Management of working capital and its effect on profitability of manufacturing companies listed on Nairobi securities exchange (NSE), Kenya

Abstract

The efficient management of working capital is very vital for a business survival and thus a factor for overall boost in profitability. Thus the study analyzed the effects of working capital management on the profitability of manufacturing firms listed on the Nairobi Securities Exchange. Diagnostic research design was utilized and the study targeted the nine listed manufacturing firms trading on the Nairobi Securities Exchange. Multiple regression and correlation analyses were carried out to determine the relationships between components of working capital management and the gross operating profit of the firms. The results from the study revealed that gross operating profit was positively correlated with average collection period and average payment period but negatively correlated with cash conversion cycle. The relationship between inventory turnover in days and gross operating profit was insignificant. From this study, it is recommended that managers focus on reducing cash conversion cycles and try to collect receivables as soon as possible.