Relationship Between Working Capital and Profitability of Listed Companies in the Nairobi Stock Exchange
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Date
2008Author
Chege, Ng' ang' a S
Type
ThesisLanguage
enMetadata
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The aim of the study is to assess the relationship between working capital and profitability. The
corporate finance literature has traditionally focused on the study of long-term financial
decisions. Researchers have particularly examined investments, capital structure, dividends or
company valuation decisions, among other topics. However, short-term assets and liabilities are
important components of total assets and needs to be carefully analyzed. Management of these
short-term assets and liabilities warrants a careful investigation since the working capital
management plays an important role for the firm's profitability and risk as well as its value .The
optimal level of working capital is determined to a large extent by the methods adopted for the
management of current assets and liabilities. It requires continuous management to maintain
proper level in various components of working capital that is cash, receivables, inventory and
payables.
The researcher studied 23 firms, a sample of firms listed at Nairobi Stock Exchange (NSE) for a
period of2003-2008. The return on assets has been used as the dependant variable whereas cash
conversion cycle, accounts receivable period, accounts payable period, inventory period and
leverage were used as independent variables. Multiple regression analysis and descriptive
statistics were used to analyse the collected data. Empirical findings of the study show that
accounts receivable period, accounts payable period, inventory period and cash conversion
cycle affect the firm profitability negatively. Finally, the study suggests some policy
.•.
implications for the managers and investors of Kenyan market
Sponsorhip
The University of NairobiPublisher
School of Business