Abstract:
Effective working capital management (WCM) is critical for ensuring liquidity,
operational efficiency, and sustained profitability, particularly in volatile economic
environments. This study examines the relationship between working capital
management and profitability in the materials sector companies listed on the Colombo
Stock Exchange (CSE) amidst the challenges posed by the COVID-19 pandemic and
Sri Lanka’s economic downturn. Utilizing a quantitative methodology, the research
analyses data from 18 companies over the period 2020–2024, employing regression
and correlation analysis to identify key patterns. The findings reveal that efficient
management of accounts payable, accounts receivable, and inventory positively
influences profitability. Specifically, a positive correlation exists between accounts
payable days and gross operating profit (GOP), while the relationship between
accounts payable and return on assets (ROA) is insignificant. Similarly, accounts
receivable days exhibit a positive impact on profitability, suggesting that
accommodating customers with extended credit periods can drive future sales.
Effective inventory management also enhances profitability, emphasizing the need to
maintain optimal stock levels. Key recommendations include adopting robust credit
policies, leveraging integrated inventory and financial management systems, and
optimizing the cash conversion cycle. Furthermore, the study highlights the necessity
of aligning working capital strategies with broader financial goals to ensure resilience
and growth in challenging economic conditions.
