Factors Influencing on Return on Assets of The Material Sector in Colombo Stock Exchange

Abstract

Financial performance has an impact on an organization's well-being and ultimately its survival, it has also been the main focus of business professionals in all types of businesses This study is designed to examine the the factors influencing on the return on assets of the Material companies listed in the Colombo Stock Exchange. The study focuses on four key variables; leverage, liquidity, firm size, and firm age are used as the independent variables for the study while the dependent variables constituted a characteristic indicator that can affect the Material sector such a, return on assets (ROA). The study adopts quantitative research approach and data is collected from annual reports of 19 Material companies listed in the Colombo Stock Exchange for five years from 2018 to 2022. Descriptive statistics, regression analysis, and correlation analysis will be used to attain the objectives of the study. Multiple linear regression model used for hypothesis testing. The finding of this study indicates that debt to equity Received: 26/10/2024 Revised: 05/01/2025 has significant and negative impact on return on assets (ROA), current ratio has Accepted: 15/01/2025 Published: 12/06/2025 a significant and negative impact on return on assets (ROA), firm size has an insignificant impact on return on assets (ROA), and firm age has an insignificant and negative impact on return on assets (ROA) of material companies in Sri Lanka from regression analysis. Overall, the results confirm that financial leverage (DE), and liquidity management (CR) are the major factors influencing the financial performance of material companies listed on the CSE. To improve their financial performance, businesses must maintain an ideal debt-to-equity ratio and effectively manage their working capital, according to the findings, which provide empirical evidence from an emerging-market perspective. Additionally, by applying these insights, regulators, investors, and corporate managers can develop more effective plans to enhance operational efficiency, reduce financial risk, and ensure long-term growth in Sri Lanka's material industry.