The Effect of Working Capital Management on the Profitability of Agricultural Firms Listed in Nairobi Securities Exchange

Abstract

Working Capital Management involves management of current assets and liabilities of an institution. Proper management is critical in order for a firm to improve on its productivity. The main objective of the study was to establish the effect of working capital management and financial performance of agricultural firms listed in NSE. The research used both descriptive and quantitative research design. The population for the study constituted all agricultural companies quoted at the NSE for the period of four years from 2009 to 2012 which are seven in number. The quantitative research approach was used. The study found out that inventory turnover in days has negative relationship with Return on Assets from the regression model, which means that companies ‘financial performance can be increased by reducing inventory in days. Cash Conversion period and Net payment period shows significant negative relation with Return on Equities showing that firms ‘financial performance can be increased with reducing the number of days in both of them. The study therefore recommends that there should be a proper trade-off between profitability and risk. The profitability of agricultural firms listed in the NSE is dependent on great working capital management. The study recommends that managers of these firms should work on reducing their cash conversion cycles, negotiate for better payment terms with suppliers and collect receivables as soon as possible from their clients in order to be more profitable.