Working Capital Management and Financial Performance of Selected Supermarkets in Nairobi City County, Kenya
Waweru, Ferichina Gathoni
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The success of businesses is largely dependent on firms’ ability to have working capital components effective management. Supermarkets in Kenya are focus on providing a variety of shopping services through offering goods and services in line with customers’ wants and needs. In the past decade, phenomenal growth was witnessed in this sector in terms of inventory, customers and sales. These lead to expansion by top supermarkets in various cities in Kenya. However, some of the supermarkets on the other hand had challenges in operations and this subsequently led to their closure. Some of the oldest supermarkets particularly Uchumi went under statutory management as a result of poor performances with accumulated debt of Ksh3.6 Billion, Nakumatt had a total liability of Ksh 35.8 Billion, 18.8 being owed to the suppliers while other were a combination of bank loans and commercial paper. Tuskys on the other hand has a debt of Ksh 6.2 Billion, Naivas by the time of being acquired by IFC ( Iternational Fiance Corporation) it had accumulated debts of 1.5 Billion while Ukwala had liability of Ksh 1 billion by the time it applied for closure, . As such, there is a need for the management of the supermarkets to fully appreciate effectiveness of working capital management and Supermarkets’ financial performances. Thus, making this the study’s general objective. Subsequently, examining the effect of quick ratio, creditor turnover and inventory turnover on management of supermarkets in Nairobi, Kenya, this constitute the definite objectives. Value chain theory as adopted considers firms to comprise of associated internal/external activities, which includes attributes such as cash, inventory and receivable management and the operating cycle concept which is a function of three main activities revolving around the efficiency on the working capital components namely; receivables, inventory, cash and accounts. The study adopted descriptive research design which showed whether there exists nexus between the performance of supermarkets and WCM, the target population of the study comprised of 206 identified supermarkets in Nairobi City County, Kenya. Eleven of these supermarkets were sampled. Secondary data for the period 2014 to 2018 was applied. The study used panel regression models for the analysis of the study. Various diagnostic tests such as multicollinearity, stationarity, heteroskedasticity and hausman tests were done. Ethical factors are going to be considered. The study found that quick ratio had significant positive effect on Nairobi’s supermarkets financial performance in Kenya as depicted by likelihood value of 0.010 and coefficient of 0.2928. The study further established that creditor turnover had insignificant effect on Nairobi’s supermarkets performance in Kenya as shown by likelihood value of 0.802 and coefficient of 0.0564. The study also found that inventory turnover had insignificant effect on Nairobi’s supermarkets financial performance in Kenya as illustrated by likelihood value of 0.107 and coefficient of 0.1425. The investigation suggests that firms should endeavor to maintain adequate levels of cash and cash equivalents. This is as higher level of quick ratio remains vital for the financial performance of firms. Additional research can be carried out on other aspects of financial performance such as return on equity as this will facilitate comparisons as well as effective formulation and implementation of policies. The moderation role factors in the operating environment such as inflation can further be established.