dc.description.abstract | The financial performance of any business organization is a very basic and important
criterion used to measure the effectiveness and success of the firm's operations. One way
in which a firm can gain competitive advantage is through effective management of its
working capital. This means the management of Cash Conversion Efficiency, Days of
Operating Cycle and Days of Working Capital. This study, therefore, sought to find out
the relationship between working capital management and financial performance in firms
in the coffee industry in Kenya. This was done through a time series correlation study in
which financial performance was the dependent variable and the three components of
working capital, namely, Cash Conversion Efficiency, Days of Operating Cycle and Days
of Working Capital were the independent variables. The study was a census study
targeting all the 40 firms registered by Kenya Coffee Traders Association. Historical
quantitative data for the period 2009 to 2013 was used in the research. The data including
cash flows from cash flow statements, the annual turnover and EBIT income statements
of the firms for the study period were obtained from the finance departments of the firms
being studied. Regression was used to determine the relationship between financial
performance and each component of working capital. The results show that the constant
term of the regression was positive and statistically significantly different from zero.
Secondly, the coefficient of cash conversion efficiency was negative and statistically
significantly different from zero. The coefficient of days operating capital was positive
and statistically significantly different from zero. The coefficient of days working capital
was negative and statistically significantly different from zero. The study, therefore,
recommends that other than focusing on working capital management only, firms in the
coffee industry should single out other factors and incorporate them in their profitability
drive; the coffee firms should be less aggressive in changing stocks to sales to make
higher profit the; the firms become more aggressive in reducing the time span during
which working capital is tied up within the company; and This research recommends that
the firms become more aggressive in collection of debts. | en_US |