dc.description.abstract | Management of working capital aimed at maintaining an optimal balance between the
working capital and units such as cash receivables, inventory and payables which is
fundamental section of overall corporate strategy that creates value thus important
source of competitive advantage in business. For a company to operate optimally, it
must have a positive working capital to ensure that it is able to continue its operations
and to have sufficient funds to satisfy both maturity short-term and upcoming
operational expenses. In conclusion, research on effect of working capital
management on profitability and company’s performance on three star hotels in
Nairobi County has not been comprehensive thus creating a research gap that needs
attention. Due to this knowledge gap, the study sought to answer the research question
of whether there exists an effect of working capital on company’s financial
performance of three star hotels in Nairobi County. Further the study sought to answer
the research question of whether there exists an effect of working capital on
company’s financial performance of three star hotels in Nairobi County. The study
establishes that possessing a lower average collection period is seen by the three star
hotels as optimal, since this means that it does not take them very long to turn its
receivables into cash. This owes to the fact that these hotels need cash to pay off their
own expenses (such as operating and administrative expenses) including suppliers
who deliver food products to them on credit. They also tend to have a longer accounts
payable period so as to maintain a high current ratio and avoid operating in negative.
Monitoring the working capital is important for the three star hotels’ cash flow and its
ability to meet its obligations when they are due. However, they optimize this to
ensure that their credit worthiness is not tainted, and take advantage of discounts
including avoiding accruing interest rates unnecessarily. The three star hotels also
monitor their inventory conversion period to ensure that it is as short as possible since
conversion period is negatively correlated with profitability. If conversion period is
longer, the three star hotels will take longer to pay off their suppliers and meet their
financial obligations. | en_US |