Abstract

For businesses, an efficient working capital management is a vital component of success and survival; in terms of both profitability and liquidity. The crucial part in managing working capital is required maintaining its liquidity in day-to-day operation to ensure its smooth running and meet its obligation. The successful management of working capital enables a firm to react quickly and appropriately to unanticipated changes in market variables, such as interest rates and raw material prices, and gain competitive advantages over its rivals. The purpose of this study was to find out the effects of working capital management on the performance of firms in Kenya. Specific objectives of the study are; to examine the effects of cash inflows and outflows on the firm performance; to determine the effects of accounts payable turnover on the firm performance, to determine the effects of accounts receivable turnover on the firm performance and to analyze the effects of inventory turnover on the firm performance. A descriptive research was undertaken to guide the study. From a target population of 33 included the Head of Departments, the Principals and Head of sections of the finance division of Kenya Ports Authority. A stratified random sampling technique was employed in selecting the sample of 30 respondents at 5 percent level of confidence. In order for the relevant information to be collected, both primary and secondary data collection methods were used. Primary data was obtained using questionnaires administered to the selected respondents while secondary data was collected from the audited financial statements and inventory records with the aid of predesigned desk review checklist. The data collected was thoroughly organized, analyzed, scrutinized, simplified and interpreted. All statistical data analysis was performed on a PC computer using Statistical Package for Social Science (SPSS Version 20.0) for Windows and the information generated was presented in the form of graphs, charts, frequency and percentage tables. Findings of the study suggest that firm performance gets affected by WCM. That is the management of cash inflow & outflow, AP, AR and inventory. The efficiency of WCM can be determined by the cash inflow & outflow, AP, AR and inventory. There is significant evidence that by managing each part of WC component a firm can increase the NPV of its cash flows thus adding to shareholder value. Findings of this study will help the government and employers in devising more effective financial education programs targeted at increasing the levels of liquidity and profitability of an organization which helps in the day to day operations of an organization. The findings from this research have important implication with respect to the need of an organization as far as WCM is concerned. More comprehensive research, investigating broader population and various Organizations is needed to generalize the results of this study. Further research could focus on other components of WCM such as company size, sales growth, and current ratios.

Authors and Affiliations