Effect Of Working Capital On Financial Performance Of Service Firms Listed At The Nairobi Securities Exchange

A descriptive research was done on the effect of working capital on financial performance of \nservice firms listed at the Nairobi Securities Exchange. Data for a 5-year period (2012-2016) \nwas collected for 24 service firms listed at the NSE. The data was obtained from CMA, CBK \nand websites of the firms under study. The data was analyzed annually giving a total of 120 \ndata points. Multiple regression, correlation and descriptive analysis was done. From the \ndescriptive analysis, ROA displayed a mean of 4.2669, Net working capital ratio 12.3066, \ninflation rate 6.9720 and firm size 9.6874. The value of adjusted R2 was 0.657 indicating a \nsignificant variation of 65.7% on ROA due to changes in net working capital ratio, inflation \nrate, and firm size. A weak positive correlation was found between net working capital ratio \nand ROA (correlation coefficient=0.370). A weak positive relationship was also established \nbetween inflation and ROA (correlation coefficient=0.155). Firm size and ROA were found \nto have a strong positive relationship (correlation coefficient=0.651). The study concludes \nthat net working capital ratio, inflation rate, and firm size affect financial performance of \nlisted service firms in Kenya. It was recommended that the government though the CMA \nestablish policies that would increase the working capital in listed service firms in order to \nincrease financial performance. The Management of these firms should also take note and \nensure that firm size is boosted in order to increase the financial performance.