dc.description.abstract | Working capital management approach is one of the most important decisions that
company managers consider for effective financial management. The relationship
between firm’s profitability and working capital management approach is frequently
emphasized for deciding on the level of investment in working capital. This study
examined the relationship between working capital management approach and financial
performance of all agricultural firms listed in the Nairobi Securities Exchange (NSE),
Kenya. A diagnostic research design was used to determine the association of working
capital management approach with company’s financial performance. The data was
obtained through document analysis of annual consolidated financial reports of years
ending December: 2009, 2010, 2011, 2012, and 2013 of all companies as published by
the Nairobi Securities Exchange and Capital Markets Authority (CMA). The regression
analysis was performed for each company to establish the relationship between the
Return on Assets and the working capital management approach. The results indicated
that Limuru tea Limited was the most profitable agricultural company (Return on Asset:
ROA = 46.48%) while Eagards was the least profitable (ROA = 4%). There was
significant difference between the companies profitability estimates (ANOVA P =
0.0005, F = 5.96, df = 6) probably because each firm has different proportion of total
assets, which technically influences how much profit each company makes. Statistically,
each company employed a different working capital management approach (ANOVA: P
= 0.002, F = 4.55, df = 6). However, the working capital management approach was less
than 50 % in all companies suggesting that the companies used different levels of
conservative working capital management approaches. However, that the management
approach for Kapchorua tea; Reavipingo and Williamson companies adopted less
conservative approaches. The strong negative regression association (r2 = 0.73) between
ROA and working capital management approach adopted by Sasini limited indicated
significant effect of the working capital management approach on the company’s
profitability (F = 21.64, P = 0.002, df = 6). This could be attributed to the large
company’s total asset estimated at Ksh. 8.8 billion, of which a larger proportion could be
idle. In conclusion, all the agricultural companies currently listed in the NSE exercise
different levels of conservative working capital management approach. The study
recommends that similar studies should be conducted for non listed agricultural
companies in Kenya to derive a broader conclusion on the effects of working capital
management approach on agricultural companies in Kenya. | en_US |