The Relationship Between Working Capital Management And Financial Performance Of Manufacturing Firms Listed At The Nairobi Securities Exchange
Management of working capital which aims at maintaining an optimal balance between each of the working capital components, that is, cash, receivables, inventory and payables is a fundamental part of the overall corporate strategy to create value and is an important source of competitive advantage in businesses (Deloof, 2003). The main objective of the study was to establish the relationship between working capital management and financial performance of manufacturing firms listed in NSE. The research used both descriptive and quantitative research design. The population of interest in this study constituted all manufacturing companies quoted at the NSE for the period of five years from 2007 to 2011.The quantitative research approach was employed to arrive at the findings of the study. From the regression models, the study found out that inventory turnover in days has negative relationship with Return on Equity which means that companies‘ financial performance can be increased by reducing inventory in days. Cash Conversion period and Net payment period shows significant negative relation with Return on Equities showing that firms‘ financial performance can be increased with short size of both of them. The study recommends that there should be proper inventory management system in manufacturing firms to avoid over stocking of inventory resulting to efficient outcome of investment. Management of manufacturing firms should also make sure certain standards and levels which will stop piling up of inventory. The study further recommends that companies should engage in relationship with those suppliers who allow for long credit period and those customers who accepts short payment period.