Cash Management Practices and the Financial Performance of Private Universities in Kenya
Waiganjo, Polycarp Denis Muigo
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Kenya’s higher education sub sector is among the highly growing. Therefore, cash management becomes more significant compared to other liquid assets since cash is a vital asset to be held by a firm. Cash management practices are necessary undertaking that enhance matching the timing of payments and the available of cash which may hamper with operations of a firm. Private universities have erratic cash flow dependent of lone stream and limited access to capital. The problem is magnified by the management focus on growth which put much pressure on cash management systems. Cash deficiency in Kenya private universities will expose the universities to financial risk that may ultimately affect the daily operations in provision of higher education leading to liquidation. The study endeavored to establish the effect of cash management practices on financial performance of private universities in Kenya. The objectives of the study were to identify effect of cash budgeting, to determine the effect of cash policies, to establish the effect accounting practices and to identify the effect of investing of surplus cash on the financial performance of private universities in Kenya. The study was guided by free cash flow theory and decision usefulness theory. The study targeted 35 private universities registered by Commission for university education and sought observations of 35 finance officers. The descriptive research design was adopted during the study. The study adopted a census in the data collection. Questionnaires were administered to the targeted population. Data was coded and analyzed using Statistical Packages for Social Sciences (SPSS) and Microsoft excel. Data analysis was presented using descriptive and inferential statistics. Descriptive statistics involved weighted average and percentages and inferential statistics involved regression and correlation analysis. The findings revealed that cash budgeting assist in making cash forecasting and variance analysis, however, does not enhance budgetary control, spending of cash as planned, control of university spending habits and involvement of all departments; cash policy ensured proper cash management and safe custody of financial documentation, however did not ensure security and tracking of university funds and that financial controls were strictly followed; accounting practices enhanced tracking of business transactions and preparation of financial statements but not keeping of daily cash receipts and payments; investing surplus cash did not show improved liquidity and profitability and returns being consistent with risk undertaken. The correlation analysis results revealed that at 1% level of significance cash budgeting, cash policies, accounting practices and investing surplus cash have a significant positive influence in determination of financial performance in private universities. The results from regression analysis revealed that cash budgeting accounts 21.9% magnitude in influencing financial performance; cash policy accounts 43.1% magnitude of influence on financial performance; accounting practices accounts 29.8% effect size in influencing financial performance in private universities. The study recommended that the university management to formulate guidelines on cash budgeting process with involvement of all departments, formulation and strict adherence of cash policies; Commission for university education to cause adherence of accounting standards and conduct yearly audit and investment be undertaken after due diligence report is approved by the university governing body.