Study on working capital management and profitability on food, beverage and tobacco companies in Sri Lanka.

Abstract

The purpose of this study is to examine the relationship between the working capital management and profitability of food beverage and tobacco Companies in Sri Lanka. The study used secondary data collected from 20 companies covering the period from 2010 to 2014. The various components for measuring the working capital related variables include the Inventory Conversion Period, Average Collection Period and Average Payment Period. And also profitability includes Return on Asset and Return on Equity. The results depict that, there is a weak negative relationship between the Inventory Conversion Period, Average Collection Period and the Profitability ratios of the food beverage and tobacco companies in Sri Lanka. This indicates that, above working capital variables are increase it would tend to reduce the profitability of the company. Nevertheless there is a weak positive relationship between the Average payment period and profitability.