Working Capital Level, Working Capital Financing Approaches, Firm Size and Profitability of Manufacturing Firms in Uganda

Abstract

The purpose of the study was to examine the relationship among working capital level, working capital financing approaches, firm size and profitability of manufacturing firms in Uganda. The study employed a panel data that was unbalanced of cross sectional and time series where cross – sectional referred to the different firms and time series the five year period (2011 – 2015). A total population of 169 manufacturing firms was considered and data was obtained from 31 firms out of a sample of 116 and the response rate was 27%. Stratified and simple random sampling were used and as the study used only secondary data, audited financial statements were obtained from Uganda Revenue Authority. Prerequisite tests were carried out to meet the parametric assumption and these were; Shapiro – Wilk test for normality, a scatter plot was used to check linearity, a scatter plot was used for homoscedasticity and multicolinearity was gauged by the correlation matrix. The Positivism philosophy was employed as it is rational and objective and is generally characterized by the formulation and testing of hypotheses. A records survey sheet was used for collection of secondary data. The study used a descriptive statistics to describe relevant aspects of the phenomenon, Pearson correlation analysis was then used to check the relationship among the study variables and finally the data was deemed fit and therefore the regression analysis was carried out. Findings revealed that the influence of working capital level on firm profitability was not significant and this implied that null hypothesis (H1) was not rejected. Working Capital Financing had a positive though not statistically significant relationship with Working Capital Level and profitability and therefore null hypothesis (H2) was not rejected. The moderator of firm size between Working Capital Level and profitability was not significant and therefore Null hypothesis H3 was not rejected. Null hypothesis four (H4) was rejected because there appeared a statistically significant relationship among all variables combined and profitability. The findings of this study add to the frontiers of knowledge in the area of working capital level, working capital financing approaches, firm size and profitability of manufacturing firms. It can therefore be concluded that profitability can be enhanced if emphasis is put on all the independent variables combined together. This study helps financial managers to focus on having optimal levels of the working capital level constructs so as to enhance profitability. Future studies can consider carrying out the same study in different countries preferably those that are more developed than Uganda and researchers could consider using different measures for profitability.