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Research Journal of Business Management

Year: 2010 | Volume: 4 | Issue: 1 | Page No.: 1-11
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Authors

David M. Mathuva

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Research Article

The Influence of Working Capital Management Components on Corporate Profitability: A Survey on Kenyan Listed Firms

David M. Mathuva
This study examined the influence of working capital management components on corporate profitability. A sample of 30 firms listed on the Nairobi Stock Exchange (NSE) for the periods 1993 to 2008 was used. Both the pooled OLS and the fixed effects regression models were used. The key findings from the study were: (1) there exists a highly significant negative relationship between the time it takes for firms to collect cash from their customers (accounts collection period) and profitability (p<0.01). This means that more profitable firms take the shortest time to collect cash from their customers; (2) there exists a highly significant positive relationship between the period taken to convert inventories into sales (the inventory conversion period) and profitability (p<0.01). This means that firms which maintain sufficiently high inventory levels reduce costs of possible interruptions in the production process and loss of business due to scarcity of products. This reduces the firm supply costs and protects them against price fluctuations; (3) there exists a highly significant positive relationship between the time it takes the firm to pay its creditors (average payment period) and profitability (p<0.01). This implies that the longer a firm takes to pay its creditors, the more profitable it is.
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Comments

Dave Ndolo Reply


This article is timely indeed and right on target. For close to two decades now, I have been involved with a number of SMEs - Working capital challenges even for very innovative and industrious entreprenuers is a major Achilles heal for a considerable proportion of these SMEs. I am interested in being a part of this invaluable discussion.

David Mathuva Reply

Thanks Dave for the comment. I hope to make major breakthrough in this world of working capital management.

k.sunil kumar reddy Reply

this is very good paper and it gives good knowledge

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