Title: The working capital management on the firms' financial performance with the moderating effect of the effectiveness of management policies: evidence from manufacturing companies listed in Colombo Stock Exchange

Authors: Sulochana Dissanayake; Shanika Jayathunga; A.M.T. Madushan

Addresses: Rajarata University Sri Lanka, Mihintale, Sri Lanka ' American National College Sri Lanka, Colombo, Sri Lanka ' Apollo Marine International (Pvt) Ltd., Wathupitiwala, Sri Lanka

Abstract: Few studies have found a moderating effect between working capital management and a firm's financial performance. Due to limited literature and contradictions, this study aims to emphasise the association between working capital management and a firm's financial performance with the moderating effect of management policies using evidence from manufacturing companies listed on the Colombo Stock Exchange from 2014 to 2018. According to Iqbal et al. (2014), 28 manufacturing companies were selected using convenience sampling. This study adopted the quantitative research methodology and used correlation and regression analysis. The results show that a firm's cash conversion cycle affects its return on assets and net profit margin. Effective management policies in terms of inventory age, collection period, and payment period strengthen the relationship between working capital management and firm's financial performance. This study will help financial analysts and managers achieve their goals.

Keywords: working capital management; WCM; cash conversion cycle; CCC; return on assets; ROA; net profit margin; NPM; effectiveness of management policies.

DOI: 10.1504/AJFA.2022.130375

American Journal of Finance and Accounting, 2022 Vol.7 No.1, pp.39 - 52

Received: 31 May 2021
Accepted: 03 Oct 2022
Published online: 18 Apr 2023 *

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