The relationship between working capital management and financial performance of deposit taking savings and credit co-operative societies licensed by Sacco societies regulatory authority in Nairobi county

Abstract

Working capital is an important matter during financial decision making since it forms part of investment in assets that requires appropriate financing and also when incurring liabilities. The objective of the study is to establish the relationship between working capital management and financial performance of deposit-taking SACCOs licensed by SASRA in Nairobi County. The research was a casual study. The population of interest was all the deposit-taking SACCOs licensed by SASRA in Nairobi County as at 31 December 2011. There were 15 SACCOs that were sampled in the study of which complete data for 13 of them were available and analyzed. The study incorporated data for the last four years (2008 – 2011). In order to analyze the effects of working capital management on the firm‟s financial performance, interest rate on members deposits as measure of financial performance was used as the dependent variable. The independent variable (working capital management) was measured by cash conversion cycle, current ratio, debt ratio and turnover growth. Spearman‟s Correlation analysis was used to establish the interdependence of working capital and financial performance variables. Regression analysis was used to establish the relationship between working capital management and financial performance. Findings of the study indicated that efficient working capital management leads to better financial performance of a SACCO, hence a positive relationship existed between efficient working capital management and financial performance variable. The conclusion of the study was that when efficient working capital management leads to better financial performance, then one should expect a negative relationship between measures of working capital management and the financial performance variable. It is recommended that SACCOs should manage their working capital efficiently and skillfully by holding it at an optimum level in order to achieve better financial performance