Effect of Working Capital Management on the Financial Performance of Listed Manufacturing Firms in Kenya
Keywords:Debtorsâ€™ management, Creditor management, Inventory management, Cash management, Working capital management
Management of working capital aims at maintaining an optimal balance between each of the working capital components, that is, cash, receivables, inventory and payables. This is a fundamental part of an entityâ€™s overall corporate strategy. Working capital management plays a key role in creating a balance between liquidity and profitability in a firm, providing a basis for the firmâ€™s financing decisions. This study sought to establish the effect of working capital management on the financial performance of listed manufacturing firms in Kenya. Specifically, the study sought to determine the effect of creditor management, debtor management, inventory management and cash management on the financial performance of listed manufacturing firms in Kenya. The study adopted a quantitative research design. The target population was the 10 listed manufacturing firms in Kenya as provided for by the Nairobi Securities Exchange (NSE) databases. The study was based on secondary data obtained from the audited financial reports of the individual listed manufacturing firms for a period of ten years from 2005 to 2014. Panel data model was adopted in data collection and analysis. The study findings were that there exist a positive relationship between creditor management and the financial performance of the firms. The study findings also showed that there exist a negative relationship between debtor management, inventory management as well as cash management and the financial performance of the firms. The study concluded that working capital management significantly impacted on the financial performance of the listed manufacturing firms in Kenya over the 10 year period.
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