dc.description.abstract | Working capital management is a critical component of corporate finance because it directly affects the
liquidity and profitability of the company. A firm's value cannot be maximized in the long run unless it
survives the short run. Profitability and working capital relationship is frequently emphasized for
deciding on the level of investment in working capital. The study sought to establish the relationship
between Working Capital Management and profitability for reinsurance companies in East Africa. The
study covered the entire population of six reinsurance companies’ in East Africa as at 1st January 2009.
The data covered a period of five years from 2009 to 2013. The study was carried out through the use of
secondary data as detailed in financial statements of the companies’ annual audited reports and their
websites. The data collected was analyzed using descriptive and quantitative techniques. Regression
analysis was used to determine the relationship between working capital management and profitability.
The variables relating to working capital management for manufacturing firms includes debtor turnover
days, creditors payable days, inventory period and cash conversion cycle. This study was to establish if
this relationship exists for reinsurance companies which do not hold inventory. The study utilized the
following variables; return on assets, debtors turnover days, creditors payable days, current ratio, age
and natural logarithm of sales. The findings of the study show that debtors turnover days and current
ratio are negatively related to return on assets while creditors payable days, age and natural logarithm
of sales are positively related to return on assets. The study concludes that there exists relationship
between Working Capital Management and Profitability of reinsurance companies in East Africa.
Managers can create profits for their companies by managing and keeping each different component of
working capital (accounts receivables, accounts payables, inventory) to an optimum level. They should
collect their debts as quick as possible and delay payment as much as possible taking into consideration
not to strain their relations with suppliers. The study recommends that reinsurance companies should
ensure that they have a framework on managing the working capital since it has direct impact on their
profitability | en_US |