Working Capital Management Strategies On Financial Performance Of Manufacturing Companies Listed In Nairobi Securities Exchange

Abstract

The working capital management has an important role for the firm success or failure because of its effect on firm‟s performance and liquidity. It plays a significant role in improved profitability of firms. Hence, firms can achieve optimal management of Working capital b making the trade off between profitability and liquidity. The study was based on secondary data collected from a sample of 9 Manufacturing firms listed in the Nairobi securities exchange for a period of 10 years from 2007-2016 with an attempt to investigate the relationship between working capital Management strategies and Financial performance of Manufacturing Firms listed at the NSE. The independent variables were the Inventory Conversion Period, Average collection period and Average payment period. The study employed Analytical research design and panel data to analyze the data. The study established that it takes listed manufacturing companies an average of 96 days to convert inventories into sale. Inventory conversion period (p=0.000) had significant positive effect on performance of listed manufacturing companies. Average collection period (p=0.090) had no significant effect on performance of listed manufacturing companies. Average payable period (p=0.471) did not significantly influence performance of listed manufacturing companies. The study concludes that there was generally stability in inventory conversion period among listed manufacturing firms across the period 2007 to 2016. Inventory conversion period had significant positive effect on performance of listed manufacturing companies. Average collection period had positive but insignificant effect on performance of listed manufacturing companies. Average payable period had positive but insignificant influence on performance of listed manufacturing companies. The study recommends that the top management of all listed manufacturing companies in Kenya should balance the level of inventories with the cost of sales to achieve optimal working capital for performance of their organizations. All manufacturing companies should significantly reduce the number of days it takes to collect debts for optimal performance. All manufacturing companies in Kenya should consider increasing their average payable periods by negotiating with their creditors and forming relationships that will result into better performance of their organization.