To Investigate the Effects of Working Capital Management on Corporate Profitability Among Firms Listed at Nairobi Securities Exchange

Abstract

To overcome competition in a very complex environment, few companies have been able to use the optimization of working capital as a real competitive advantage to leverage profit motivated the study with the objective of identifying the variables that most affect profitability through investigating the impact of working Capital Management on firms’ performance for non-financial institutions listed in Nairobi Securities Exchange (NSE) for the seven year from 2005 to 2011. The profitability was measured in two different ways: return on sales (ROS) and on asset (ROA). The independent variables used are cash conversion cycle, days of accounts payable, day’s receivable and day’s inventory. The results were obtained using Correlation Analysis for identifying the relationship between working capital management and firms’ performance. Multiple linear regressions has identified that in terms of ROS and ROTA are concerned, to manage working capital properly is relevant. From ANOVA it is evident that days inventory has negative relationship with ROS and ROTA. Days of accounts payable as the variable that influences ROS (positive relationship). These results show that managing working capital properly is important. Moreover, managing inventory as well as cash conversion cycle to an optimum level will yield more profit.