IMPACT OF WORKING CAPITAL

MANAGEMENT ON PROFITABILITY

By

K.H.A.Wasana

MF/2011/3098

Department of Accounting and Finance

July 2016

Dissertation Presented to the Faculty of Management and Finance

of University of Ruhuna

in Partial Fulfilment of the Requirements for the Degree of

Bachelor of Business Administration

 Acknowledgement
It is great honour and privilege for me to present this Dissertation to the Department of
Accounting & Finance in fulfilment of the requirement for the BBA Degree with
specialization of Accounting and finance at Faculty of Management and Finance.
I sincerely thank Ms.M.S.Nanayakkara (Senior Lecturer, Department of
Accounting & Finance, faculty of Management and Finance, university of Ruhuna) who
supervised my research study and provide valuable guidance. As well as her valuable
guidance, valuable comments, advice, and unabated enthusiasm through the various
stages of this Dissertation. She was always willing to listen to my ideas, to make
comments and to give suggestions. I am sincerely grateful for the time and energy she
invested in me.
The collection and processing of data played a critical role in this project. So
my sincere gratitude extends to all the informants of the study for the support they gave
me during the period of data collection.
Finally, I wish to express my deep felt my love and indebtedness to my parents
and my dear colleagues, who always were the driving force behind me.

i
 Dedication
I dedicate this dissertation with a special feeling of gratitude to my loving parents,
whose words of encouragement and push for victory.

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 Table of Contents
Acknowledgement .......................................................................................................... i
Dedication ......................................................................................................................ii
List of Table ................................................................................................................... v
List of Figures ............................................................................................................... vi
List of Acronyms .........................................................................................................vii
Declaration ................................................................................................................. viii
Certification .................................................................................................................. ix
Abstract .......................................................................................................................... x
INTRODUCTION........................................................................................................ 1
1.1 Research Background ........................................................................................... 1
1.2 Research Problem ................................................................................................. 3
1.3 Research Questions and Objectives ..................................................................... 3
1.4 Methodology ........................................................................................................ 4
1.5 Significance .......................................................................................................... 4
1.6 Limitations ........................................................................................................... 5
1.7 Summary and Organization of the Chapters ........................................................ 5
LITERATURE REVIEW ........................................................................................... 7
2.1 Introduction .......................................................................................................... 7
2.2 Working capital .................................................................................................... 7
2.3 Why important WCM? ......................................................................................... 7
2.3.1 Cash conversion cycle ................................................................................... 8
2.3.2 Account receivable ........................................................................................ 8
2.3.3 Account payable ............................................................................................ 9
2.3.4 Inventory management .................................................................................. 9
2.4 Why does a firm need to earn profit? ................................................................... 9
2.4.1 Net profit ratio (NPR) .................................................................................. 10
2.4.2 Return on equity (ROE) ............................................................................... 10
2.5 Empirical findings regarding WCM and profitability ........................................ 10
2.6 WCM of profitability in plantation sector .......................................................... 12
2.7 Summary ............................................................................................................ 14
METHODOLOGY .................................................................................................... 15
3.1 Introduction ........................................................................................................ 15

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 3.2 Research Design ................................................................................................. 15
3.3 Conceptual Framework ...................................................................................... 15
3.3.1 Hypothesis ................................................................................................... 16
3.4 Population and Sample ....................................................................................... 16
3.4.1 Population ................................................................................................... 16
3.4.2 Sample ......................................................................................................... 16
3.5 Data Collection Methods.................................................................................... 16
3.6 Data Analysis and Presentation .......................................................................... 17
3.6.1 Correlation analysis .................................................................................... 18
3.6.2 Regression analysis ..................................................................................... 18
3.7 Summary ............................................................................................................ 19
DATA ANALYSIS ..................................................................................................... 20
4.1 Introduction ........................................................................................................ 20
4.2 Profitability of selected plantation companies ................................................... 20
4.3 Analyse the Relationship between WCM and Profitability ............................... 22
4.3.1 Descriptive Analysis .................................................................................... 22
4.3.2 Correlation Analysis .................................................................................... 23
4.3.3 Regression Analysis ..................................................................................... 25
4.4 Summary ............................................................................................................ 26
CONCLUSION .......................................................................................................... 28
5.1 Introduction ........................................................................................................ 28
5.2 Key Findings ...................................................................................................... 28
5.3 Conclusion.......................................................................................................... 29
5.4 Implications ........................................................................................................ 30
References ..................................................................................................................... xi

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 List of Table
Table 4.1 Descriptive Statistics…………………………….………………….……..22
Table 4.2 Correlations Statistic with NPR....………………………………………...23
Table 4.3 Correlations statistic with ROE....………………………………………...24

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 List of Figures
Figure 3.1: Conceptual Framework…………………………………………………..16
Figure 4.1: NPR of selected companies in 2014……………………………….……..20
Figure 4.2: ROE of selected companies in 2014………………………………………21

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 List of Acronyms
ACP -Average Collection Period
APP -Average Payment Period
CCC -Cash Conversion Cycle
CSE -Colombo Stock Exchange
GDP -Gross Domestic Product
ITP -Inventory Turnover Period
NPR -Net Profit Ratio
ROA -Return on Asset
ROE -Return on Equity
SPSS -Statistical Package for Social sciences
WC -Working Capital
WCM -Working Capital Management

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 Declaration
I hereby declare that this dissertation is my own work and effort and that, to the best of
my knowledge and belief, it contains no material previously published or written by
another person nor material which has been accepted for the award of any other degree
or diploma of the university or other institute of higher learning, except where due
acknowledgment has been made in the text.

Signature of the student: ________________________________

Name of the student: K.H.A.Wasana
Registration number of the student: MF/2011/3098
Date: 18/07/2016

viii
 Certification
This is to certify that this dissertation submitted by K.H.A.Wasana (MF/2011/3098) in
partial fulfilment of the requirement for the Degree of Bachelor of Business
Administration in Accounting at the Faculty of Management and Finance of the
University of Ruhuna is a record of the own work carried out by the student under my
supervision. This dissertation has been submitted with my approval.

____________________________
Supervisor
M.S.Nanayakkara
Department of Accounting and Finance
Faculty of management and Finance
University of Ruhuna

____________________________
Head, Department of Accounting and Finance
Faculty of management and Finance
University of Ruhuna

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 Abstract
Working Capital Management (WCM) is one of the prerequisites for the success of a
firm and it is essential to retain the optimum level of WC for firms’ sustainability. The
goal of WCM is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short-term debt and upcoming operational
expenses. Though empirical evidence exists on the topic, yet there is an uncertainty on
determining the optimum level of WCM, especially in Sri Lankan context. Since WCM
may be different from industry to industry, firms have to adopt an appropriate WCM
approach which is favourable to particular industrial sector. Hence this study
investigates the effect of WCM on profitability of listed plantation companies in Sri
Lanka. The relationship between the WCM and profitability was examined using
correlation analysis and regression analysis by selecting 17 companies in year 2014.
The WCM measured in terms of Inventory Turnover Period (ITP), Average Collection
Period (ACP), Average Payment period (APP), Cash Conversion Cycle (CCC) whereas
profitability was measured by the Net Profit Ratio (NPR) and Return on Equity (ROE).
According to the analysis, there was a significant relationship between dependent
variables (NPR, ROE) and independent variables (ITP, ACP, APP and CCC). There
was a strong positive correlation between NPR and CCC and ROE and CCC and weak
positive correlation with NPR and ITP and ACP and ROE and ITP. In addition to that
there was a strong negative correlation between NPR and APP and ROE and APP and
weak negative correlation between ROE and ACP. As well there was a significant
impact of WCM on profitability in plantation sector. Keeping an optimal level of
liquidity of the plantation sector and the value of the managers of the companies in
plantation sector will have to increase value of the firm thereby controlling the level of
optimal WC position.

Keywords: Working Capital Management, Profitability, Plantation sector, Liquidity

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 CHAPTER 1
INTRODUCTION
1.1 Research Background
Leon (2013) Says, Working Capital (WC) is like the blood to human body. If it is
carried effectively, efficiently and consistently, it will assure the health of an
organization. WC supports for the day-to-day financial operations of an organization,
including the purchase of stocks, the payment of salaries, wages and other business
expenses, and the financing of credit sales. Thus every organization irrespective of its
profit orientation, size and nature of a business, need to manage WC effectively.
Working Capital Management (WCM) is a very important concept of every
Organization and its most significant concept in financial management. WCM plays a
vital role in the management structure of an organization. It directly affects to the
profitability and liquidity in the organization. Therefore management should pay
attention for WCM. The company operating cycle will also determine the level of WC.
Some components are very importance in WCM. Cash Conversion Cycle (CCC),
Inventory Turnover Period (ITP), Average Receivable Period (ARP) and Average
Payable period (APP) are the most important criteria in the WCM. And also poor
management of current assets and liability may also represent a bad image of the
company if the company fails to pay its debts on time.
Impact of WCM on profitability will difference according to the industry. Some
industry’s WC will affect directly for the profitability and others indirectly. Lot of
manufacturing industry pays their attention for the WC. Among the plantation industry
is highly considered about WC. They always look there short term financial decision.
Because current assets and liability are main components in short term period. And also
manufacturing industry has enough researches in different countries. Firms are looking
for efficient ways to achieve the profits, as an easy option for reduce expenses and
increase income. Efficient WCM are engaged with planning and controlling current
assets and liabilities in such a way that eliminates the risk of inability to meet short-
term obligations in hands with the avoidance of excessive investments in these assets.
As well as, WCM is essential for the long term success of a business. No business can
survive if it cannot meet its day to day obligations. Therefore a business must have clear
policies for the management of each component of WC. But plantation industry is not

1
highly considered about their current assets and liability. Also there isn’t enough
research regarding WCM on profitability in plantation industry.
Different industry types require different levels of WC. Plantation industries
have huge components of WC. Also manufacturing companies’ needs more. But
organization has less attention on the WC. Because, they are always consider about
long term performance. WCM focuses about company short term financial position.
Mainly consider about current assets and liability. The main objective of WCM is
maintaining an appropriate trade-off between WC and the profitability while ensuring
the solvency.
There are three main crops in Sri Lankan plantation sector. They are tea, rubber
and coconut. As well as there are other agriculture plantation in Sri Lanka. Most of
them generally contribute for Gross Domestic Product (GDP) in Sri Lanka. According
to Economic and social statistics of Sri Lanka (2015), agriculture growth is in GDP 0.2,
6.5, -2 and -3.3 respectively Quarter. And also plantation sector is very important
regarding export. Implementing an effective WCM systems an excellent way for
plantation industry to improve their earnings. Although WCM is a simple concept but
still difficult to implementation due to the complexities surrounding plantation industry
in Sri Lanka.
In Sri Lanka, it’s not giving enough researches regarding the impact of WCM
on profitability in this sector. Because of that reason developing countries like Sri
Lanka have got less awareness regarding the relationship between the WCM and
profitability. It has become huge affected for the failure of the most of business
companies. So the most probably reason for conducting this research was to give
sufficient knowledge about importance of the WCM and the relationship between the
WCM and profitability to businesses which are engaging in the plantation industry.
In Sri Lankan context, most businesses highly pay attention on the WC, because
less attention on the WC may be end up with bankruptcy of the organization. In Sri
Lankan economy, manufacturing and plantation sectors provide huge contribution to
national product and employment and value added to goods and services from several
ways. Hence, this study attempts to analysis of WC and its impact for profitability
considering plantation sectors in Sri Lanka.

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1.2 Research Problem
In financial management, WC is the most significant concept. And also profitability is
the other significant concept in financial performance. The plantation sector in Sri
Lanka is one of the key sectors that contributing to the country’s economic growth.
Plantation sector contributes for GDP with huge amount. Therefore plantation sector
should maintain properly their inventory. But they haven’t understood that inventory is
a value component for their industry and plantation sector has contributed GDP. This
research will help to answer this problem.
Very few studies have been done in developing countries to examine the impact
of WCM on profitability in this sector. But there are many studies relate to this topic in
developed countries. And also there are few studies regarding this topic in Sri Lanka.
Though there is much empirical evidence regarding WCM, still financial managers
have doubts on optimal level of WC. Studies regarding WCM are very rare, in Sri
Lankan context. This research gives the answers to the main problem which is, “Impact
of WCM on profitability of plantation sector”.
Most of previous researches considered only in WCM practices, especially in
manufacturing sector. Hence findings of prior researches are limited only for particular
sector and WCM practices and issues may be varied to different industries. Therefore
firms have to follow an appropriate WCM approach, related with the particular
industrial sector. This study attempts to identify differences in WCM practices in
plantation sector.

1.3 Research Questions and Objectives

The aim of this research analysis the WC condition of the plantation industry in listed
PLC and examines the impact of WCM on profitability. Questions of this research are,
How does WCM affect to the profitability of plantation sector?
What are the WC practices in plantation sector?
What is the most significant component of WC which affect to the profitability?
The following objectives are hoped to be cover through the research;
Main Objective is,
 Assess the impact of WCM on Profitability of plantation sector.
Other Objectives are,
 To find out the effects of different components of WCM on profitability

3
 Identify the differences of WC practices in the plantation sector.
 Provide guidelines for plantation companies to select effective WC practices in
order to achieve a higher profitability.

1.4 Methodology
Under the Methodology part, consider about how to achieve research objective.
Population, sample, methods of data collection, data presentation and analysis are used
to conduct this research.
Population is representing a large area for data. Population is not always easy
or possible to examine. It includes every member of an entire population. All listed
plantation companies in Colombo stock Exchange (CSE) are population for this study.
Sample is randomly selected. Researcher has selected 17 listed plantation companies
as the samples of this study. And also Secondary data is used in this study. As secondary
data the study used all the relevant financial data obtained in annual financial reports of
selected companies for in the year 2014. In addition to examine the impact and the
relationship between WCM and profitability of the organizations regression analysis
technique and correlation technique are used.

1.5 Significance
Most of previously researches have been conducted on effect WCM in manufacturing
sector and bank insurance sector. But this study has been done on effect WCM on
profitability of plantation sector in Sri Lanka .In view of the fact that the plantation
sector is the highest contribution for the country’s growth in GDP. So this study will be
the most significant to various stakeholders. The overall success of the company
depends upon its WC position. Therefore, it should be handled properly because it
shows the efficiency and financial strength of the company. Finance manager is
required to decide the amount of accurate WC. The results of the study will useful in
understanding the WCM practices toward maximizing profitability. In addition this
study provides guidance to financial managers for handling of day to day operations
and achieving optimal levels for increased efficiency.
Researchers can be gained sound knowledge about the impact of WCM on
profitability through this research and can apply this research as a literature for future
researches.

4
 Before give long term loans to organizations, lending companies also
investigate its ability to loan settlement. In this investigation lending company want to
know about financial position and profitability of that organizations. Through this
study, lending companies get better understand how to measure profitability, financial
position and what is the impact of WC and profitability.
Plantation sector is a key segment and driver for national economies.
Understanding how firms achieve high performance has significant implications for
their owners/managers, employees, and the economies in which they operates. High
level of performance can facilitate firm growth and profit performance, which in turn
can yield employment gains and contribute to the general economic. Therefore,
understanding the relation between proper WCM and performance is vital important to
the plantation sectors. Ultimately this research contributes to Sri Lankan economy by
adding a value.

1.6 Limitations
When collecting the information for this research, researcher experienced so many
theoretical and practical limitations. Hence, researcher had to pay attention all these
limitations.
The research study is based on the general issue relating to the WCM and the
study has been made only by using the data related to industry. Therefore, the findings
of the research are limited only for particular industry and results may change with the
other industries. The time gap relating to the financial data is very close. Therefore, it
may not show a clear picture about changes in WC components. For the research mainly
used the secondary data. The data were collected by using annual reports of selected
company However; there may be common errors of financial data of selected
companies.

1.7 Summary and Organization of the Chapters

Chapter one is included introduction for the complete study and prefers the problem
had been cause to the research, question and objectives of research, methodology of the
research, significances of the research, limitation of the research, how the thesis was
organized also captured in this chapter.
Second chapter has included the review of literature. Here the researcher prefers
theoretical background for the study by using previous studies.
5
 In the third chapter the researcher introduced the methodology of the research.
In here the researcher present the Introduction of the chapter, research design,
conceptual frame work, population, sample, data collection method, measuring of data
etc.
The fourth chapter of the study represents the findings of the study using tables,
charts, and graph and analysis that data using ratios and formulas.
The fifth chapter has included the discussion and conclusions through those
analysed result. In there the researcher also adduced recommendations.

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 CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
This chapter attempts to review previous studies and research findings, carried out on
this topic in different geographies. It discusses all the concepts and models related to
research question. The review considers issues such as concept of WC, nature of WC,
component of the WC.
This chapter contains seven sections including this introduction section. Section
2.2 includes the introduction of working capital. Section 2.3 contains working capital
management. Section 2.4 includes why does a firm need to earn profit? Section 2.5.
Includes empirical findings regarding WCM and profitability. Section 2.6 contains
WCM and profitability in plantation sector and Section 2.7 includes a summary.

2.2 Working capital

WC is a very important item of the balance sheet. Mathematically, it is given by
working capital = Current Assets less confident liabilities. It is also called net current
assets. It is the cash a business requires for day-to-day operations, or, more specifically,
for financing the conversion of raw materials into finished goods, which the company
sells for payment. In short, it is that portion of total funding needed for daily operations
(Atseye, Ugwu, and Takon, 2015). WC is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both ripening short-
term debt and upcoming operational expenses. The management of WC involves
managing inventories, accounts receivable and payable, and cash.

2.3 Why important WCM?

According to Nimalathasan, (2010) decisions relating to WC and short-term financing
are referred to as WCM. It is the regulation, adjustment and control of the balance of
current assets and current liabilities of a firm such that maturing obligations are met,
and the fixed assets are properly serviced. It is the determination of optimum level of
WC to keep monitoring and controlling the level of individual components to ensure
that the optimum level is not exceeded, and provision of funds to finance current assets
(Atseye et al., 2015). The management of WC is defined as the “management of current
assets and current liabilities, and financing these current assets.” WCM is important for

7
creating value for shareholders. Management of WCM was found to have a significant
impact on both profitability and liquidity in studies in different countries (Gill, Biger,
and Mathur, 2010).
CCC, Account receivable, Account Payable and Inventory management are
some components of WC. These are the assets which have a life shorter than one year.
The management of these components is very important because poor management of
current assets can make it difficult to meet current liabilities (Ali and Hassan, 2010).
WC is a daily necessity for businesses, as they require a regular amount of cash
to make routine payments, cover unexpected costs and purchase basic materials used in
production of goods. WC is a prevalent metric for the efficiency, liquidity and overall
health of a company. It is a reflection of the results of difference company activities,
including revenue collection, debt management, inventory management and payments
to suppliers. This is because it includes inventory, accounts payable and receivable,
cash, and portions of debt due within the period of a year and other short-term accounts.
There for company keeps WCM to depend in their industry,

2.3.1 Cash conversion cycle

There is a significant importance of CCC according to previous article. Wembe, (2013)
says companies need to carry sufficient levels of cash in order to ensure they can meet
day-to-day expenses. Cash is also required to be held as a cushion against unplanned
expenditure, to guard against liquidity problems. It is also useful to keep cash available
in order to be able to take advantage of market opportunities. Gill et al., (2010) said a
long CCC might increase profitability because it leads to higher sales. As well as cash
includes both cash in hand and cash at bank. A company needs cash for transaction and
speculation purpose. It also provides the liquidity to the company. Cash should be
considered as an inventory which is very important for the smooth running of the
business (Ali and Hassan, 2010).

2.3.2 Account receivable

According to importance of account receivable, all the businesses have either products
or services to sell to the customers, they also want to maximize their sales so, in order
to increase the level of their sales they use different policies to attract customers and
one of them is offering a trade credit. It means a company sells its product now to
receive the payment at specify date in the future (Ali and Hassan, 2010).
8
2.3.3 Account payable
Account payable is a very importance component. It is the cheapest and simplest way
of financing an organization. Account payables are generated when company purchases
some products for which payment has to be made a specified date in the future.
Companies not only need to manage their account payables in a good way but they
should also have the ability to generate enough cash to pay the mature account payables
(Ali and Hassan, 2010).Accounts payable is a concept which is used to explain the debt
or amount which a company owes to its creditors. They are unpaid dues to the creditor
and suppliers. Since this is money borrowed by the company to run its operations
smoothly, accounts payable will always be placed on the liabilities side of the balance
sheet of a company. Managers of the firm have to make provisions for clearing the
balance payments, in the form of accounts payable as soon as possible, to protect the
reputation of the company and win the confidence of creditors (Wembe, 2013).

2.3.4 Inventory management

Inventory is an important component of current assets. It comprises raw material,
finished goods and work in process. It is not necessary for a firm to hold high level of
raw material inventory. Companies want to keep the inventory at a level which
maximizes the profit and this level is known as optimal level (Ali and Hassan,
2010).Inventory is another important current asset. Depending on the industry the
company is active in; the inventories may consist of different things for example raw
materials, work in progress or finished goods. Managing and optimizing levels of
inventory is very uninspiring task which require balancing between sales and tied up
capital. In case the inventory levels are too low the company might miss out on sales
when demand arises or might not be able to deliver goods on time. On the other hand
too much inventory ties up capital that can be used elsewhere more effectively (Wembe,
2013).

2.4 Why does a firm need to earn profit?

The ability of the company to earn profit can be referred to as the profitability of that
company. Profit is determined by deducting expenses from the revenue incurred in
generating that revenue. The amount of profit can be a good measure of the performance
of a company, so we can use profitability as a measure of the financial performance of
a company, as well as, profitability is the promise for a company to remain a going
9
concern in the world of business (Agha et al., 2014). Profitability is a measure of profit
generated from the business and is measured in percentage terms e.g. percentage of
sales, percentage of investments, percentage of assets. High percentage of profitability
plays a vital role to bring external finance in the business because creditors, investors
and suppliers do not hesitate to invest their money in such a company (Ali and Hassan,
2010).
There are several measures of profitability which a company can use. Few
measures of profitability are included here,

2.4.1 Net profit ratio (NPR)

It calculates the percentage of each sale dollar remains after deducting interest,
dividend, taxes, expenses and costs. In other words it calculates the percentage of profit
a company is earning against it per dollars sale. Higher value of return on sale shows
the better performance. According to Ali & Hassan (2010) as stated by (Gitman, 2002,
p.65)

2.4.2 Return on equity (ROE)

It measures the earnings of the company against the investment of common
stockholders. Shareholders always want the higher value of ROE. According to Ali &
Hassan (2010) as stated by (Gitman, 2002, p.65)

2.5 Empirical findings regarding WCM and profitability

Many researchers have focused on the relationship between profitability and WCM of
various industries. Most of these studies support that there is a negative relation
between profitability and WCM measures, like the average collection period, inventory
turnover in days, and CCC. And also few findings can identify regarding positive
relationship. As well as researches result change in according to country and applied
components. In this section gives evidence for that.
Gill et al., (2010) investigated regarding the relationship between WCM and
profitability of American firms listed on New York Stock Exchange. They found
statistically significant relationship between the CCC and profitability, measured
through gross operating profit. Previous research predicts negative relationship between
accounts receivables and corporate profitability. The finding indicates that slow
collection of accounts receivables is correlated with low profitability. Managers can
10
improve profitability by reducing the credit period granted to their customers.
Regarding the average days of accounts payable previous studies reported negative
correlation of this variable and the profitability of the firm. Examining the relationship
between the average number of days the inventory is held and the profitability, found
that the relationship is negative.
This study had investigated the association between WCM and financial
performance through applying on 30 manufacturing firms listed on the Colombo Stock
Exchange (CSE) from 2008 to 2011. The study discloses that, there is a negative
relationship between CCC and performance measures. The study recommends the
manufacturing firms to manage their WC efficiently to achieve optimal profitability.
This can be achieved by improving the inventory control process, collecting receivables
in line with the agreed credit terms and by delaying payments to suppliers. All these
will lead to shorten the CCC resulting to an increase in profitability (Niresh, 2012).
Kaddumi, (2012) aimed to shed light on the effect of WCM on the profitability
of Jordanian Industrial firms, using two alternative measures of profitability as a proxy
of the performance and two regression models, the panel data cross-sectional time series
has been used. The result shows that for the Jordanian industrial firms WC has a
significant effect on the firm’s performance, and has a basic role in maximizing the
wealth of the shareholders by making the firm more profitable through shorting the
CCC and net trading cycle. The negative relationship of average collection period,
average age of inventory and the positive relationship of average payment period with
the profitability imply that keeping lesser inventory and shortening the collection period
along with extending the payment period will increase profitability for the Jordanian
industrial firms.
Jayarathne, (2014) attempted to assess the effect of WCM on profitability using
a five year (2008-2012) dataset on 20 manufacturing firms listed in CSE. The findings
suggest that the profitability is negatively associated with the account receivable period,
inventory turnover period, and CCC. Further, it was found that the profitability is
positively associated with account payable period. Moreover, the evidence suggests that
increase in leverage leads to decline in the profitability. Therefore, the findings of paper
reveal that manufacturing companies can boost their performance in terms of
profitability by managing WC appropriately.
Leon, (2013) studied that there is a strong overall relationship between net
working capital and net profit of the selected five industries is strong positive
11
correlated. This means, that the net WC is highly related with net profit. So, net WC
has significant impact on its net profit.
Nejad, Bandarian, and Ghatebi, (2015) investigated the relationship between
WCM and profitability of listed companies in Tehran Stock Exchange. Research data
was analysed using population of 116 listed companies in Tehran Stock Exchange for
the period of 2006-2011. The research results indicate that, there is a significant inverse
relationship between CCC and its components, including the collection period,
inventory turnover period and accounts payable turnover period, and profitability of the
firms. Corporate managers can increase the profitability of their company desirably by
reducing the collection period and inventory turnover period.
According to Gachira, Chiwanzwa, Nkomo, and Chikore, (2014) WCM is of
importance in corporate financial management. It is therefore vital to manage the trade-
off between profitability and WCM. The purpose of this study was to investigate the
impact of WCM efficiency on profitability. This would assist firms to understand the
nature and extent of the impact of WC components on firm profitability. Such an
understanding is essential for managers as they try to enhance firm profitability and
ultimately its value.
According to these articles, lot of researches are considered about
manufacturing sector. And also CCC as WC component. There are lot of research
regarding manufacturing sector in Sri Lanka. But there are few research regarding
plantation sector. If so this research is regarding plantation sector. Each research had
get CCC, account receivable, account payable and inventory management as WC
components. But result is difference. Some research are positive and some are negative.
This result is not based on country. However, many time account payable is positive. If
so conduct this research to measure effect of WCM component on profitability of
plantation sector in Sri Lanka as developing country.

2.6 WCM of profitability in plantation sector

At present, tea and rubber production belonging to the agricultural sector contribute
about 1.4% relatively to the GDP of Sri Lanka. The foreign exchange earnings from tea
and rubber based industries amounted to Rs. 305,612 million (US$ 2,395 million) in
the year 2012 and the No. of employment opportunities generated in this sector is
approximately 1.5 million. In addition to the foreign exchange earnings and generation
of employment opportunities, the contribution of the tea and rubber sectors towards the
12
Sri Lankan economy is further significant in respect of the fields such as business
promotion, rural and socio-economic development, poverty reduction and
environmental conservation.
Luchinga, (2014) investigated the effect of WCM on the profitability of
agricultural firms listed in Nairobi Securities Exchange. It was found that inventory
turnover in days has negative relationship with ROE which means that companies’
financial performance can be increased by reducing inventory in days. Cash Conversion
period and Net payment period shows significant negative relation with ROE.
Owele and Makokeyo, (2015) studied Companies that adopted more
conservative capital management approaches were the most profitable while the
companies advancing towards aggressive capital management approaches were least
profitable. The study recommends similar studies for non-listed agricultural companies
in Kenya to derive a broader conclusion on the effects of WCM approach on agricultural
companies in Kenya.
Waithaka, (2012) intended to determine the relationship between WCM and
financial performance of listed agricultural firms quoted at the Nairobi Securities
Exchange. The study concludes that there exists a strong positive relationship between
components of WC and financial performance though the results were insignificant at
5% level. Agricultural companies in Kenya wishing to revamp their companies and
improve profitability should focus on the area of efficient WCM should be an area of
emphasis.
One of the WCM components is CCC. According to previous studies can
identify the relationship with profitability. Murugesu, (2013) analysed the effect of
CCC on profitability in ten listed plantation companies in Sri Lanka between 2008 and
2012. Results revealed that there is negative relationship between return on equity and
CCC and CCC also had negative impact on Return on asset. In addition cash conversion
cycle negative impact on net profit. Therefore the effect of CCC on total profitability
as whole contains significant value.
Har and Ghafar, (2015) investigated In general, ROE was found to the best
performer as compared to the rest of the performance measures (ROA and ROCE) in
predicting stock returns. ROE was able to explain the variation in stock return during
both economic periods. The impact of ROA and ROCE is on the variation of stock
return. During the pre-recession period, all of the performance measure was found to
have a positive relationship to stock returns. Finally, the descriptive statistics showed
13
that the plantation industry in Malaysia is very resilient and not adversely affected by
an economic recession.

2.7 Summary
All the above studies provide ideas regarding WCM and its components. As
well as regarding to company profitability. They also give the results and conclusions
of those researches already conducted on the same area for different countries and
environment from different view. On basis of these researches done in different
countries, researcher have developed his own methodology and structure for this
research.
Above studies done in different industries. But very few studies have plantation
sector relate for this topic. As well as inventory is very importance component of
plantation industry. If so, few studies consider about importance about inventory
management as WC component. However, previous researches provide guide lines for
conduct this research.

14
 CHAPTER 3
METHODOLOGY
3.1 Introduction
The main purpose of this chapter is present the research plan in order to investigate the
impact of WCM on profitability of plantation sectors in Sri Lanka. The research
methods, data collection and data analysis are discussed in this chapter, including the
research design for the main phases of the research. According to research plan, this
chapter discusses the topics such as research design, conceptual framework, data
collection methods, and data analysis method and data presentation.

3.2 Research Design

This study is a descriptive research design that basically involves obtaining information
concerning the current status of the phenomena. This study has used quantitative
research design. Quantitative research is the numerical representation and manipulation
of observations for the purpose of describing and explaining the phenomena that those
observations reflect. It is used in a wide variety of natural and social sciences, including
physics, biology, psychology, sociology and geology (Wikipedia Encyclopaedia,
2005).Use of quantitative research are numerical change can likewise only accurately,
when we want a quantitative answer, useful for conducting audience segmentation,
useful to quantify opinions, attitudes and behaviours and find out how the whole
population feels about a certain issue.
The study focuses all listed plantation companies in CSE. It is based upon the
latest available published secondary data covering the 2014 annual report.

3.3 Conceptual Framework

Conceptual framework is the body of this research. It presents the relationship between
independent variables and dependent variable. The research study is based on the
following model and it emphasizes the relationship between the WCM and the
profitability of the organization.
According to this conceptual framework represents the relationship between
WCM and profitability. This study conduct to measure this conceptual framework
relationship.

15
 Working Capital
Management Performance
ITP NPR
ARP ROE
APP
CCC

Figure 3.1: Conceptual Framework

3.3.1 Hypothesis
H1: There is a relationship between WCM and profitability

3.4 Population and Sample

3.4.1 Population
Population is representing a large area for data. Population is not always easy or
possible to examining. It includes every member of an entire population. The
population of study will consist all listed plantation companies in CSE in Sri Lanka.

3.4.2 Sample
Sample is sub set of the population selected to represent the population as a whole. In
this research has selected 17 listed plantation companies in CSE in the year 2014 as the
samples of this study. Therefore the sample should be representative and allow for
making accurate estimations of the thoughts and behaviour of the larger population.

3.5 Data Collection Methods

The data collection is one of the vital functions of any research because quality of the
research is mainly depending on quality of data. Therefore data collection should be
relevant, complete and understandable in order to meet the objective of the research.
This study based only secondary data. Secondary data means data that are
already available and collected by someone else. When using secondary data researcher
have to consider many factors, because it is not confronted with the problem than

16
original data. Secondary data in a general academic understanding is a secondary
reference that will support the notion of the actual research topic or framework.
Moreover, secondary data are related research data to present research task. Researches
use secondary data to get the evidence under the literature. According to that evidence
can get support for data collections.
This research is used secondary data because independent and dependent
variables are measured by using secondary data. All the relevant financial data obtained
in annual financial reports of selected companies for the year of 2015 as at 31st march
and 31st December of 2014 used as instrument of secondary data collection method.

3.6 Data Analysis and Presentation

The data gathered will be used to determine the WCM adopted by the plantation firms
listed in CSE and their effects on profitability. In order to present the findings of the
study researcher has used tables, charts and graphs. In addition determine the
relationship between WCM and profitability of the selected companies; researcher used
the financial ratios and statistical analytical techniques. The data will be analysed using
regression analysis. Regression analysis is used to understand which among the
independent variables are related to the dependent variable, and to explore the forms of
these relationships.
In order to analysis profitability of plantation sector, researcher used financial
ratios and operating results of selected companies. By comparing result of this analysis,
researcher attempt to get an idea about profitability of plantation sector. Relevant
financial ratios are calculated as follows:
ITP is the average required time to change the materials into the product and
then sell the goods.
 ITP = (Average Inventories/ Cost of Goods Sold) *365 days
ACP measures the quality of debtors since it indicates the speed of their
collection.
 ACP= (Average Accounts Receivable/Credit Sales) *365 days
APP is the average time between buying materials and cash payment relates to
them.
 APP = (Average Creditors/ Credit purchase)*365 days

17
 CCC focuses on the length of time between when a firm makes payment and
when firm receives cash inflow. It is calculated as;
 CCC = Debtor Collection Period + Inventory Period – Creditor Payment Period
A properly conducted profitability analysis provides invaluable evidence
concerning the earnings potential of a company and the effectiveness of management.
The following ratios used to measure the profitability condition of the firms;
NPR is a widely used measure of performance and is comparable across
companies in similar industries.
 NPR = Net Profit / Sales
ROE is the amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by revealing how much
profit a company generates with the money shareholders have invested. ROE is
expressed as a percentage and calculated as:
 ROE= Net Income/Shareholder's Equity

3.6.1 Correlation analysis

Spearman’s Correlation Coefficient Analysis is used to analyse the relationship
between working capital variables and profitability. The correlation coefficient
describes the strength of the relationship between the two sets of ratio scaled variables.

3.6.2 Regression analysis

Researcher used Regression analysis to understand the impact of WCM on profitability.
By using this method researcher will be able to identify the significance of individual
WC components to the model and also the significance of the overall model in
plantation sector. As measure of profitability was used as the dependent variable. ITP,
ACP, APP, CCC were used as independent variables. For this purpose the statistical
package for social sciences (SPSS) software used to run the regression. The Regression
Model as follows;

18
π= α + βWCM+ ε
Where;

π = Profitability

α =Constant Value
ε = The error term
β = Regression model coefficient
According to profitability, regression model can identify as above. But analyses
part divide in to 2 models base on dependent variable. Under model 1 NPR takes as a
dependent variable and under model 2 ROE takes as a dependent variable. According
to two regressions models are developed as follows,
Model 1: NPR= α + β0ITP + β 1ACP + β 2APP + β 3CCC + ε
Model 2: ROE= α + β0ITP + β 1ACP + β 2APP + β 3CCC + ε

3.7 Summary
This chapter represented the objectives and methodology based on the research model
and explained about the variables connected with the research. Furthermore this chapter
explains the research design, research sample, data collection techniques, data
presentation and way of data analysis and interprets followed by the researcher to
conduct the research.
The secondary data of the study were collected from the annual report of listed
companies in CSE in the year of 2014.Researcher used there hypothesis to identify the
relationship between independent variables and depended variable through
correlations. Multiple linear regressions analyse the relative contribution of each factor.

19
 CHAPTER 4
DATA ANALYSIS
4.1 Introduction
In this chapter, the findings of the data analysis carried out in order to examine the main
research question of the study. In here the researcher represents the collected data, using
the techniques mentioned in the previous chapter. Data have been collected in year
2014. Correlation analysis is used to determine the relationship between variables and
also multiple linear regression models have been used to identify relative contribution
of each factor. Researcher used SPSS analytical software to analyse the data. The
researcher has used tables and graphical representation method, in order to present the
data in a meaningful and understandable manner.

4.2 Profitability of selected plantation companies

NPR and ROE were used to measure for the companies’ profitability. Below bar charts
show the NPR and ROE values according to the selected firms in 2014.When
considering the bellow ratios, can get the sound knowledge about the significant
difference of the profitability among the selected firms.
15 13.19 13.07

10
6.28 6.89 6.42
5.77
4.92
5 4.21 4.28 3.8
2.86 2.36
0.67
NPR

-5 -3.17
-5.22

-10

-11.77
-12.58
-15
Company

Figure 4.1: NPR of selected companies in 2014

NPR also indicates the firm's capacity to face adverse economic conditions such as
price competition, low demand, etc. In the year of 2014 NPR is higher in Elpitiya
plantation and Kotagala plantation. But Agalawattha plantation and Madulsima

20
plantation show lower amount of NPR in plantation sector than other company. It
represent respectively -11.77% and -12.58%.This companies had earned a net loss in
this year. As well as Balangoda plantation and Maskeliya plantation had earned a net
loss in this year.
Normally NPR were evaluated the relationship between NP and sales. In the
change of loss NPR will be the result of variance of the NP and sales value. In the year
2014 it was huge amount of NPR in the companies Agalawattha, Madulsima,
Balangoda and Maskeliya; it is the result of policy change in favourable manner for
plantation industry and decreased turnover.

25

20 18.47
13.89 13.15
15 11.88 11.21
10.59
7.93 9.12
10 6.89
4.34 3.72 4.44
5
0.84
0
ROE

-5
-3.63
-10

-15
-14.98
-20 -17.63
-25
-25.18
-30
Company

Figure 4.2: ROE of selected companies in 2014

ROE show the percentage of net income for equity capital. This is the ratios that present
effectiveness of the assets of owners. In the plantation sector listed plc. Kotagala
plantation earns 18.47% for the owner equity. But Agalawattha, Madulsima, Balangoda
and Muskeliya have minus earn for the assets of owner. It represents respectively -
25.18%,-17.63%,-3.63% and -14.98%. In the loss of year and the change of owner
equity will be the result like this. This huge amount of variance expected to miserable
variance in these companies.

21
4.3 Analyse the Relationship between WCM and Profitability
4.3.1 Descriptive Analysis
Descriptive analysis shows the average, and standard deviation of the different
variables of interest in the study. It also presents the minimum and maximum values of
the variables which help in getting a picture about the maximum and minimum values
a variable can achieve. Table 4.1 presents descriptive statistics for 17 firms in plantation
sector listed in CSE for year of 2014.

Table 4.1 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

ITP 17 36.36 56.22 45.0006 5.53050

ACP 17 5.95 29.79 10.0371 5.55969

APP 17 .47 68.17 17.4506 15.92648

CCC 17 -12.01 56.21 37.5965 15.97440

NPR 17 -12.58 13.19 2.4694 7.18300

ROE 17 -25.18 18.47 3.2382 12.08493

The mean value of NPR is 2.47 and standard deviation is 7.18. It means that the
companies under consideration maintain an averagely 2.47 of NPR and it can deviate
from 2.47 to both sides by 7.18. Maximum value for the NPR is 13.19 for a company
in a year while the minimum is -12.58.
The mean value of ROE is 3.24 and standard deviation is 12.08. It means that
the companies under consideration maintain an averagely 3.24 of ROE and it can
deviate from 3.24 to both sides by 12.08. Maximum value for the ROE is 18.47 for a
company in a year while the minimum is -25.18.
Firms take on average 45 days to sell the inventories with a standard deviation
of 6 days. It receives their receivables against their sales after an average of 10 days
with a standard deviation of 6days.
Firms wait on average17 days to pay their trade creditors with a standard
deviation of 16 days. It takes on average 38 days with a standard deviation of 16 days
to buying goods in credit & then it recover by receivable account.

22
4.3.2 Correlation Analysis
Correlation analysis is used to measure the degree of association between WC variables
under consideration. Researcher has been able to identify many important variables
associated with WCM. Such as Cash, Inventory, Accounts receivables, Accounts
payable. Pearson’s Correlation analysis is used for data to see the relationship between
WCM and profitability

Table 4.2 Correlations Statistic with NPR

ITP ACP APP CCC NPR
Correlation 1
ITP Sig. (2-tailed)
N 17
Correlation .391 1
ACP Sig. (2-tailed) .120
N 17 17
Correlation -.017 .487* 1
APP Sig. (2-tailed) .947 .048
N 17 17 17
Correlation .500* -.001 -.832** 1
CCC Sig. (2-tailed) .041 .997 .000
N 17 17 17 17
Correlation .177 .061 -.555* .635** 1
NPR Sig. (2-tailed) .496 .816 .021 .006
N 17 17 17 17 17
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
According to the correlation result there has positive relationship between NPR
and ITP as 0.177 with a p-value of (.496). Simply if the inventory turnover days
decrease it will have a positive impact on the net profit. But it’s not significant.
Correlation results between ACP and NPR shows positive relationship as 0.061
with a p-value of (0.816). But it is not significant.
Correlation results between APP and NPR shows negative relationship as -
0.555 with a p-value of (0.021). It is highly significant at 5% level. If elaborate it
23
further; if the firms take lengthy periods to settle their bills they can increase the net
profit margin.
Correlation results between CCC and net profit margin shows positive relationship as
0.635 with p-value of (0.006). It implies that there is a positive relationship between
these two variables and it is highly significant at 1% level. It means that if the firm is
able to decrease this time period known as CCC, it can increase its profitability.
By analysing the results we can conclude that if the firm extend the creditors
payable days then the firm is efficient in managing its WC. This efficiency will lead to
the firm’s profitability.

Table 4.3 Correlations statistic with ROE

ITP ACP APP CCC ROE
ITP Correlation 1
Sig. (2-tailed)
N 17
ACP Correlation .391 1
Sig. (2-tailed) .120
N 17 17
APP Correlation -.017 .487* 1
Sig. (2-tailed) .947 .048
N 17 17 17
Correlation .500* -.001 -.832** 1
CCC Sig. (2-tailed) .041 .997 .000
N 17 17 17 17
Correlation .150 -.139 -.659** .659** 1
ROE Sig. (2-tailed) .564 .594 .004 .004
N 17 17 17 17 17
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
According to the table 4.3 correlation result there has positive relationship
between ROE and ITP as 0.150 with a p-value of (.564). But it’s not significant.
Correlation results between ACP and ROE shows negative relationship as -0.139 with
a p-value of (0.594). It also is the insignificant. Correlation results between APP and
ROE shows negative relationship as -0.659 with a p-value of (0.004). It is highly
24
significant at 1% level. Correlation results between CCC and ROE shows positive
relationship as 0.659 with p-value of (0.004). It is highly significant at 1% level. It
means that if the firm is able to decrease this time period known as cash CCC, it can
increase its profitability.
By analysing the results we can conclude that if the firm can reduce the ACP and extend
the creditors payable days then the firm is efficient in managing its WC. This efficiency
will lead to the firm’s profitability.

4.3.3 Regression Analysis

Researchers used Regression analysis to understand the impact of WCM on
profitability. As measure of NPR, ROE, were used as the dependent variable and ITP,
ACP, APP, CCC were used as independent variables. The significance of coefficient
has been tested by using ‘P’ value. For this purpose SPSS software used to run the
regression. Researcher applied regression technique to justify whether it suitable to
apply regression to analyse the relationship between WCM and Profitability.
Assumptions of Multiple Regression Analysis
Regression analysis exists when two or more of the independent variables are
correlated. The consequence is that the individual p values of variables can be
misleading, leading to high p-values even though the variable is significant. Descriptive
analysis and correlation-coefficients of independent variables are calculated and their
significance studied before modelling the multiple regression equations.

Table 4.4 Result of Regression analysis

Model 1 Model 2
R2=.471, F=2.672, P=.084 R2=.507 , F=3.084, P=.058
β t- value sig β t- value sig
Constant -2.528 6.539
ITP -.425 -1.159 .269 -.595 -1.000 .337
ACP 4.922 .476 .643 -10.407 -.619 .547
APP 3.246 .642 .533 6.323 .770 .456
CCC .423** 2.637 .022 .711 2.732 .018**
Notes: The symbol (**) indicate statistical significance at 5% levels respectively

25
 Here all the independent variables are taken which will have an impact on
efficient WCM. Table 4.4 shows regression coefficients and their statistical
significance, namely Model 1, and Model 2.
Model 1 represents that the overall model is significant since the p value is
(0.084) and R2 is 47.1% indicating the 47.1% of the net profit is explained by the given
independent variables (ITP, ACP, APP and CCC) . It implies that the given
independent variables determine the profitability.
When considering about ITP, it indicates that negative impact on NPR but it is
not significant (β = 0.425, p = 0.269). ACP indicates that positive impact on NPR but
it is not significant (β=4.922, p=0.643). APP indicates that positive impact on NPR but
it is not significant (β=3.246, p=0.533).
Further CCC indicates that positive significant impact on NPR (β=0.423,
p=0.022). When considering regression results of NPR, CCC is significant factors that
influence to NPR. But ITP, ACP and APP did not indicates significant impact on NPR.
Model 2 represents that the overall model is significant since the p value is
(0.058) and R2 is 50.7% indicating the 50.7% of the net profit is explained by the given
independent variables (ITP, ACP, APP and CCC) . It implies that the given
independent variables determine the profitability.
When considering about ITP, it indicates that negative impact on ROE but it is
not significant (β = 0.595, p = 0.337). ACP indicates that negative impact on ROE but
it is not significant (β=10.407, p=0.547). APP indicates that positive impact on ROE
but it is not significant (β=6.323, p=0.456). Further CCC indicates that positive
significant impact on ROE (β=0.711, p=0.018).
When considering regression results of ROE, CCC is significant factors that
influence to ROE. But ITP and ACP did not indicates significant impact on ROE.

4.4 Summary
This chapter used for analysis and interpretations regarding the WCM variable and
profitability variables. Analysed data have been collected in year 2014. Analyse part
done under two models. First one is NPR taking as dependent variable and second one
is ROE taking as dependent variable.
According to the multiple regression analysis I could interpret there was a
significant relationship between dependent variables (NPR and ROE) and CCC. But
when considering overall models there is a significant relationship between WCM and
26
profitability. According to the correlation analysis, under the first model I could
interpret there was a positive correlation between NPR and ITP, ACP and significant
correlation between CCC. There was a significant negative correlation between NPR
and APP. According to second model I could interpret there was a positive correlation
between ROE and ITP and significant correlation between CCC. There was a negative
correlation between ROE and ACP and significant correlation between APP.

27
 CHAPTER 5
CONCLUSION
5.1 Introduction
This chapter focuses on the findings of the data analysis presented in the chapter four.
Also, key findings, conclusion and implications of the study have been included in this
chapter and provide direction for future research.
The purpose of this study was to examine WC variables (ITP, ACP, APP and
CCC) that are affected to profitability of plantation sector in Sri Lanka. To achieve the
above mentioned purpose, the study formulated the objectives, each having a
hypothesis. The rest of the chapter is organized in a manner that focuses on elaborating
the conclusions on each of the objectives, presenting the recommendations. This
chapter provides an overall conclusion regarding the findings of the study. Based on
the previous chapters this final chapter will provide answers to research questions.

5.2 Key Findings

Researcher used Regression analysis to understand the effect of WCM on profitability.
By using this methods researcher will be able to identify the significance of the overall
models (model 1=0.084 and model 2=0.058) in plantation sector. As measure of
profitability, NPR and ROE were used as the dependent variable and ITP, ACP, APP,
CCC were used as independent variables.
According to the model 1 and model 2, there were negative relationship NPR
and ITP (β = 0.425, p = 0.269) and ROE and ITP (β = 0.595, p = 0.337) in both models.
And also when considering ACP, positive relationship exists between the ACP and
NPR (β=4.922, p=0.643) is consistent with the view that less time haven’t taken by
customers to pay their bill. As well as there was a negative relationship with ACP and
ROE (β=10.407, p=0.547).
And also there is a positive relationship exists between the APP and NPR
(β=3.246, p=0.533) and APP and ROE (β=6.323, p=0.456). Plantation sector keeps
shortening the collection period along with extending the payment period will increase
profitability. There was a positive relationship between CCC and NPR (β=0.423,
p=0.022) and ROE (β=0.711, p=0.018) in plantation sector.

28
 According to finding of the research we can see correlation, significant and
relationship between dependent variable and independent variables. Then we can
recommend according to the WC these factors are affect to the profitability.

5.3 Conclusion
Researcher conducted this research to investigate the impact of WCM on profitability.
Conclusions of this study are as follows,
In this study analysed relationship between WCM and profitability in Plantation
sector in Sri Lanka. Researcher applied tow models for that. These models are strong
to represent the fit between the regression lines with the actual data. There was a
significant relationship between dependent variables (NPR, ROE) and independent
variables (ITP, ACP, APP and CCC). As well as the results of this study are consistent
with most of the findings provided in the literature review.
When considering plantation sector there were negative relationship NPR and
ROE and ITP in both models. Negative relationship between the ITP and profitably is
means that maintaining lower inventory levels increase the cost of possible
interruptions in the production process and the loss of business. Maintaining lower level
of inventories also increases the cost of supplying the products. This study is consistent
with findings of Gill et al., (2010), Kaddumi, (2012) and Luchinga, (2014). They have
found the negative relationship between ITP and profitability. The study recommends
the plantation sector to manage their inventory efficiently to achieve optimal
profitability. This can be maintain high level inventory and achieved by improving the
inventory control process.
When considering ACP, positive relationship exists between the ACP and NPR.
This result suggests that firms can improve their profitability reducing the number of
days accounts receivable are outstanding. This finding implies that managers can
improve profitability by reducing the credit period granted to their customers. This
finding implies that a more restrictive credit policy giving customers less time to make
their payments improve performance. A negative relationship exists between the ACP
and ROE. Same results are found by Gill et al., (2010) and Kaddumi, (2012) and these
both papers suggest that the negative relationship between ACP and ROE. Managers
can improve profitability by reducing the credit period granted to their customers.
As well as there was a positive relationship between APP and both models. And
also same results are found by jayarathne, (2014) and Kaddumi, (2012). There was a

29
positive significant relationship between CCC and both models in plantation sector.
Same result is found by Gill et al., (2010). This paper suggest that the significant
relationship between CCC and profitability.
When consider the previous research can conclude that there is a relationship
between selected WC components and Profitability. And also researcher can identify
that this research achieved it objectives.
Based on the results of this study can conclude that the WCM has a great impact on the
Profitability of the companies in plantation sectors. More over the management can also
create values for their shareholders by increasing their inventories to a reasonable level.

5.4 Implications
This study is important in academic purpose and contributes to the body of knowledge
and can identify impact of WCM on profitability in plantation sector in Sri Lankan.
And also provide general framework for researchers and management to further
researches.
There is much to be done about WC in Sri Lanka in future. Researcher suggest
that future research be conducted on the same topic with different sector and extending
the years of the sample, The scope of future research may be extended to the WCM
including cash, marketable securities, receivables and inventory management. In order
to find out the relationship between WCM and profitability most of the empirical
studies focused on the accounting measures of profitability. Research can be repeated
by considering the performance measures of profitability e.g. economic value added,
market value added etc.
For the more firms can also take long to pay their creditors as they do not strain
their relationship with these creditors. Firms are capable of gaining sustainable
advantage by means of effective and efficient utilization of the resources of the
organization through a careful reduction of the CCC to its minimum. In so doing the
profitability of firms expected to increase.

30
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