Impact of Financial Distress on Financial Performance of Listed Manufacturing Companies in Sri Lanka

The purpose of this study to investigate the impact of financial distress on the financial performance of listed manufacturing companies in Sri Lanka. The study utilized Altman's Z-score, the Leverage Ratio, and the Distance to Default (KMV Model) as measures of financial distress and Return on Assets (ROA) and Return on Equity (ROE) were used to assess financial performance. The secondary data were drawn from the annual reports of 31 listed manufacturing companies in Sri Lanka from 2017 to 2022. The study employed descriptive and inferential statistical analyses, including regression analysis, correlation and variance, to test the established hypotheses. The results highlight the critical importance of closely monitoring financial distress indicators. Understanding these indicators helps predict and manage financial performance in the manufacturing sector. The study emphasizes that companies can improve their financial health by addressing the factors contributing to financial distress, enhancing financial performance and empowering the reader with actionable strategies. This practical approach empowers professionals in the industry, instilling in them a sense of capability and confidence in implementing these strategies. The theoretical implications, policy implications, and the future research implications of the study are also presented in the article.