EFFECTS OF WORKING CAPITAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF EDIBLE OIL PRODUCING COMPANIES IN KENYA GEORGE NYABOGA ONSONGO
Abstract
The purpose of the study was to analyze the effects of working capital management practices on financial performance of edible oil producing companies in Kenya. The study adopted descriptive research design and with a target population of 62 respondents were selected from accounts department, finance department and operations department. Specific research objectives focused on determining the effects of accounts receivable collection on financial performance of edible oil producing companies in Kenya, assessing the effects of inventory turnover on financial performance of edible oil producing companies in Kenya, examining the effect of accounts payable management on financial performance of edible oil producing companies in Kenya and assessing the impact of cash ratio on the performance of edible oil producing companies in Kenya. Primary data was collected through the use of questionnaires. Data was analyzed using both descriptive and quantitative statistics and multiple linear regression analysis model. The output of the analysis was presented using a statistical summary applied by use of graphs, charts, tables, percentages and multilinear regression while secondary data was obtained from content analysis. Data analysis was done by use of advanced statistical software IBS SPSS version 20 to yield ANOVA. The study findings indicated that working capital management practices and financial performance of edible oil producing companies in Kenya depends on the appropriate and effective accounts receivable collection, inventory turnover, accounts payable management and cash ratio that is in place in the organizations. The study involved an in-depth analysis and outlined correlation between the independent and dependent variables of the study. The independent variables had a positive and significance relationship to the dependent variables. From the analysis there was a positive and significant relationship between financial performance and Accounts Receivable (r=0.230, p value <0.05). Secondly, there was a positive and significant relationship between financial performance and Inventory Turnover (r= 0.410, p value < 0.05). Thirdly, there was a positive and significant relationship between financial performance and Cash Ratio (r= 0.027, p value < 0.05). Lastly there was a positive and significant relationship between financial performance and Accounts payable (r= 0.297, p value < 0.05). The study concludes that inventory turnover and accounts payable should be given a higher priority in the organizations.
Key Terms: Account Payable, Account receivable, Cash management, Financial Performance, Inventory management, Medium Enterprise, Profitability
Full Text:
PDFReferences
Akelo, E. (2011). The Impact of Inventory Turnover on Performance of NGOS in Kenya. University of Nairobi:
Alao, R. O. (2010). Productivity in the Nigerian manufacturing sub-sector: An error correction model (ECM), European Journal of Economics, Finance and Administrative Sciences. ISSN 1450-2275 Issue 20
Almazari, A.A. (2013), The relationship between working capital management and profitability: Evidence from Saudi cement companies. British Journal of Economics, Management and Trade, 4(1): 146-157, 2014
Almazari, A.A. (2013), The relationship between working capital management and profitability: Evidence from Saudi cement companies. British Journal of Economics, Management and Trade, 4(1): 146-157, 2014
Amoro, H. (2011). Relationship between the liquidity and profitability of oil companies in Kenya. Unpublished MBA Project, University of Nairobi. Nairobi Securities Exchange, (2014).
Bagchi, B., Khamrui,B. (2012), Relationship between Working Capital Management and Profitability: A Study of Selected FMCG Companies in India. Business and Economics Journal, 2012. ISSN: 2151-6219
Bhunia, A., Khan, I., & Mukhuti, S. (2011). A Study of Managing Liquidity. Journal of Management Research. ISSN 1941-899X 2011, Vol. 3,No. 2: E8
Burns, R. & Walker, J. (2011), A survey of working capital policy among small manufacturing firms, The Journal of Small Business Finance. Greenwhich vol. 1, Iss. 1,
Chien T., Danw S.Z. (2014), “Performance measurement of Taiwan commercial banks” International Journal of Productivity and Performance management, 53(5), 425-434
Egbide, B., Uwuigbe, O. & Uwalomwa, U. (2013). Liquidity Management and Profitability in Manufacturing Companies in Nigeria. Journal of Business and Management.
(IOSR-JBM) e-ISSN: 2278-487X. Volume 9 issue (Mar- Apr. 2013) PP 13-21
Etim,J.J., John,N.E., and Ime,T.U. (2014). Inventory turnoverand operational performance of flour milling firms in Lagos, Nigeria. International journal of supply and operations management. IJSOM. ISSN- Print: 2383-1359 February 2015,Vol. 1, Iss. 4, pp.392 - 406
Gakure, J. (2012). Trade-Off between Liquidity and Profitability: A Study of Selected Manufacturing Firms in Sri Lanka. Journal of Arts, Science and Commerce. E -ISSN 2231-4172
Gill, A., Biger, N., Mathur, N. (2010). The relationship between working capital management and Profitability: Evidence from the United States. Business and Economics Journal, Volume 2010: BEJ-10
Grablowsky, B., & Rowell, D. (2010). Small business financial management: Theory and practice. Norfolk: Old Dominion University.
Huynh, N. (2011). The influence of working capital management on profitability of listed companies in the Netherlands. University of Twente, s1062980.
Jel V. (2014). Prudential Regulation and Banking Supervision: Building anInstitutional Framework for Banks, Economic Development Institute of the World Bank; The World Bank Washington D.C.
Kitheka, S., 2010.Inventory Management Automation and the Performance of Supermarkets in Western Kenya. University of Nairobi: International Journal of Research in Management & Business Studies ISSN : 2348-893X (print) Vol. 1 Issue 4. Oct.- Dec 2014
Lysons, K., & Farrington, B., (2012). Purchasing and Supply Chain Management. ( 8th Edition). Pearson Harlow: CIPS Textbook
Mahmoodi, S., & Silky, J. (2012). A Study on Liquidity and Profitability of Selected Indian Cement Companies: A Regression Modeling Approach. International Journal of Economics, Commerce and Management. ISSN 2348 0386 Vol. 1 Issue 1, 2013
McMahon, R. (2011). Financial reporting to financiers by Australian manufacturing SMEs, International Small Business Journal. . ISSN 1441-3906
Meredith, G. (2010).Financial Management of the Small Enterprise, McGraw- Hill, Sydney, New South Wales.
Miller, R. (2010). Inventors Control: Theory and Practice. New Jersey: Prentice Hall.
Mona,A.(2012).The Impact of Working Capital Management Policies on Firm's Profitability and Value: The Case of Jordan, International Research Journal of Finance and Economics, ISSN 2220-6140 Vol. 7, No.5, October 2015
Otieno S., N., Ojera, P., (2014). An Empirical Analysis of the Liquidity, Solvency and Financial Health of Small and Medium Sized Enterprises in Kisii Municipality, Kenya. European Journal of Business and Management, ISSN 2222-1905 Vol.5,No.8,2013
Mugenda, A and Mugenda, O. (2012).Research methods dictionary.Nairobi, Kenya arts press 2012
Muhayimana V. (2015). Inventory Management Techniques and Its Contribution on Better Management of Manufacturing Firms in RWANDA Case Study: SULFO RWANDA Ltd. European Journal of Academic Essays, 2(6), 49-58.
Mullins, Z. (2010). Reationship between the liquidity risk and financial performance of commercial banks in Kenya, University of Nairobi.
Nobanee, H., Abdullatif, M., AlHajjar, M. (2011), Cash conversion cycle and firm’s performance of Japanese firms. Asian Review of Accounting. Vol. 19 No 2, PP. 147-156
Nsikan, E., Etim, J., & Uduak, T. (2015). Inventory turnoverand operational performance of flour milling firms in Lagos, Nigeria. International Journal of Supply and Operations Management, 1(4), 392-406.
Omesa, N. W., Maniagi, G. M., Musiega, D., & Makori, G.A. (2013). Working Capital Management and Corporate Performance: Special Reference to Manufacturing Firms on Nairobi Securities Exchange. International Journal of Innovative Research and Development. 2(9), 177- 183
Padachi, K 2011, 'Trends in Working Capital Management and its Impact on Firms’ Performance: An Analysis of Mauritian Small Manufacturing Firms', International Review of Business Research Papers, vol 2, no. 2,
Pandey, I. M. (2010). Financial Management. Vikas Publishing House, New Delhi, India.
Senthilmani Thuvarakan (2013). Impact of working capital management on profitability in manufacturing industry. London South Bank University. ISSN: id2345804
Smith,K.(2010). Readings on the management of working Capital Management on the Profitability, European Journal ofScientific Research.
Stevenson, H. Jamal (2010). “Impact of Working Capital Management And Capital Structure on Profitability of Automobile Firms in Pakistan”. Social Science Research Network. July 31, 2010Finance and Corporate Governance Conference 2011 Paper.
Vahid, W.T. (2012). The Relationship between Profitability and Liquidity of Commercial Banks in Kenya. Unpublished MBA Project, University of Nairobi.
Waithaka, R., Cheluget, K.J. Onyango, J.A, & Keraro, V. (2012). Working capital management and profitability of manufacturing firms listed at the Nairobi stock exchange. Prime Journal of Business Administration and Management (BAM), 2(9), 680-686.
Zikmund, W. G., Babin, J., Carr. J. C. & Griffin, M. (2010). Business Research Methods. 9th ed. South Western, Cengage Learning
Sekaran, U.; Bougie, R. 2010. Research methods for business: a skill building approach. 5th ed. New Delhi: John Wiley. 488 p.
DOI: http://dx.doi.org/10.61426/sjbcm.v5i2.683
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.