The relationship between working capital management and profitability of mobile phone network operators in Kenya

Abstract

Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. A firm is required to maintain a balance between liquidity and profitability while conducting its day to day operations. Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations on the one hand and avoid excessive investment in these assets on the other hand. The ultimate objective of any firm is to maximize the profit. To examine the relationship between working capital management and profitability of mobile phone network operators in Kenya. This research used descriptive research designs. The target population of this study comprised of all the 4 mobile phone network operators in Kenya for the 5-year period 2009 – 2013. Census was carried out due to the small number of mobile phone network operators in Kenya. The data for this research shall be collected from secondary sources. The financial reports were obtained from company’s publications and websites. Descriptive data analysis techniques were used to analyze the data. To test the relationship between working capital management and profitability, the following was considered where profitability is dependent upon working capital management parameters. The study found out that, there is no significant relationship between Accounts Receivable Turnover in Days and profitability. The study found out existence of negative correlation between Return on Assets and the firms Accounts Receivable Turnover in Days. However, the study findings suggest that there is a positive correlation between Current assets to sales, Accounts Payable Turnover in Days, Current Liabilities to Total Assets and Return on Assets. The study recommends a longer credit period for the firms to realize higher profitability. The mobile operators firms should be cautious in formulating working capital policy.