Effect of Cash Management on the Financial Performance of Small and Medium Business Enterprises in Nairobi County, Kenya
Abstract
This study focused on assessing the effects of cash management on financial
performance of small and medium enterprises in Nairobi County, Kenya. This study
identified liquidity management, receivable collection and cash cycle management
(cash conversion cycle) as the independent variables. The dependent variable of the
study was Net Profit Margin. There are several research studies done on cash
management and financial performance. Nonetheless, a large number of these studies
majored on diverse industries like insurance and manufacturing and not SMEs. This
study therefore sought to fill this gap.
This study used descriptive research design with the population consisting of 43,432
licensed Small and Medium Enterprises in Nairobi County, Kenya. Data was
collected from primary sources using Questionnaires and from secondary sources
using publications. Stratified Random Sampling method was employed to select a
sample size of 208 Small and Medium Enterprises in Nairobi County, Kenya. The
study also carried out correlation analysis and multiple regression on the data to find
the relationships between cash management components and financial performance
of SMEs in Nairobi County, Kenya.
The findings of the study show that majority of SMEs (56.7%) were involved in
Receivable Collection. However, only 46.2% and 45.7% were involved in liquidity
management and cash cycle management respectively. There was a weak positive
correlation between receivable collection (r=0.271), cash cycle management
(r=0.147), liquidity management (r=0.035) and financial performance of SMEs in
Nairobi County. 17.9% of financial performance could be attributed to receivable
collection and 9.2% attributed to cash cycle management. However, -1.4% of
financial performance could be attributed to liquidity management. The relationship
between cash management and financial performance was significant (The F-value of
6.523). However, with a weak R squared value of 0.088, it was concluded that there
are other variables affecting financial performance of SMEs in Nairobi County other
than cash management.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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