Effects of working capital management on financial performance of manufacturing companies listed at the Nairobi securities exchange, Kenya

Abstract

Management of working capital aims at maintaining an optimal balance between all of the working capital components which are cash, accounts receivables, accounts payables and inventory. The general objective of the study was to establish the effect of working capital management on financial performance of manufacturing firms listed in the Nairobi Securities Exchange.Specifically, the study analyzed the effect of cash conversion circle, inventory conversion period account collection period and account payment period on financial performance of the said firms. This study used the explanatory research design and the population of the study included all the 10 manufacturing firms listed at the NSE by 31 December 2016. Seven (7) manufacturing firms whose financial statements were available were purposefully selected for the study. Secondary data collection template was used to extract relevant data from the financial statements of the said firms. The data collected was analyzed using and data was analyzed using descriptive statistic in which means and standard deviation were calculated and inference was to the rest of the population.The study also used regression analysis to establish the relationship, between the independent and dependent variables. . The study established that, manufacturing industry had experienced the highest ROA in 2015 compared to the lowest ROA in 2014. This was attributable to a less aggressive investment in current assets and current liabilities which negatively impacted firm profitability. The study findings therefore rejected the null hypothesis of no relationship existing between working capital management and financial performance of manufacturing companies listed on NSE in Kenya,The study recommended that it is important for manufacturing firms to make a preliminary cost-benefit analysis of the various working capital management decisions before committing the firms’ resources towards a specific decision.