| dc.description.abstract | Working capital management involves the management of the most liquid resources of the firm which includes cash and cash equivalents, Inventories and trade and other receivables. Most firms do not hold the correct amount of working capital and this has been a major obstacle to their overall profitability. The study examined the effect of working capital management on profitability of the five star hotels in Nairobi. A sample of four five star hotel in Nairobi out of the targeted population of seven were used, the period under study was between the year 2009 to 2013. Multiple Regression analysis model was used to determine the effect of independent variables on the dependent variable. Correlation coefficient was used to investigate how the independent variables inter-relate with the dependent variable. Analysis of Variance (ANOVA) was performed to determine the impact of independent variables on the dependent variable in the multiple regression analysis. The study established that there exist a highly significant negative relationship between the time it takes for firms to collect its cash from their customers or Days Sales Outstanding and profitability, and also there is a strong positive relationship between days payables outstanding and profitability. The relationship between the Cash Conversion Cycle, Days Inventory outstanding and profitability was found to be statistically insignificant. The findings imply that more profitable firms take shortest time to collect receivables from their customers, and wait longer to pay their bills by withholding their payment to suppliers so as to take advantage of the cash available for their working capital needs, it also makes economic sense in that, the longer a firm delays its payment to its creditors the higher the working capital levels it reserves and uses it in order to increase profitability. The study recommends that managers should focus on collecting receivables as quickly as possible and lag payment of creditors as long as it does not strain their relationship, so as to maximize the profitability of their firms. | en_US |
