EFFECT OF WORKING CAPITAL MANAGEMENT ON FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

This research aimed to help manufacturing companies listed on the National Stock Exchange (NSE) better understand how working capital management affects their bottom lines. The accounts payable and receivable and cash conversion cycle were the independent variables in this study. The return on investment is the dependent variable. The specific objectives are to learn how the financial performance of manufacturing companies listed on the NSE is impacted by the following: accounts receivable, accounts payable and cash conversion cycles. The study used the following theories: transaction cost theory, operational cycle theory, and cash conversion cycle theory. The survey included nine manufacturing firms listed on the NSE. The examination was conducted using a descriptive research approach. This study utilized audited financial statements as secondary data. These statements may be found on the websites of the individual companies, in the Capital Market Authority library, and the NSE library. The study used SPSS to do a linear regression analysis on the collected data. The data was presented via graphs and tables. The study findings included: A positive correlation of 0.0259 was established between Accounts Receivable and Return on Assets, An inverse correlation of - 3.369was established between Return on Assets and Accounts Payable and a positive association of -6.988Ewas established between CCC days and ROA, nevertheless. A unit increase in CCC days increases ROA by -0.520.The study made the following recommendations: manufacturing firms listed in the NSE should maintain a high standard of efficient effectiveness in accounts receivable management, Management should proceed with caution when reducing the debtors' days, even though doing so would boost profitability by shortening the accounts receivable collection period and businesses analyze their cash conversion cycle, which is influenced by factors such as inventory turnover, payables days, and debtor days. CCC may not have a major impact on financial performance, as shown by the study, but management still shouldn't neglect it because profits aren't the only goal of the firm. The study recommended that additional research is required to replicate this study over a longer time frame, say, ten to twenty years.