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Assignment, Seminar in Working Capital management, BBA-BI 6th semester, Ace Institute of Management

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- 1. Working Capital Management and Firms’ PerformanceAn Analysis of Sri Lankan Manufacturing Firms LOGO
- 2. Group MembersGroup Members: Bandana Lama Chhitiz Shrestha Aasish Baidya Aasish Tandukar LOGO
- 3. IntroductionWorking capital meets the short term financial requirement of business enterpriseWorking capital requirement decides the liquidity and profitability of a firmLess working capital leads to less financial needs and less cost of capitalRelationship between working capital management and firms performance of 30 manufacturing company in Colombo stock exchange is analyzed LOGO
- 4. Objectives of the studyTo establish relationship that is statistically significant between profitability, CCC & its componentsTo identify the influence of liquidity management on profitability for five years.To measure the relationship between working capital and performance.To find out the effect of current assets components of stock on profitability. LOGO
- 5. Literature ReviewVijaykumar and Venkatachalam (1995) concluded that liquidity was negatively associated with profitabilityShin and Soeven (1998) and Koperunthevi (2010) found a negative relationship between cash conversion cycle and profitabilityKoperunthevi (2010) concluded that the working capital management very much influences profitability of manufacturing companies and increase in the cash conversion cycle leads to less profitability. LOGO
- 6. MethodologyPopulation: 242 companies listed in the Colombo Stock Exchange (CSE) marketSample: 30 sample companiesObservation: 150Study Period: 2006-2010 (5 years)Tools and Techniques: simple statistical methods like descriptive statistics, correlation and regression LOGO
- 7. Financial ToolsThe formulas used were, LOGO
- 8. Variables Variables Explanatory Control Variables Variables•Liquidity Ratio •Natural Logarithm of•Working Capital SalesCycle •Gearing Ratio •Gross Working Capital•Components of TurnoverCurrent Assets •Current Assets to Total Assets •Current Liability to Total Assets LOGO
- 9. VariablesVariables: Working capital managements effect on performance is calculated by using explanatory variables and control variables.Explanatory Variables: Liquidity ratio of current ratio (CR) is defined as current assets divided by current liabilities Quick ratio (QR) defined as current assets other than inventories divided by current liabilities. CCC=INP days + AR days - AP days LOGO
- 10. VariablesControl variables: Control variables include assets management system and financial policies. In order to include the firm size as control variable sales, a proxy for size. To gross working turnover and current liability to total assts are included as control variables. LOGO
- 11. HypothesisH1= There is no relationship between cash conversion cycle and profitability of manufacturing companiesH2= There is no relationship between liquidity ratio and profitability of manufacturing companiesH3= There is no relationship between current assets component of stock and profitability of manufacturing companies LOGO
- 12. Result & DiscussionThe study found the strong relationship between working capital management and performance.This reveals that high investment in inventories and receivables lead to lower profit.The performance was measured in terms of profitability by return on total assets. LOGO
- 13. Descriptive StatisticsReturn on total assets had an average of 13.1 %.Mean value of explanatory variables of cash conversion cycle was 51.13 days, current ratio was 1.5139, quick ratio was 0.9938 and stock to current assets was 42.51%. This means 42.51% of currents assets were stocks. This could be the reason for difference between current ratio and quick ratio. LOGO
- 14. LOGO
- 15. Regression Analysis 1 Model I 2 Model II 3 Model III 4 Model IV LOGO
- 16. MODEL 1Cash conversion cycle had a negatively related CoefficientIt was significant at 5% levelNull hypothesis was rejected and there was significant relationship between cash conversion cycle and return on total assetsSize of the firm had positive influence on ROTADependent variables is changed by 15.21% due to change in independent variables LOGO
- 17. Calculation LOGO
- 18. MODEL 2Current ratio was positively related with the ROTA .Size of firm had positive relations with ROTA.Dependent variables is changed by 18.04% due to change in independent variables. LOGO
- 19. Calculation LOGO
- 20. MODEL 3Size of the firm was positively related with ROTA but it was not a statistically significant level.Quick ratio has also positively determined the ROTA.R-squared is 15.40% LOGO
- 21. Calculation LOGO
- 22. MODEL 4No significant relation between stock to current assets and ROTA an also between the size of firm.Dependent variables changes by 14.07% due to changes in independent variables. LOGO
- 23. Calculation LOGO
- 24. ConclusionEmpirical evidence about the effect of working capital management on profitabilityThe study indicates negative relationship between cash conversion cycle and working capital management efficiencyWorking capital management influences profitability of companies and increase in CCC leads to less profit LOGO
- 25. ConclusionCurrent ratio and quick ratio are positively related to profitabilityMore current assets to total assets leads to more profitShorter receivable period leads to shorter cash conversion cycle and thus optimal profitability LOGO
- 26. LimitationsPreliminary study to analyze the working capital management and firms performanceThis study would be more meaningful if more samples were consideredFocus was only on manufacturing firms, hence it is not applicable to other type of firmsThe term working capital is very vast however only few of the component were analyzed. LOGO
- 27. LimitationsSome abbreviations used are complex and confusing to understand, such as CATA, CLTA, QAR SKCA and CA_TURN.This research study has only used secondary sources of data LOGO
- 28. Implications In Nepalese ContextAs Nepal and Sri Lanka are both developing South Asian countries,Hence the decrease in CCC leading to increase in profitability, as the case of Sri Lanka, is also applicable in Nepal LOGO
- 29. LOGO

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