dc.description.abstract | This research project sought to establish the relationship between working capital
management and profitability of companies in the electric power sub-sector in Kenya. The
research project covered the conceptual and empirical analysis of companies in the electric
power sub-sector responsible for generation, transmission and distribution of electrical
energy in Kenya. A total of six companies responded from the year 2008-2013 financial
years. Components of working capital such as cash conversion cycle, average inventory
period, average payment period and average collection period were examined and how each
of these variables relate with profitability measured by the gross operating margin. The study
also included control variables such as debt ratio, current ratio and size of the firm. The study
was analysed using descriptive statistics, Pearson’s correlation coefficient and multiple linear
regression models. The study established that the average collection period was negatively
related to profitability of firms in the electric power sub-sector in Kenya. This implies that
managers can create value for their firms by reducing the number of days in collecting
receivables. The other variables like average inventory period, cash conversion cycle and
average payment period were positively related to profitability. The average inventory period
was positively related to profitability implying that management of firms need to increase
inventory to avoid stock-outs to ensure difficulties of procuring materials to meet customer
demands are minimised. The average payment period was positively significant in relation to
profitability meaning that management should delay payment of suppliers to have enough
cash to buy more inventory and increase sales hence improved profitability. It is a positive
venture, as long as this policy does not compromise the relationship between suppliers or
creditors and the companies in the electric power sub-sector in Kenya. This leads to the
conclusion that indeed working capital management is important in profitability of firms in
the industry. | en_US |