The Relationship Between Working Capital Management And Profitability Of The Dairy Industry In Kenya: A Case Study Of New Kenya Co-Operative Creameries Ltd.

Abstract

The objective of this study was to establish the relationship between working capital management and profitability in the dairy industry with a case study of New KCC Ltd. 1 he aim study this was to find out effects of profitability by exploring the major variables that constitute working capital. The key factors explored by the study were: Inventory, debtors, cash and creditors. This was compared to net income which was a measure of profitability. The research study drew its focus into these factors which addressed the research objectives and research questions. A detailed literature review with theoretical review and critical analysis was presented. Also summary and gaps to be filled had also been identified. The data was derived from the financial statements of New KCC Ltd for a period of four years 2008-201 1 to analyse the relationship between working capital variable on the net income a measure of profitability. Pearson correlation and regression analysis were used to analyse data. There was a positive relationship between net income and accounts payable outstanding days and a negative relationship with inventory outstanding days, accounts receivables outstanding days which in turn influenced the cash conversion cycle. The results proposed optimal inventory levels to be maintained, prompt debt collection measures to be adopted as well as negotiated extended credit facilities with suppliers without compromise of their favourable relationship. This enhanced cash inflows that will provide revenue generation resulting to increased profitability. It is recommended that training and working capital awareness is vital as it will promote adoption of working capital management practices for the dairy firms staff .Academicians will have useful information critical to financial management especially in the working capital management thus are able to develop more robust working capital models. Policy makers will formulate policies that promote sound business environment especially during economic instabilities. Adoption of sound working capital management practices eventually promote profitability which in turn result to growth and more profitable investments amidst volatile economic market, increased costs of production, challenging weather conditions and a tough competitive regime.