Effect of Trade Receivables Management on the Profitability of Manufacturing Firms Listed in the Nairobi Securities Exchange
Abstract
Trade receivables arise in the day to day running of any firms. This is where firms sell
goods to customers on credit with the premise that the customers will pay within an
agreed period. This can lead to an increase in sales and also profits. However if the trade
receivable is not collected within the agreed period it will lead to bad and overdue debt
which will eventually result to reduction in profit.
This project investigated the relationship between trade receivables management and the
profitability of the nine firms listed under the manufacturing and allied sector in the
Nairobi Securities Exchange for the period 2011-2015. Profitability was measured using
the Return on Assets. On the other hand accounts collection period, bad debt to
receivables ratio and accounts receivables turnover were used to quantify the trade
receivables management measures of the firms.
A descriptive research design was used in this study. The findings of the study were
arrived at using the quantitative research method. The extent and nature of relationship
between the various variables under study was identified using correlation and regression.
Relationships among the dependent and independent variables and instances of multicolinearity
were evaluated using the Pearson correlation analysis. The study concluded
that Accounts Collection period, bad debt to receivables ratio and accounts receivables
turnover contribute to 24.7% of the overall profitability. The study concluded that the
accounts collection period has a significant and negative effect on profitability while bad
debt to receivables ratio had also a negative and but insignificant effect on profitability.
However accounts receivables turnover had a positive but insignificant effect on
profitability of manufacturing and allied firms listed in the NSE. The study recommended
that a firm should structure its credit policy in such a way that it results to a reduction of
its accounts collection period which has a significant effect on its overall profitability
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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