The Effect of Working Capital Management Practices on Performance of Universities and Colleges in Kenya

Abstract

Working capital management is focused on having an ideal balance between working capital variables namely, receivables, inventory, cash and account payables, its very critical in maintaining the corporate strategy and value creation in institutions, and it is one of the sources for competitive advantage in institutions (Deloof, 2003). The primary objective of the study is establishing the relationship between working capital management practices and financial performance of universities and colleges in Kenya. Descriptive and quantitative designs were used in the study, and the population of interest constituted all Kenyan public and private universities for the period of five years from 2011 to 2015.The quantitative research design was used in arriving at the findings of the study. The study found out that inventory turnover in days had negative relationship with Universities ROA, therefore financial performance will be improved by reduction in inventory holding days. APP has a huge positive association with Universities financial performance, CCC shows a significant negative relationship with Universities financial performance, thus the financial performance can be improved with small size of cash, ACP had a positive association with Universities financial performance. The study concluded that the universities and colleges financial performance strongly relates to the efficiency in management of working capital components, the institutions ROA and value can be created through shortening of the cash conversion cycles, reducing inventory in days, increasing supplier payment periods and reducing collection periods.