The Effect of Working Capital Management on Profitability of the Manufacturing Firms Listed at The Nairobi Securities Exchange
Abstract
The main objective for carrying out this research was to establish the effect of working
capital management on the profitability of the manufacturing firms that are listed at the
Nairobi securities Exchange. The objectives of this study included the determination of
the effect of inventory conversion period, effect of cash conversion cycle, effect of
average collection period and the effect of the payables period on the profitability of the
listed manufacturing firms at the NSE. Return on Assets (ROA) was used as a measure
for profitability. The study employed the use of descriptive design to describe the effects
of working capital management on firm profitability. The study’s population consisted of
all the 9 manufacturing firms that were listed at the NSE from 2017 to 2021. Secondary
data was used to collect data which was obtained from the annual financial reports of the
manufacturing firms listed at the NSE for the period 2017 to 2021. Stata version 14 was
used to enter the collected data and analysis was done through the aid of multiple linear
regression method. The research discovered a negative correlation between average
receivables period, average payment time, and leverage ratio for manufacturing firms
listed on the Nairobi security exchange indicating that a reduction in the accounts
receivable time will increase profitability and vice versa. This suggested that firms who
collect their debts early generate more profits than those that collect their receivables late.
Firm size has a substantial beneficial influence on profitability, as assessed by ROA, with
a p-value of 0.032 compared to the conventional significance values of 0.05 and 0.01.
However, the other components (average receivable period, inventory period, liquidity
ratio, and leverage ratio) are less significant than the traditional significance levels of
0.05 and 0.01. In consequence, the cash conversion cycle slowed as businesses, on
average, delayed to pay their suppliers. Because of this, the CCC has a positive impact on
company profits. This study concludes that WCM is significant since it influences a
company's profitability and liquidity, and hence it’s of value and thus, effectively
managing working capital will improve managerial performance
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1516]
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