Working Capital Management and Financial Performance of Manufacturing firms Listed at the Nairobi Securities Exchange

Abstract

The main objective of the study was to determine the influence of working capital management on financial performance of manufacturing firms listed in the Nairobi Securities Exchange (NSE). Specifically, the study sought to establish the influence of cash management, receivables management, inventory management and accounts payables management on financial performance of manufacturing firms listed in the NSE. The study was anchored on the operating cycle theory, cash conversion theory, value chain theory and transaction costs theory. The study adopted the causal research design and the population was nine manufacturing companies listed in the NSE. The study used secondary panel data for five years (2010 – 2019) to depict the most current business cycles. Data collected was analysed through panel data regression and presented in figures and tables. The results determined that cash conversion cycle did not have a significant influence on financial performance of manufacturing firms listed in the NSE. Further, receivables management, inventory management and payables management had a significant positive effect on financial performance of manufacturing firms listed in the NSE. Based on the findings, the study makes the following recommendation. Regarding cash management, the study recommends to the management of manufacturing firms to focus more on other aspects of cash management apart from cash collection cycle. On receivables management, the study recommends to management to institute effective credit management practices to increase their receivables turnover ratio to the maximum practicable so as to optimize their relationships with their debtors. Regarding inventory management, the study recommends that management should implement modern and automated inventory management practices aimed at improving the inventory turnover. The study also recommends that manufacturing firms should optimize their payables management.

Keywords: Cash, Receivables, Inventory management, Accounts payable, financial performance, manufacturing companies.