| dc.description.abstract | Working capital management is the management of short term financing requirements of a
firm. This includes maintaining optimum balance of working capital componentsreceivables,
inventory, payables- and using the cash efficiently for day to day operations.
Optimization of working capital balances means minimizing the working capital
requirements and maximizing possible revenues. Efficient WCM increases firm’s free cash
flow, which in turn increases the firm’s growth opportunities and return to shareholders.
The following are the objectives of this study: To establish the working capital management
policies among Micro Finance Institutions with a bias towards Deposit Taking Institutions in
Kenya and to examine the relationship between working capital management and
profitability in deposit taking Micro Finance Institutions in Kenya.
The study employed a descriptive design to explain the relationship between working capital
policies and profitability. The population study comprised all deposit taking MFIs as at 2011,
as licensed by the CBK at the end of 2011. The financial statements of these DTMs for the
year 2011 were used to extract data pertaining to working capital practices and profitability.
Multiple linear regression models were used to establish the relationship between the two
variables.
The study findings indicated that there was a significant relationship between working capital
management policies and ROA (measure of profitability). A negative correlation existed
between ROA and all the working capital components analysed (WCC, DTD, CPD, ATO),
meaning that no significant component contributed to working capital management and most
important that a reduction in either of the components ratios (days) led to an increase in the
profitability (ROA).
The study recommends that, it is critical for financial managers to observe closely all their
working capital components in order to improve on their overall profitability, for the survival
of the organization. The DTMs most of whom have recently been licensed into operations by
the CBK, need especially take keen interest on their working capital components especially
their Creditor Payable Days to create a correct balance and also maintain profitability as they
are also in business and for long term survival. | en |
