Working Capital Management and Profitability of Selected Supermarkets in Nairobi City County, Kenya
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Date
2018-07
Authors
Ratemo, Dennis Gitogo
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Evidence from Nairobi Business Directory 2016 shows that supermarkets are experiencing low
levels of profitability from the year since 2010. The previous studies show that most
supermarkets are unable to efficiently convert some of their working capital to remain profitable
in the long run. The continuous decreasing levels of supermarket profitability motivates the study
which seeks to determine the effects of working capital components on the profitability of
supermarkets in Nairobi County, Kenya. The study sought to investigate the effect of working
capital management on the profitability of supermarkets in Nairobi City County, Kenya. The
specific objectives were to determine the effect of working capital turn over on the profitability
of supermarkets in Nairobi City County, Kenya to determine the effect of Inventory turnover on
the profitability of supermarkets in Nairobi City County, Kenya and to evaluate the effect of
accounts payable turnover on the profitability of supermarkets in Nairobi City County, Kenya.
The study adopted descriptive research design. The target population of the study was 102
supermarkets in Nairobi City County. The target sample for the study was 31 supermarkets in
Nairobi City County. Data was collected from financial statements of the individual
supermarkets and Ministry of Industry, Trade and Cooperatives Report on Kenya Retail Sector.
Model summary results revealed that working capital turnover, inventory turnover and accounts
payable turnover explain 43.75% of profitability of supermarkets in Nairobi City County.
Regression of coefficients results showed that working capital turnover and profitability of
supermarkets are positively and significantly related. The results also revealed that inventory
turnover and profitability of supermarkets are positively and significantly related. The results
revealed that accounts payable turnover and profitability of supermarkets are positively and
significantly related. Based on the findings above, the study concluded that working capital
turnover has a significant effect on profitability of supermarkets in Nairobi City County. The
study also found out that inventory turnover has a significant effect on profitability of
supermarkets in Nairobi City County. The study found out that accounts payable turnover has a
significant effect on profitability of supermarkets in Nairobi City County. The study results
revealed that there is high levels of unpaid suppliers which affects the restocking process which
in return affects the sales which ultimately have a significance influence on the profitability of
the supermarkets. The study found out that inventory has a great significance on the profitability
of the supermarkets. This study recommends supermarkets to manage their inventory efficiently
in order to increase the liquidity of a firm thus meeting its short term obligations quickly and
invest in profitable opportunities keeping in mind that cost on inventory is a carrying cost that
ultimately reduces profits of a firm. The study recommends that the management of the
supermarkets should enter into long term contracts with different suppliers that provide longer
credit periods as this will assist them in managing their cash flows thus improving performance
in terms of profitability.
Description
A Research Project Submitted to the School of Business in Partial Fulfillment of Requirement for the Award of Masters of Business Administration (Finance Option) of Kenyatta University