| 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 analyzed the effects of working capital management on the
profitability of manufacturing firms listed on the Nairobi Securities Exchange. The study
objectives were to; analyze the relationship between average collection period and profitability
of listed manufacturing firms, assess the relationship between inventories turnover in days and
profitability of listed manufacturing firms, establish the relationship between average payment
period and profitability of listed manufacturing firms and to evaluate the relationship between
cash conversion cycle and profitability of listed manufacturing firms. The study utilized a
descriptive research design and targeted the 9 listed manufacturing firms trading on the Nairobi
Securities Exchange. However, the study only covered 7 of the targeted manufacturing
companies, 2 were not trading at the time of the study. Data was obtained from document
analysis of consolidated financial reports of years ending December: 2009, 2010, 2011, 2012 and
2013. Multiple regression and correlation analyses were carried out on the data to determine the
relationships between components of working capital management and the gross operating profit
of the firms. The study established that gross operating profit was positively correlated with
Average Collection Period and Average Payment Period but negatively correlated with Cash
Conversion Cycle. The relationship between Inventory Turnover in Days and gross operating
profit was insignificant. Profitability of manufacturing firms depends upon effective working
capital management. The study therefore recommended that managers should focus on reducing
cash conversion cycles, collect receivables as soon as possible because it is better to receive
inflows sooner than later and delay payment of creditors in order to invest the money in short
term securities which are profitable. | en_US |
