An Association Between Organisational Growth and Profitability: a Study of Commercial Bank of Ceylon Ltd Sri Lanka

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T. Velnampy, B. Nimalathasan, An association between organisational growth and profitability: A study of commercial bank 46 of Ceylon LTD Srilanka / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 46-57

AN ASSOCAITION BETWEEN ORGANISATIONAL GROWTH AND PROFITABILITY: A STUDY OF COMMERCIAL BANK OF CEYLON LTD SRILANKA T. VELNAMPY, B. NIMALATHASAN∗

The banking organizations, today, is moving towards the goal of integrated financial services because of the strong competition and quick changes of technology. In developing countries like Sri Lanka, banking organizations provide fund for other organisatinal developments. Financial system of a country is broadly the mechanism in the financial market which deals with the business or transactions in money .The financial sector in every country has become the deciding factor of the economy. The implementation and achievement of the government policies, let it be developing / developed depends on the financial market. There should be a steady financial policy of the government, further more, financial stability be maintained by the state. Today banking sector plays a significant role in the economic development of the country. The present study is initiated an association between organizational growth and profitability of virtually all of the Banks’ branches of Commercial bank of Ceylon Ltd in SriLanka with last 10 years accounting period: 1997-2006.Correlation analysis shows that, Return on Average Assets (RAA), Return on Average Share holders (RAS) are significantly associated with number of advances and number of depositors and sales are correlated with all profitability ratios except ROE and ROI. Further organizational growth has a greater impact on all profitability ratios. Key words: Banking, Organisational growth, Profitability, Advances, and Deposit.

Background of the Study The definition of organizational performance with respect to a firm differs depending on the firm’s overall goals. The chosen definition also impacts how performance is measured. When measuring the performance of a firm it is important to understand the multidimensional nature of the performance construct (Lumpkin and Dess 1996). There are pre-defined methods for measuring the performance of a firm. The difficulty in relying on these measures is that different performance measures can conflict ((Lumpkin and Dess 1996). Measuring all of sales growth, market share, profitability overall performance and stakeholder satisfaction will provide a more accurate view of such firms performance. Throughout the entrepreneurial orientation literature,



University of Jaffna, SriLanka.

T. Velnampy, B. Nimalathasan, An association between organisational growth and profitability: A study of commercial bank of Ceylon LTD Srilanka / Annals of University of Bucharest, Economic and Administrative Series, Nr. 2 (2008) 46-57

the performance construct is operatinalized fairly.Consistanly. Covin & Slevin (1989) use financial measures (Sales level, Sales growth rate, cash flow, and return on shareholder’s equity, gross profit margin, and net profit from operations, profit to sales ratio, return on investment and ability to fund business growth) to represent performance for both the growth and financial perspectives. It is possible to regard financial performance and growth as different aspects of performance, each revealing important and unique information. A firm could, for instance, choose to trade – off long term growth for short term profitability (Zahra, 1991).Taken together these two aspects give a richer description of the actual performance of the firm than each aspect – separately. Dess and Robinson (1984) reported strong and statistically significant relationships between the subjective comparative assessments of the 5-year performance of 18 businesses by their top management against other similar businesses in their industries, and the objective measures of return...
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