The Effect of Working Capital Management on the Financial Performance of Water Service Providers in Kenya

Abstract

Working capital represents the amount of day-by-day operating liquidity available to a business. Working capital management entails managing short term assets and short term liabilities of the firm whereby working capital is equal to current assets minus current liabilities. There is need to properly manage working capital to ensure that there is optimal working capital in the firm all the time to enhance profitability since majority of businesses tend to fail due to improper management of firm’s working capital. Water sector is very important in the economy and the inclusion in the constitution of Kenya of the right to water and sanitation puts demand on water services providers in Kenya to deliver on their obligation yet very little research has been conducted for these water service providers hence leaving a gap that need to be bridged so as to provide recommendations to help boost performance of this sector. This study therefore sought to find out the effect of working capital management on the performance of water service providers in Kenya. Many studies have been reviewed as well as the theories that shows the importance of the management of working capital in this study. The population of the study consisted of 65 urban water service providers in Kenya as at year 2015. Secondary data which was collected from audited financial statements by Kenya National Audit Office (KENAO) and Wasreb reports was used in this study. Data was analyzed using inferential statistics, that is, correlation and regression analysis. The findings of this study showed that, ROA has a positive relationship with current ratio but negative relationship to payable ratio, firm size, and collection efficiency. This was an indication that both payable ratio, firm size, and collection efficiency were indirectly proportional to ROA, in which case an increase in any of; payable ratio, firm size, and/or collection efficiency, would cause a decrease ROA and vice versa.