The Effect Of Working Capital On Financial Performance Of Manufacturing Firms In Nairobi County

Abstract

The objective of the study was to assess the effect of working capital on financial performance of manufacturing firms in Nairobi County. Business success depends heavily on the ability of financial managers to effectively manage the components of working capital. Efficient working capital management includes planning and controlling of current liabilities and assets in a way it avoids excessive investments. This study was conducted using descriptive research design to determine the frequency of occurrence or extent to which the variables were related. Stratified random sampling method was used to select 43 manufacturing firms from a population of 424 manufacturing firms in the 12 sectors as categorized by Kenya Association of Manufacturers in Nairobi County. The researcher relied on secondary data from audited financial statements to obtain data relating to the research question. The data was analyzed through the use of regression analysis and correlation analysis. The correlation Coefficient and Coefficient of determination were used to test whether the expected values of quantitative variable with several pre-defined groups differed from each other. The study found that there is a significant effect of working capital management on financial performance of manufacturing firms in Nairobi County. The study recommends that there should be proper credit management in manufacturing firms to avoid over investment in accounts receivables. The study also recommends proper inventory management to avoid overstocking which could negatively affect financial performance. The study further recommends policies governing leverage so as to allow manufacturing firms capture opportunities in the market while maintaining an optimal level of leverage