The effects of working capital management on the profitability of small and medium enterprises in Kenya
An optimal working capital management is expected to contribute positively to the profitability of firms. The purpose of this study was to establish the relationship between working capital management and profitability in small and medium enterprises in Kenya. The study used secondary data obtained from financial statements of 40 small and medium enterprises registered by small and medium enterprises resource centre. The financial statements from the enterprises were analysed to determine the effects cash conversion cycle, days inventory outstanding, days sales outstanding and days payables outstanding on the net profit margin. Pearson's correlation and regression analysis were used to analyse the data. The results showed a negative relationship between cash conversion cycle, days inventory outstanding, days sales outstanding and the profitability of the firms. There was a significant positive relationship between days payables outstanding and profitability. The results suggest that small and medium enterprises can increase profitability by maintaining an optimal level of working capital. The firms can wait longer to pay the accounts payables. The study recommends to the academia to include trainings on working capital management and to larger extent trainings in all areas of financial management in the entrepreneurship courses. The policy makers should arrange with other stakeholders for workshops on working capital management to the small and medium enterprises business managers and owners as most of them lack adequate skills in this area.