Study on the Impact of Intellectual Capital on Financial Performance: With Special Reference to Jiffy Products Sri Lanka (Pvt.) Ltd., Mirigama

Abstract

Measuring the Intellectual Capital (IC) within the organization and its impact of financial performance of the company is still remaining on the discussion in the literatures as well as within the organizations. Though the human capital within the IC can make impact on financial performance of the company lot of companies have been ignored this and didn’t make investments on human capital to improve it. Thus, the study was based on that help to make another window to which can enhance the financial performance of the company. This study aims at find the impact of intellectual capital (Human Capital Efficiency, Capital Employed Efficiency, and Structural Capital Efficiency) on financial performance (Return on Equity and Return on Assets) in the Jiffy Products Sri Lanka (Pvt) Ltd at Mirigama. The data was collected through the monthly financial statements and Pulic model (2008) was employed to measure the IC component. Data were analyzed by using multiple regression method. Asset turnover ratio and physical capital intensity were included as control variables and findings indicated that a significant positive relationship between intellectual capital and financial performance. Other than that, findings revealed that the components of IC; Human Capital Efficiency has a significant positive relationship with financial performance (Return on Equity) and Capital Employed Efficiency has a significant negative relationship with financial performance (Return on Assets) while Structural Capital Efficiency has an insignificant relationship with financial performance (Return on Assets). With confirming the previous findings, current study reveals that the intellectual capital is one of intangible assets that can positively impact on the financial performance of the company. This study makes novel contribution to Jiffy Products (Pvt) Ltd, Mirigama who wants to enhance financial performance of the company.