The Effect of Working Capital Levels on Firms’ Value of Listed Agricultural Manufacturing Companies in Kenya

Abstract

The economic growth in Kenya is anchored on agricultural manufacturing sector that is significantly driven by working capital levels among many varying factors for firms’ value. This is to ensure that agricultural companies operate into the future with a reason to build up Kenyan economy and improve local agricultural companies operational activities for effective and efficient production cycles. This therefore confirms that economic development of a country is exhibited by a well-functioning agricultural manufacturing sector which is enhanced significantly by effective working capital levels Deloof, M. (2003). Working capital levels play an important operational role by managing production runs to ensure continuous and effective usage of raw materials to produce agricultural products that are then supplied to the customers at the right time for value. This creates an economic platform for Kenya’s local market and also foreign market through proper management of days sales outstanding, days inventory outstanding and days payable outstanding.The firm value can be explained by the determinants of working capital for efficient and effective operating cycle of manufacturing agricultural companies in Kenya. This study established effect of working capital levels on firm value of listed agricultural manufacturing companies in Kenya. The study used a descriptive research design on a population of interest for this study was seven (7) listed agricultural manufacturing companies including Sasini ltd, Kapchorua tea ltd, Rea vipingo ltd, Limuru tea ltd, williamson tea ltd, Eaagads and Kakuzi tea ltd that were in operation during the period 2012 to 2016. It applied secondary data that was extracted from published financial reports of the listed agricultural manufacturing companies which related to the association between working capital levels and firm value in a five year period of time from 2012 to 2016. The data collected was clean and analytically organized in a form that facilitated analysis using the Statistical Package for Social Sciences (SPSS). The study found out that the variations in the three determinants of working capital levels explained the changes in the firms’ value by 69.3% depicting the model as statistically significant and therefore concluded that there existed significant association between the working capital levels and firms’ value of listed agricultural manufacturing companies in Kenya. Also, working capital levels had a positive and important effect on value of the firm in agricultural manufacturing industry. The study’s recommendations included the need for listed agricultural manufacturing companies in Kenya to exercise caution on operating cycle activities that ignites the finite value through daily activities, the need to extend the accounts payable days through suppliers credit policy agreeable to enhance increased value in agricultural industry and the need for firms management in the agricultural sector to institute efficient credit policy that would reduce the time period for receipt of money from credit customers as well as stringent credit policy which would increase efficiency in firm’s ability to collect cash to invest and re-invest in available investment opportunities.