Working Capital Management and Profitability of Selected Supermarkets in Nairobi City County, Kenya

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.