Working capital management and firm performance: evidence from food and beverage sector of Colombo stock exchange

Abstract

This study investigates the impact of working capital management on firm performance of public listed companies in food and beverages in the Colombo Stock Exchange. Working capital is an important element that should be concerned by the managers, since negligence of it leads to a bankruptcy of the firm. Therefore, it is vital to identify a proper working capital policy for a firm before it creates troublesome situation to the company. In this study, a sample of 20 public listed companies from Food and Beverage sector were selected. Data is taken from annual reports of listed companies during the period of 2013 to 2017. Descriptive statistics method, Pearson correlation method and Panel regression method were used to analyse data. Descriptive statistics revealed current statistics on working capital management of Food and Beverage industry. Pearson correlation test results revealed that accounts collection period (ACP), inventory turnover period (ITD), gross working capital (GTA), current assets to total assets ratio (CATA) and Current liabilities to total assets ratio (CLTA) have significant correlation with firm performance. As per the panel regression results, It is found that, gross working capital (GTA) and current assets to total assets ratio (CATA) have positive significant relationship with return on assets (ROA).Current liabilities to total assets ratio (CLTA) has a significant negative relationship with return on assets (ROA).None of the independent variables have significant relationship with return on equity (ROE).