EFFECTS OF WORKING CAPITAL MANAGEMENT PRACTICES ON THE FINANCIAL PERFORMANCE OF TOURIST HOTELS IN MOMBASA COUNTY, KENYA

Abstract

The study focused on the effects of working capital management (WCM) practices on the financial performance of tourist hotels based on the tourist hotels at the Kenyan coastal region. Systematic random sampling was applied to select a sample of 22 hotels from the total 44 as listed by the Ministry of Tourism. Questionnaires were used to collect primary data from the accountants and Managers of the hotels as they were well versed with the data required. The data collected was analyzed using descriptive statistics to determine the mean, standard deviation, minimum and maximum of the various variables. Pearson correlation coefficient was also used to analyze the relationship between the dependent variable (financial performance) and the independent variable based on the inventory turnover days, number of days accounts receivable, number of days accounts payable and the cash conversion cycle. All the independent variables showed a negative correlation to the net operating profit, which meant that the days of converting inventory and receivables into cash together with paying creditors needed to be shortened for increased profits. With a correlation of (r = - 0.6 to – 0.8), the study showed that the hotels best financial performance strongly relates to the efficient management of working capital components whereby the shareholders’ value can be created through shortening of the cash conversion cycle. Therefore, the management should identify the hotel’s unique working capital drivers and relevant risks and use them to develop their unique working capital management policies and practices that are in line with their business model and the overall hotel corporate strategy.