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.

Working Capital Management and Financial Performance of Agricultural Firms Listed on Nairobi Securities Exchange, Kenya

“…This shows that inventory turnover period had a negative relationship with financial performance of the sampled firms. The findings concur with those of Ahmed and Mwangi (2022) who found that inventory management3had a negative relationship with financial performance. However, they are different from those of Park and Kim (2020) who found that inventory turnover positively related with business financial performance.…”

The impact of working capital management on the profitability of listed halal food and beverage companies

“…A lower APP may indicate that it is not fully utilizing possibilities to delay supplier payments (Kumaraswamy, 2016). The transactional cost theory was founded by Ferris in 1981, and is a notable theory used to explain the relationship between the accounts payable period and firm performance (Ahmed and Mwangi, 2021). The theory contends that firms can operate efficiently by reducing the transaction costs associated with the delay in the accounts payable (Ferris, 1981).…”

Working capital and firm performance: role of COVID-19 disruption

“…Providing credit to customers may also positively affect firm sales as it allows price differentiation, serves as a warranty for product quality, and cultivates long-term relationships with customers (Wilson and Summers, 2002;Long et al, 1993). In contrast, overinvestment in working capital can have a negative impact on financial performance as well as shareholders' value (Ahmed and Mwangi, 2022). Furthermore, having too much working capital may prevent enterprises from undertaking value-adding investment projects in the short term (Ek and Guerin, 2011).…”

“…If the working capital is positive, the company has sufficient current assets to conduct its operations and repay its debt. It provides investors and shareholders with confidence in the company's financial stability (Ahmed and Mwangi, 2022). However, if working capital is negative, the company lacks sufficient current assets and is likely to experience operational disruptions in the future, leading to a decline in financial performance (Haralayya, 2022; Abdulnafea et al ., 2022).…”