Working Capital Management and Financial Performance of Small and Medium Enterprises in Garissa County, Kenya

Abstract

Small and medium-sized enterprises (SMEs) in the County of Garissa have had a dwindling net profit between 2007 until 2013. Success has been marked by several hurdles that include improper business records, substandard technical competence, illiteracy in matters of finance, and mismanagement of working capital. As a result, the overarching purpose of the study was to investigate the influence of working capital management on the financial performance of SMEs in the Kenyan county of Garissa. The study was motivated by the following specific goals: To assess the impact of inventory management techniques on the financial performance of SMEs, to assess the impact of cash management practices on the financial performance of SMEs, to assess the impact of debtor management practices on the financial performance of SMEs, and to assess the impact of accounts payable management practice. According to the county administration of Garissa, 243 SMEs were targeted. A sample of 149 SMEs were selected using simple random sampling. According to the county administration of Garissa, 243 SMEs were targeted. Simple random sampling was used to draw a total of 149 SMEs. Secondary data was evaluated using quantitative methods. Tables were used to present the data. According to the study's regression results, accounts receivable management had a minimal influence on return on assets. Inventory management has a major detrimental impact on SMEs' financial performance. Cash management has a beneficial and considerable impact on the performance of SMEs. The study concluded that managers could increase return on an asset through shortening inventory turnover and increasing accounts payable days.