| dc.description.abstract | A well designed and implemented working capital management is expected to
contribute positively to the creation of shareholders‟ wealth. The purpose of this
study was to determine the empirical relationship between working capital
management and firm‟s profitability. The study used secondary data obtained
from annual reports and financial statements of companies listed on the Nairobi
Stock Exchange (NSE).
A sample of 24 companies listed on the (NSE) for a period of six (6) years from
2001 – 2006, were studied to determine the effect of different variables of
working capital management including average collection period, inventory
turnover in days, average payment period and cash conversion cycle on the
gross operating profitability. Current ratio, size of the firm (measured in terms of
natural logarithm of sales), fixed financial assets to total assets ratio and debt
ratio were used as control variables.
Pearson‟s correlation and regression analysis (pooled least squares) were used
for analysis. The results show that there is a statistical significant negative
relationship between variables of working capital management and the
profitability of firms except for the average payment period which showed a
positive relationship. This means that managers can create profits for their
companies by handling correctly the cash conversion cycle and keeping each
different component of working capital management (accounts receivables,
accounts payables and inventory) at an optimal level. | en |
