EFFECT OF CASH MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS IN MOMBASA COUNTY
Abstract
The purpose of the study was to investigate the effect of cash management practices on financial performance of manufacturing firms in Mombasa County. The study used cross sectional research design. The study population consisted of 25 manufacturing firms in Mombasa County which were members of Kenya Association of Manufacturers. Stratified random sampling technique was used to select a sample size of 129 respondents with the help of Yamane formula. The study was quantitative in nature and primary data was collected by use of a structured questionnaire. Data analysis was done with the help of Statistical Package for Social Science (SPSS) version 25 tool. Descriptive statistics and inferential statistics formed the data analysis techniques used. The study findings revealed that inventory turnover period, accounts receivable cycle and cash conversion cycle have an inverse relationship with financial performance. Accounts payable cycle was found to have a positive effect on financial performance. Further, the study results indicated that there is periodic inventory planning exercise by the manufacturing firms. Also the manufacturing firms have in place effective inventory conversion policies and the firms continuously monitor inventory levels and take corrective actions when necessary. The firms had implemented inventory management systems. It was concluded that the manufacturing firms periodically reviewed their levels of bad debts before making decisions. The firms also set debt collection period which was realistic and realizable. The study concluded that debt management policies used in the firm are effective and that the firm offers discounts on the debtors who pays early. The suppliers credit period is extended to a reasonable time and that the credit management policies adopted by the manufacturing firms are sound. The study concluded that the creditors’ payment was done by the firm at the last date due and that the firm entered into agreement with creditors to recoup their dues back to operations at an interest. The study recommended that the management of manufacturing firms should periodically carry out inventory planning exercise. This would solve the challenges of inventory costs. The study recommended that the management of manufacturing firms should periodically review their levels of bad debts before making decisions. This would make the management plan for accounts receivables effectively.
Key Words: Inventory Conversion Period, Accounts Receivable, Cash Conversion Period, Accounts Payable
CITATION: Biasha, A., & Mwanzia, S. (2022). Effect of cash management practices on financial performance of manufacturing firms in Mombasa County. The Strategic Journal of Business & Change Management, 9 (4), 68 - 83.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2391
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