EFFECT OF WORKING CAPITAL MANAGEMENT ON FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE

Abstract

The main objective was to research about the effect of working capital management on the financial performance of firms listed at the NSE, Kenya. The specific objectives of this study were to determine the effects of average payment period, inventory conversion period, leverage and average collection period on financial performance of listed manufacturing firms at NSE. Firm performance was measured using return on assets. Descriptive research design was used. The target population was all the 9 manufacturing Companies that appear at Nairobi securities exchange Hand book covering the period 2011-2015. A census of the 9 firms listed manufacturing on the NSE, Kenya was the sampled. This research project applied secondary data for cycle stretching from 2011 to 2015. The collected data was coded into the SPSS. Multiple regression was applied. By use of Pearson’s correlation, Return on Assets was positive related to Average Payment Period, Inventory Conversion Period and Average Collection Period. Results indicated negative relationship between return on assets and Leverage. Regression model revealed positive relationships among Average Payment Period, Inventory Conversion Period and leverage. There was negative and significant relationship between Average Collection Period and return on assets. Therefore, regression model was used to address the research hypothesis. It was found that there was no significant effect of average payment period on financial performance and there was no significant effect of leverage on financial performance. The other two null hypotheses were accepted at 95%. Results concluded if huge capital amount is well managed it will have significant effect organizational performance of those listed companies. Researcher recommended financial manager should extend the repayment period to retain the funds in the firm so as to utilize the cash on other financial investment. Also financial manager should apply techniques to strengthen their collection procedures to shorten credit terms to their customers in order to keep the cash conversion cycle short.