Effect of Working Capital Management on Financial Sustainability of Non-governmental Organizations With Income Generating Activities in Kenya

Abstract

The study’s objective was to establish the effect of working capital management on financial sustainability of NGOs with income generating activities in Kenya. The paper had operating surplus ratio as the dependent variable and average collection period, current ratio, acid ratio and cash ratio as the independent variables. Descriptive and cross-sectional design was used and with a populace of 33 NGOs in Kenya while utilizing Secondary data. Mode of statistical data with the aid of SPSS was Descriptive statistics and inferential statistics. The study found out that that Average Collection Period, Current Ratio as well as Acid Ratio and Cash Ratio had a 92.6% impact on the financial sustainability of NGOs with income generating activities in Kenya depicting a strong relationship and that working capital management is vital in influencing the financial sustainability of NGOs with income generating activities in Kenya. The results also showed that the P value was 0.000. This exhibited that the regression model was substantial and the model was fit. It was also evident that the financial sustainability of NGOs with income generating activities depend 0.004 of average collection period. Importantly, at 95% confidence level, the financial sustainability of NGOs with income generating activities had a level of significance of less than 0.05 with Average Collection Period at 0.000 level of significance indicating that it influences Financial Sustainability. Current Ratio at 0.225>0.05 level of significance, Acid Ratio at 0.447>0.05 level of significance and Cash Ratio at 0.860>0.05 level of significance did not influence Financial Sustainability of Income generating activities NGOs. This led to a conclusion that Average Collection period influences Financial Sustainability while Acid Ratio, Current Ratio and Cash Ratio did not influence Financial Sustainability of NGOs with income generating activities. Further, the researcher came to a conclusion that ACP, current ratio and acid ratio have an effect on operating surplus ratio and recommended that the state ought to implement policies to alleviate the adverse effects of financial sustainability among NGO’s. Additionally, the outcome prompted a conclusion that ACP, current ratio, acid ratio and cash ratio have 92.6 % impact on financial sustainability of NGOs with income generating activities in Kenya meaning that 7.4% is as a result of other factors hence a recommendation to do more research involving all factors affecting financial sustainability. Also, the research recommends that further studies to consider the use of primary data sources to help to give in-depth information and reliable data in determining the bearing of working capital management on financial sustainability of NGOs with income generating activities in Kenya.