Effects of Management of Cash Flow on Profitability of Commercial Banks in Kenya

Abstract

The practice of management of cash flow is becoming increasingly popular in Kenya as a result of the multiple benefits it offers. Numerous corporate entities in Kenya are implementing cash management models in an effort to ensure well-organized cash management that will result in enhanced financial success for all parties involved in the firm. The purpose of this project was to assess the consequence of management of cash flow on commercial banks profitability in Kenya. This study was hinged on Cash Conversion Cycle Theory, Baumol Model, Free Cash Flow Theory as well as the model of Miller-Orr and was guided by descriptive design and targeted 40 commercial banks operating in Kenya for secondary data. The data was analyzed through descriptive statistics of which percentages, mean and frequencies as well as multiple linear regression. The result indicated that management of investing cash flow, operating management of cash flow and free management of cash flow influenced significantly and positively on the profitability of the commercial banks, while others had a negative effect on banks such as financing management of cash flow. Some of the Recommendations from this study included that commercial banks through their management should raises resources for investment, encourage investing cash and come up with sound cash management policies that will bring more confidence to investors and shareholders to invest more in their financial business. Moreover, banks should have adequate operating and free cash for optimal operation of their activities that would eventually positively influence their profitability, but minimise on the financing cash.