The effects of working capital management on the financial performance of retail supermarkets in Nairobi county, Kenya

Working capital management (WCM) refers to the management of current assets and \ncurrent liabilities. Management and evaluation of WC is aimed at ensuring that the \nfirms’ current assets and Current liabilities are employed in an optimal way to achieve \nthe goal of profit maximization. By doing this, managers need to ensure that a firm is \nable to continue its operations and has sufficient ability to satisfy both maturing shortterm \ndebt and future operational expenses. This study sought to establish the \nrelationship between working capital management and financial performance of retail \nsupermarkets in Nairobi County, Kenya. The study adopted a descriptive survey \ndesign.. Data for eight large supermarkets was gathered over a five year period \nbetween 2010 and 2014. This period was considered by the researcher to be adequate \nto establish the existence of any relationship. Secondary data collected from annual \naudited financial statements of the firms was used for this study. This consisted of \ndata from the income statement and statement of financial position of the companies \nwhich was used to compute Return on assets, Days of sales outstanding, Days of sales \nin inventory, Days of payables outstanding, leverage and size of the firm. Pearson \ncorrelation analysis and regression analysis were performed on the variables. The \nresults indicate that DSI had a positive and insignificant relationship with ROA (β = \n0.060; p =0.278> 0.05). Further, t-test indicated that DSO had a positive and \ninsignificant relationship with ROA (β = 0.056; p=0.348> 0.05). Regression results \nfurther indicated that DPO had a moderate negative significant relationship with ROA \n(β = -0.071; p=0.061> 0.05). Size of the firm had a strong significant relationship on \nROA (β = -0.588; p=0.004<0.05). Management of working capital through increasing \nDPO without hurting the credit standing has an effect on the financial performance \nand the value of a firm. The current study results indicate that a longer DPO would \nlead to higher ROA. Leverage according to study results had an insignificant negative \ninfluence on ROA (β = -2.115; t = -0.249; p < 0.05). This indicated that increase in \nleverage would not have a major impact on ROA for the surveyed supermarkets.The \nstudy recommends that retail firms in the Kenyan market should effectively manage \ntheir working capital to ensure maximum returns because other forms of financing \nhave limitation