South Asian Journal of Marketing & Management Research

Working capital management is a sensitive area in the field of financial management. It involves the decision of amount and composition of current assets and financing these assets. Studies in corporate finance is considered as study of long term financial decisions, provision of long term assets, and share & dividend policies. However topics of short term finance are not less significant in developing an effective corporate financial strategy. Among the short term strategies, working capital management plays an important role in increasing the shareholders’ value of a firm. Twenty listed manufacturing companies were selected on the basis of random sampling method. Correlation and regression analysis are used for this study. Analyzed results revealed that there is no strong relationship between aggressive financing policy and firm performance in listed manufacturing companies in Sri Lanka. The financial manager's objective in both long term and short term decisions however is the same to select that combination of assets & liabilities that will maximize the value of firm to its owners. Managers must evaluate in their determination of working capital policy for the firm, which involves investing decision regarding current assets and financial decision regarding current liabilities. Given the potential effect of current asset and liabilities on a firm value to its owners, financial managers should carefully evaluate short term investing & financing decision that involve the following issues.