ROLE OF WORKING CAPITAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF PRIVATE COLLEGES IN NAIROBI COUNTY

Abstract

This study sought to determine the role of working capital management practices on financial performance of private colleges. By examining financial statements of a sample of 30 registered private colleges in Nairobi county between the period 2013 to 2015. In order to analyse the effects of working capital management on financial performance of private colleges, Return On Assets (ROA) as the dependent variable was used. We defined this variable as the ratio of earnings before interest and tax to assets. Analysis of Variance (ANOVA) – was used to measure the variability of the independent variables and hence show whether the model accounts for most of the variation on the dependent variable. The study revealed that efficient working capital management practices results to increased profitability of private colleges in Nairobi and that proper management of working capital should bring about improved operating efficiencies. This may be achieved by proper planning of cash flows to improve liquidity and maintaining of optimal levels of each working capital component. The study recommended that learning Institutions should ensure that all key departments are computerized and employ qualified staff in financing and accounting department who will ensure that timely and proper reports are generated and sent to management for decision making related to current assets and current liabilities

Keywords:  Working Capital Management (WCM), Average Payment Period(AP), Average Collection Period (AR), Cash Conversion Cycle (CCC) , Inventory Turnover Period (INV ), Return On Assets (ROA), Analysis of Variance (ANOVA), Technical and Vocational Education and Training Authority (TVETA), Current Ratio (CR)