The effect of financial management practices on financial performances of small and medium enterprises in Sri Lanka (with special reference to Gampaha district)

Abstract

Efficient financial management practices are considered as an essential mechanism for small and medium enterprises to gained profitability, survival, insolvent, growth etc. The objectivity of this study is to determine the effect of financial management practices of small and medium-sized enterprises (SMEs) in Sri Lanka on their financial performances. The study investigated financial management practices are through working capital management practices, investment management practices, financial planning practices, financial reporting and analysis practices and accounting information system. Financial performance is measured through return on assets and return on investment. In this study 60 of small & medium enterprises which operate in Gampaha district selected as the sample and personally administered questionnaire distributed among SMEs owners to collect the data. According to the correlation and regression analysis result of the study shows that there is a significant positive effect on working capital management practices on the financial performance of SMEs at the Gampaha district in Sri Lanka. It implied that increasing working capital management practices are a reason for improving the financial performance of SMEs. According to the findings, the researcher concludes that application and integrating financial management practices are reasonable for improving the financial performance of SMEs. The study recommended that owners of SMEs should pay high attention to financial management practices when it operates, formatting decisions and strategies and government and other regulated authorities should formulate appropriate policies and provide facilities for successful implementation of financial management practices in SMEs in Sri Lanka.