Influence of working capital management on profitability of flour milling companies in Kenya

Abstract

Effective working capital management is critical for organizational growth. This study examined the influence of working capital management on profitability of flour milling firms in Kenya. The study explored how cash management, accounts receivables management, accounts payables management, and inventory management influence profitability of firms in the flour milling industry. The theories that guided this study were operating cycle theory, Miller-Orr model, Baumol model and cash conversion cycle theory. Descriptive study design was used and secondary data was collected for the study. The target population was thirty-six flour-milling firms in Kenya. Data collected was analyzed using SPSS version 21 to produce frequencies, descriptive and inferential statistics. The study conducted a multiple regression analysis to determine the relationship between working capital components and profitability of the firms. Findings from the study indicated that working capital management influenced profitability of flour milling firms and accounted for 73.8% of variations in profitability among the firms. Accounts receivables management, accounts payables management and inventory management had a negative and significant relationship with profitability of flour milling firms in Kenya. Cash management had a positive relationship with profitability of the firms. Based on the findings and conclusions, the study recommended that managers of the firm should develop effective policies in accounts receivables management, accounts payables management and inventory management that reduce the measurement periods to observe an improvement in firm profitability.