Effects of Working Capital Management on Financial Performance of Energy and Petroleum Companies Listed at Nairobi Securities Exchange

Abstract

The Kenya’s Vision 2030 plan has identified Energy and Petroleum sector as a key foundation and one of the infrastructural enablers upon which the economic, social and political pillars of its long-term development strategy will be built. However, energy and petroleum sector in Kenya faces challenges such as low access to energy, high costs, irregular supply as well as heavy capital investment requirements. Such challenges have made Energy and Petroleum companies to maintain either excessive or inadequate working capital levels. The objective of the study was to establish the effect of working capital management on the financial performance of Energy and Petroleum Companies listed at the Nairobi Securities Exchange. The census research adopted a correlation design. A data collection sheet was used to collect secondary data from the published financial statements of all Energy and Petroleum companies listed at Nairobi Securities Exchange for a period of eight years between 2007 and 2014. Both descriptive and quantitative analyses were adopted. Pearson correlation, regression and ANOVA analysis were conducted. The research indicated that WCM influence the ROA significantly. 17.8% of the variations in profitability was influenced by variations in WCM. The study established that the influence of WCM on profitability is statistically significant. It is therefore incumbent upon the Finance Managers of Energy and Petroleum companies listed at NSE to understand the business operations, and put in place robust WCM policy framework because of its implications on the financial performance of these companies. Adoption of these recommendations will lead to a vibrant and profitable Energy and Petroleum sector which is key to the achievement of Kenya’s Vision 2030.