Research Proposal

The Impact of Capital Expenditure on Working Capital Management:

An Application on Hotel and Travel Companies Listed In Colombo
Stock Exchange

H. L. Imesha Maduwanthi
BM in Accounting & Finance ( Special) Degree
10020944
Introduction

 What is Working Capital Management?

Ensuring that a company operates efficiently by monitoring and using its current
assets and liabilities to give the best outcome.

 what is Capital Expenditure?

Money spent by a business or organization on purchasing or maintaining fixed
assets, such as land, buildings, and equipment.
 Capital Working Capital
Expenditure Management

working
net liquidity
capital
balance
requirement
Research Questions

 What is the impact of Capital Expenditure on the firm’s working capital

management in hotel and travel companies listed in Colombo stock exchange?
 What is the applicability of net liquidity balance and working capital
requirement as a measure of working capital management?
Research Objectives

Main Objective
• To identify the impact of Capital Expenditure on working capital
management with respect to net liquidity balance and working capital
requirement in hotel and travel companies listed in Colombo stock
exchange.

Specific Objective
• To understand the applicability of net liquidity balance and working capital
requirement as a measure of working capital management.
Literature Review

Capital Expenditure
• The total amount of money spend on renovating, redecorating and replacing
furniture, fixtures and equipment within a specific period of time and the
cost incurred in updating or correcting obsolescence can be known as capital
expenditure (Dang, 2007)
Working Capital Management
• The ability of a company to fund the difference between current assets and
current liabilities or the process of managing short-term assets and short-term
liabilities of a company to ensure that the cash amount in business is
sufficient to sustain the company operations in an efficient and effective
manner can be defined as working capital management (Harris, 2005)
Theoretical Framework
Independent Variables

Capital expenditures done on acquisitions and upgrades of

Expenditure physical assets, as in the form of buildings, land,
(CAPEX) vehicles, machinery and equipment

Operating
expenditures incurred to carry out the ongoing
Expenditure operations, products or systems of the firm
(OPEX)

Finance cost incurred on the borrowed capital such as interest

Expenditure on debentures, bank loans and other long term
liabilities.
(FIEX)
Dependent Variables
According to
Shulman and
Working Capital Cox’s (1985)
Management

NLB = (cash and cash equivalents + short-term

Net Liquidity investment) - (short-term debt + commercial paper
Balance (NLB) payable + long-term debt a year term)

Working Capital
WCR = (accounts receivable + inventories) - (accounts
Requirement payable + accrued expenses +other payable)
(WCR)
Conceptual Model
 Hy

Hypotheses
• H1a- There is a positive relationship between Capital Expenditures (CE) and Net
Liquidity Balance (NLB)
• H1b- There is a negative relationship between Capital Expenditures (CE) and Working
Capital Requirement (WCR)
Methodology

Data Type Data Source

Quantitative Data Audited annual financial statements

Sample and Sampling Method

Population Sample

289 companies 10 hotel &

representing 20 Judgmental Sampling travel
industries in companies
CSE

Data analysis techniques :

• Correlation Analysis
• Panel Data Regression Analysis
Significance of the study

 The findings of this study will benefit management and staff of hotel and
travel companies.
 To understand specific behavior of company’s working capital in relation with
capital expenditure and make most appropriate decisions.
 Regulatory bodies like hotel and tourists’ board can use this study to improve
the regulation framework of hotel and travel companies in Sri Lanka
Thank You