforementioned sector. This study is a contribution to the existing body of knowledge on Working Capital Management and it impact on the Profitability of listed companies in the Sri Lankan Consumer Staples Sector since the researchers used the recent data in the data analyzing process. Further, this paper is limited to the analysis of data obtained for five years by forty-six companies only. The time period and sample can further be increased by future researchers in order to broaden up the scope of the study.