Effect of Working Capital Management Policies on Profitability Among the Cut Flower Companies in Kenya

Abstract

The core business activities of every organization are the root cause of its financial success. The company's day-to-day operations are impacted by management's choices on working capital, which includes inventories, short-term loans, accounts payables, and receivables. This research looks at how different types of cut flower companies in Kenya handle their working capital and how it affects their bottom line. The return on assets was used as the performance indicator, with the working capital management variables of average collection time, inventory turnover, accounts payables period, and cash conversion cycle all being used. The return on investment was another metric used to evaluate company success (CCC). Secondary data from 85 cut flower companies in Kenya. This research uses a variety of statistical methods, including Pearson's Bivariate Correlation, multiple regression, and analysis of variance, to get the conclusion that WCM has a significant effect on the financial results of the businesses studied. Both the ACP and CCC demonstrated statistically and practically significant negative correlations with ROA (ROA). A negative link was found between ICP and ROA, while a positive correlation was found between APP and ROA, however neither association was statistically significant. However, these two pairings were diametrically opposed to one another. These results suggest that reducing ACP, CCC, and ICP would significantly increase ROA for manufacturing firms. The combined effects of the ACP, ICP, APP, and CCC were shown to explain 37.2% of the variation in ROA between businesses in the regression analysis. WCM was shown to be consistent with value maximization and value seeking. Management should regularly evaluate the impact of working capital on profitability in order to optimize shareholder value. No matter how large or profitable a company is, or how diverse its assets may be, managers know that they must have a steady supply of working capital if they want to maintain operations and develop their business.