Abstract:
In the world of business, the ability to seize every opportunity and to
seek practical business tools and techniques to improve the financial
performance are of paramount importance for success. This paper aims
to determine the effect of working capital management policy and
financial leverage on financial performance of listed trading firms
measured in terms of net income, return on equity (ROE) and return on
asset (ROA). The research question is that how far working capital
management policy and financial leverage impact on financial
performance of listed trading firms in Sri Lanka. The data was collected
from the financial statements (Annual Reports) of these firms for a
period of eight years from 2003 to 2010. Pearson's rank correlation test
and multiple regression analysis were used on nine firms in Sri Lanka.
Results of the study indicated that firm's working capital management
policy and financial leverage have significant relationship with net
income. However, working capital management policy has no
significant effect on return on equity (ROE) and return on assets (ROA).
