The Relationship Between Working Capital Elements And Profitability In Kenyan Retail Chain Stores: A Case Study Of Uchumi Supermarkets

Abstract

The purpose of this study was to determine the relationship between working capital elements and profitability of Uchumi Supermarkets; the study further sought to establish the extent to which the various elements of the working capital affected profitability of the firm. The working capital elements that were investigated and analyzed in relation to the performance of the Return on Total Assets (ROTA) which was used as a measure of profitability in this study included total current assets, total current liabilities, total inventory, accounts receivable, accounts payable, current ratio and cash at bank at given end year periods. This was a case study of the Uchumi Supermarket Limited for the period between 2002-2011. The main source of data was the audited financial statements accessed from the library of Nairobi Securities Exchange at their head office branch located in Nairobi. A time series of the end of year figures of the targeted variables were collected and analyzed by use of the Statistical Package for Social Sciences (SPSS). The findings were presented in tables and graphs. Major research findings indicated that total current assets, total current liabilities, total inventory, current ratio and cash at bank had a positive correlation with ROTA while accounts receivable and accounts payable had a negative correlation with ROTA. However, only the cash ratio had a significant relationship at 0.01 level of significance. The main conclusion was that Uchumi Supermarkets had poor working capital management practices. The researcher recommends reduction of operational inefficiencies, implementation of robust credit control policy and enhanced leadership and planning of resources.