Working capital management approaches and the financial performance of agricultural companies listed at the Nairobi securities exchange

Working capital management approach is one of the most important decisions that \ncompany managers consider for effective financial management. The relationship \nbetween firm’s profitability and working capital management approach is frequently \nemphasized for deciding on the level of investment in working capital. This study \nexamined the relationship between working capital management approach and financial \nperformance of all agricultural firms listed in the Nairobi Securities Exchange (NSE), \nKenya. A diagnostic research design was used to determine the association of working \ncapital management approach with company’s financial performance. The data was \nobtained through document analysis of annual consolidated financial reports of years \nending December: 2009, 2010, 2011, 2012, and 2013 of all companies as published by \nthe Nairobi Securities Exchange and Capital Markets Authority (CMA). The regression \nanalysis was performed for each company to establish the relationship between the \nReturn on Assets and the working capital management approach. The results indicated \nthat Limuru tea Limited was the most profitable agricultural company (Return on Asset: \nROA = 46.48%) while Eagards was the least profitable (ROA = 4%). There was \nsignificant difference between the companies profitability estimates (ANOVA P = \n0.0005, F = 5.96, df = 6) probably because each firm has different proportion of total \nassets, which technically influences how much profit each company makes. Statistically, \neach company employed a different working capital management approach (ANOVA: P \n= 0.002, F = 4.55, df = 6). However, the working capital management approach was less \nthan 50 % in all companies suggesting that the companies used different levels of \nconservative working capital management approaches. However, that the management \napproach for Kapchorua tea; Reavipingo and Williamson companies adopted less \nconservative approaches. The strong negative regression association (r2 = 0.73) between \nROA and working capital management approach adopted by Sasini limited indicated \nsignificant effect of the working capital management approach on the company’s \nprofitability (F = 21.64, P = 0.002, df = 6). This could be attributed to the large \ncompany’s total asset estimated at Ksh. 8.8 billion, of which a larger proportion could be \nidle. In conclusion, all the agricultural companies currently listed in the NSE exercise \ndifferent levels of conservative working capital management approach. The study \nrecommends that similar studies should be conducted for non listed agricultural \ncompanies in Kenya to derive a broader conclusion on the effects of working capital \nmanagement approach on agricultural companies in Kenya.