Effect of Working Capital Management on Financial Performance of Small and Medium Scale Enterprises in Mombasa

Abstract

Firms are incorporating several metrics to enhance the performance in the fast-paced business environment. Working capital management (WCM) is pivotal in the firm stability and its general performance. Subsequently, continuous improvement requires firms to be cognizant of working capital management. It is the cornerstone for the business's financial sustainability, solvency, expansion and diversification. It ensures that the net current asset is managed prudently and efficiently. The mandate of the study was to explore the effect of working capital management on the financial performance of small and medium enterprises in Mombasa County. This study epitomized descriptive research design to expound on causal association. Moreover, this experimentation prioritized the sampling method due to the large number of SMEs in Mombasa County. The research chose the convenience sampling method by prioritizing the top best 50 SMEs ranked by SMEA. Consequently, the data collection was undertaken in a period of 5years spanning from 2017-2021. This research period was central to the provision of the most updated information. In addition, the data analysis was spearheaded via the maximization of SPSS. The secondary data generated was passed through comprehensive review, classification, coding and analysis. Therefore, ANOVA test conducted portrayed statistical significance since the significance figure 0.000< p (0.05). Further, the F statistics value was 29.390, sum of squared regression was 2.618 and mean squared was 0.655 with 4 degrees of freedom. Nevertheless, sum of squares residual was 5.456 whereas the mean squared residual was 0.022 with 245 degrees of freedom. In addition, the autonomous value for the financial performance whenever everything was maintained unchanged was 79.4%. However, an increment by solitary unit of the account receivables triggers a corresponding though insignificant negative 1.5% financial performance in cases where other enabling factors are maintained constant (=-0.015; p=0.058>0.05). Whereas, account payable average pinpointed an inverse simultaneous and significant interrelation with financial performance of 11.1% whenever all variable are maintained unchanged β=-0.111, p=0.000<0.001). On the other part, an increment in inventory management by a single unit replicates a corresponding inverse and insignificant connection towards the financial performance by 1% when all factors are maintained constant (β=-0.010, p=0.067>0.05). To wrap-up, increase in cash management signified positive and significant increment on the financial performance by 11.1% whenever all factors are kept constant (β=-0.741, p=0.000<0.001). The study concluded by recommending further study on the energy and manufacturing sector.