Financial Management Practices and Financial Performance of Small and Medium Size Enterprises in Sri Lanka: Special Reference to Uva Province

Abstract

This study examines the impact of financial management practices on the financial performance of small and medium-sized enterprises (SMEs) in Uva Province, Sri Lanka. The research focuses on five key financial management practices: Working Capital Management, Financial Reporting and Analysis, Accounting Information Systems, Investment Appraisal, and Financing Practices. Data were gathered from SMEs using a self-administered questionnaire. The researcher collected primary data through self-administered questionnaires from randomly selected SMEs. The analysis employed descriptive statistics, Pearson correlation, and multiple regression analysis, with Cronbach's Alpha confirming data reliability. The study finds significant positive correlations between financial management practices and the financial performance of SMEs. Improved practices in areas such as Working Capital Management, Financial Reporting, Accounting Information Systems, Investment Appraisal, and Financing are linked to better financial performance. The regression analysis shows that these practices collectively have a substantial impact on financial performance, with the model proving to be a good fit for predicting outcomes. The findings highlight the importance of robust financial management practices for enhancing the financial performance of SMEs in the region