Effects Of Working Capital Management On The Profitability Of Firms Listed At The Nairobi Securities Exchange

Abstract

Working capital management is a crucial element of corporate finance because it affects the liquidity and profitability of a firm. Efficiency in Working Capital management is very vital in management of all firms since it enables proper growth and expansion. A descriptive research was done on the effect of working capital management on profitability of institutions listed at NSE. Data entailing a five-year period (2014-2018) was collected for 64 firms registered at NSE. The information was obtained from CMA, CBK, NSE and firms under study websites. Multiple regression, correlation and descriptive analysis was done. From the descriptive analysis, ROA displayed a mean annual average of 0.2267. The mean cash conversion period is 118.3832 days, the average collection period mean is 184.7706 days, mean average payment period 245.891 days. On average, businesses are in 264.4687 days of inventory converting stocks to sales, the leverage level mean is 13.5025 and the growth mean is 10.376. R2 adjusted value was 0.616543, indicating that 61.6 per cent of the changes in ROA are reflected by independent variable (CCC, ACP, APP, Inventory turnover, Firm size, leverage and growth). Findings from Pearson's coefficient of correlation represent a significant positive association amongst ROA and cash conversion cycle (rho=0.773). A poor negative significant association between ROA and ACP (rho=-0.463), the findings also showed that association between APP and return on assets (rho=0.618) is strongly positive. The correlation amongst stock turnover and ROA (rho=-0.652) was strongly positive. Therefore, there has been a noteworthy positive association amongst firm size and ROA (rho=-0.216), there has been a significant positive association amongst leverage and ROA (rho=-0.523). Eventually, there was a noteworthy positive correlation amongst growth and return on assets (rho=0.013). The research recommends an organization should increase their average collection period, inventory turnover periods, leverage, size of the firm and cash conversion period so as to increase their presentation.