Working Capital Management and Performance of Commercial and Services Firms Listed at the Nairobi Securities Exchange

Abstract

The effect of working capital management on the financial performance of commercial and services firms listed at the Nairobi Stock Exchange over the period 2012 to 2017 is examined in this study. The return on assets (ROA) across three working capital groups is compared. The measure of working capital is a cash conversion cycle (CCC).   The worst performing firms tend to have low CCC days whereas the highest performing firms tend to have moderate CCC days, and their degrees of variability are more stable. The cash conversion cycle is related to the financial performance of commercial and services firms listed at the Nairobi Securities Exchange. The firms with negative or too short CCC days performed poorly and were mainly firms that sell their goods and services on cash terms, namely supermarkets and hotels. Commercial firms listed at NSE should adopt a moderate cash conversion cycle, with an average of 75 days and is the average CCC period.

Keywords: Working Capital, Performance, Return on Assets (ROA), Cash Conversion Cycle (CCC), ANOVA