Working Capital Management and Financial Performance of Firms Listed under Manufacturing and Allied at Nairobi Securities Exchange, Kenya

Abstract

In Kenya, the manufacturing industry makes a substantial contribution to productivity, innovation, and economic growth. Despite the significance of the sector, its financial performance remains erratic and unstable over the last few years. Working capital management remains a key factor in explaining financial performance of firms in the manufacturing sector though empirical evidence has not clearly captured the relationship hence the motivation for this research effort. The study sought to assess the impact of working capital management’s cash management, debtors management, inventory management and creditors management on financial performance of firms listed under manufacturing and allied at NSE in addition to determine the moderating effect of inflation on the link between WCM and financial performance of firms in the Kenya’s manufacturing sector. Secondary data was used and the target audience in this study composed of all the eight quoted firms for a period of five years (2018 to 2022). The study revealed that cash management had a significant effect (p=0.0000) below the significance level of 0.05 on financial health of firms listed under industrail and allied at NSE, Kenya. While debtors management had a significant effect (p=0.046) on financial performance whose  p-value was below the significance value of 0.05. The Inventory management had no significant effect  (p=0.090) on financial performance of firms with a value above 0.05 significant level. Creditors management  had an insignificant effect (p=0.144) above the significance level of 0.05. The study found that good cash management and debtor management improved company’s financial health. The study recommended development of cash management policies to direct investment of excess cash for efficient maintenance of optimal cash levels and assured good cash budgeting and planning. Further recommendation included revision of credit policy to enable efficient and prompt monitoring of payments made earlier than due dates, collection efforts to delayed payments and reduce bad debts that may affect the liquidity of the firm hence affect financial performance.