The Effects of Working Capital Management on the Profitability of Pharmaceutical Manufacturing Companies in Kenya

Abstract

Despite the extensive studies on manufacturing firms in Kenya, there has not been conclusive research on effects of WCM on the profitability of pharmaceutical manufacturing firms in particular. The research sought to assess how profitability for the 23 pharmaceutical manufacturing companies in Kenya was affected by working capital management components based on a descriptive research design. The audited financial statements from the sampled firms for the periods 2016-2020 were the source of data. Multivariate regression was used for analysis. From the regression analysis, the average payment period showed a positive effect on profitability. It therefore concludes that average payment period has a positive effect on the profitability of pharmaceutical firms in Kenya. An insignificant increase in cash conversion cycle was found on profitability. The research concluded that cash conversion cycle has no significant effect on profitability of pharmaceutical manufacturers in Kenya. The research discovered that inventory turnover days had a negative but insignificant effect on profitability of pharmaceutical firms in Kenya. The company size was found to have a significantly positive coefficient with profitability; hence, size depicts a positive effect on profitability of pharmaceutical firms in Kenya. Debt to asset ratio (leverage) was ascertained to have a positive and insignificant effect on profitability. Hence, leverage has no significant effect on profitability of pharmaceutical manufacturers in Kenya. The research suggests that pharmaceutical manufacturers in Kenya should assess working capital components and ensure that they get optimal levels whilst focusing on their growth strategies to improve financial performance