The relationship between working capital management and financial performance of supermarkets in Nairobi county

Abstract

Working capital management is an important issue in any organization. This is because without proper management of working capital components, it’s difficult for the firm to run its operations smoothly. This issue has not received the attention from scholars in Kenya and especially for the supermarkets. The study therefore sought to establish the relationship between working capital management and financial performance of supermarkets in Nairobi County. The study employed a descriptive survey design. The population of this study was the seven major supermarkets operating in Nairobi County but only six agreed to take part in the study. Secondary data was extracted from the audited annual reports and financial statements of the six major supermarkets in Nairobi County for a five year period from 2009 to 2013. The collected data was organised into SPSS and analysed using descriptive analysis, correlation analysis, and regression analysis. The study found that the model accounted for 75.3% of the variance in performance as shown by the R2. The F-statistic of 14.637 was significant at 5% level of significance which shows that the model was fit to explain the relationship between working capital management and performance of supermarkets. The study found that inventory collection period and fixed asset turnover had negative effects while average collection period, accounts payable days, and leverage had positive effects on financial performance of supermarkets. However, the effects of average collection period and accounts payable days were weak at 5% level while that of the rest of the variables were strong. The study concludes that financial performance of supermarkets in Nairobi County is influenced by the inventory collection period, leverage and fixed turnover ratio. The study therefore recommends that supermarkets should manage their inventory collection periods better in order to improve their performance. They should also improve their fixed asset turnover as the current levels are not successful at improving their financial performance.