Impact of Accounts Receivable Management on Profitability: A Case Study of Sri Lankan Listed Food Beverages and Tobacco Companies

Abstract

This study investigates the Impact of Accounts Receivable Management on Profitability of listed food beverage and tobacco Companies in Colombo Stock Exchange in Sri Lanka. To achieve the objectives of the study, the researcher used secondary sources of data and investigated for a sample of 20 food beverage and tobacco companies using panel data analysis for the period 2015-2019. The dependent variable Return on asset and Return on equity are used as a measure of profitability. The key independent variables used in the analysis are the inventory turnover ratio. Average collection period. Account receivable turnover ratio. Cash conversion cycle and control variable as firm size. In this study, the descriptive and multiple regression were used for analysis. The results of the research show that in the studied companies, there is a significant impact of accounts receivable management on profitability. The results also show that there is a significant positive impact of inventory turnover ratio on return on assets of food beverage and tobacco companies. It means that as inventory turnover ratio increases, it will lead to increase profitability of the firms. In addition, the results showed that there is a significant negative impact of cash conversion cycle on return on equity. Further, it was recommended that food beverage and tobacco companies should adequately plan and control their credit policy, day to day operations and outstanding to achieve the profitability.