The Relationship Between Working Capital Management Practices and Financial Performance of Agricultural Companies Listed at the Nairobi Securities Exchange

Abstract

Working capital is one of the vital decisions of financial management function. Profitability and working capital relationship is frequently emphasized for deciding on the level of investment in working capital. This study examined the relationship between working capital management and financial performance of agricultural entities in Kenya. The study adopted a Correlational or Prospective Research Design which attempted to explore the relationship between working capital management and financial performance to make predictions with the use of two or more variables for each. The target population consisted of the 7 agricultural companies listed at the Nairobi Securities Exchange. The data was analyzed using both descriptive and inferential statistics. Consequently, the findings of the study were that, financial performance was positively related to efficiency of cash management (ECM), efficiency of receivables management (ERM) and efficiency of inventory management (EIM) at 0.01 significance level. The coefficient of determination (R2) indicated that 59.7% of the variations in financial performance (FP) could be explained by changes in ECM, ERM and EIM. Agricultural companies in Kenya wishing to revamp their companies and improve profitability should thus focus on the area of efficient working capital management. It is without a doubt that the efficiency in working capital management practices as measured by efficiency in cash management, efficiency in receivables management and efficiency in inventory management has an influence on the growth rate of businesses’ sales, market share, profits and total assets and consequently plays a huge role in the financial performance of a company.