Exploring the Relationship between Working Capital Management, Liquidity, and Financial Performance within the Context of Kenyan SME’s

Authors

DOI:

https://doi.org/10.59413/ajocs/v4.i2.4

Keywords:

Working capital management, Liquidity, Financial performance, profitability, SME’s

Abstract

The concept of working capital revolves around the effective administration of short-term assets and liabilities within an organization, with the ultimate goal of augmenting profitability and safeguarding against potential insolvency scenarios. In this scholarly article, we undertake a thorough evaluation of the intricate relationship between working capital management, liquidity, and financial performance within the context of Kenya, with a particular focus on small and medium enterprises. Our analysis primarily relies on an exhaustive review of pertinent academic literature that delves into the subject matter at hand. A noteworthy observation that emerged from this investigation was the realization that inadequate working capital management has the potential to precipitate the downfall of even the most prosperous corporations. The majority of the scrutinized literature unequivocally posits that a strong correlation exists between working capital management and profitability. Moreover, it is imperative to acknowledge the pivotal role played by liquidity, firm size, leverage, and various other financial ratios, as these factors constitute integral components of the overarching framework of working capital management.

References

Ahmed, A. Y., & Mwangi, L. W. ( 2021 ). Working Capital Management and Financial Performance of Small and. International Journal of Current Aspects in Finance, Banking and, Volume 4,( Issue 1), 56-71,. DOI: https://doi.org/10.35942/ijcfa.v4i1.229

Altawalbeh M.A.F. (2020). impact of working capital management on financial performance: evidence from Jodern. International Journal of Academic Research in Accounting, Finance, and Management Sciences, 10 (1): , 308-315. DOI: https://doi.org/10.6007/IJARAFMS/v10-i1/7196

Althaqafi, T. (2020). Effect of inventory management on financial performance: evidence from the. European Journal of Accounting, Auditing, and Finance Research, 8, 10, , pp.13-26.

Bashir, Z., Arshad, M. U., Ghazali, A., Haider, A., Fazal, S., & AizazGoraya. (2018). An Empirical Analysis of Working Capital Management Attributes and Firm’s Profitability Evidence from the Textile Sector of Pakistan. Journal of Commerce, Accounting and Finance Management, Volume 1 Issue 2 , 1-22.

Boisjolya, R. P., Conine, J. R., & Donald, T. E. (2020). Working capital management: Financial and valuation. Journal of Business Research,, 1- 8. DOI: https://doi.org/10.1016/j.jbusres.2019.09.025

Botoc, C., & Anton, S. G. (2017). IS PROFITABILITY DRIVEN BY WORKING CAPITAL MANAGEMENT? EVIDENCE FOR HIGH-GROWTH FIRMS FROM EMERGING EUROPE. Journal of Business Economics and Management, 1136-1155. DOI: https://doi.org/10.3846/16111699.2017.1402362

County of Garissa Trade Report. (2017). Performance of Small and Medium Enterprises in Garissa.

Delima, V. J. (2020). Impact of Working Capital Management on Firm’s Profitability: A Study on Listed Companies in Sri Lanka. Asian Journal of Economics, Business and Accounting, 20(1), 42-58. DOI: https://doi.org/10.9734/ajeba/2020/v20i130318

Elangkumaran, P., & Nimalathasan, B. (2016). The Impact of Working Capital Management on Corporate Profitability: Evidence from Listed Manufacturing Company of The Colombo Stock Exchange in Sri Lanka. Accounting Governance & Corporate Sustainability: Proceedings of the 2nd International Conference. DOI: https://doi.org/10.2139/ssrn.3733327

Han, R. (2021). Empirical Study on Influence Factors of Working Capital and Turnover Ratio. 1-18. DOI: https://doi.org/10.2139/ssrn.3833039

Iqbal, Z., Hussain, M., Khalique, M., & Tabassum, A. (2020). New Insight in Working Capital Determinants Making Sensitivity Analysis for Non-financial Listed firm’s Evidence from Pakistan. Journal of Managerial Sciences, Volume XI Number 04 , 1-22.

Islam, M., & Nazneen, S. (2013). Efficienc in Working Capital Management and its Relationship with Profitability: Study on the Engineering Sector in Bangladesh. The Jahangirnagar Journal of Finance & Banking, Volume-1, 1-9. DOI: https://doi.org/10.2139/ssrn.2979299

KENNON, J. (January 07, 2022). Working Capital.

Khan, M. A. (2016). Working Capital Management and Its Impact on SMU’S Performance. IJER © Serials Publications, 13(5), 2059-2088.

Kiptoo, I. K. (2017). Working Capital Management Practices And Financial Performance Of Tea Processing Firms In Kenya. University of Embu.

Kulo, I. I., Joshua, A., & Obeng, A. R. (2020). Effect of Working Capital Management on the viability of the company: A review in Sri Lanka on Listed Companies. International Journal of Empirical Finance and Management Science, Vol. 02, (No. 03), 32-42.

Mbathi, V., Mwambia, F., & Makena, J. (2021). Effect of cash conversion cycle and inventory holding period on the profitability of small and medium enterprises in wote, makueni county. European Journal of Accounting, Auditing and Finance Research, Vol.9, 35-42. DOI: https://doi.org/10.2139/ssrn.3814951

Murigu, R. J. (2019). EFFECT OF WORKING CAPITAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF HOTELS IN NYERI COUNTY KENYA. International Journal of Business Management and Economic Review, 13-84.

Ndagijimana, J. P. (2014). Factors Affecting Working Capital Management Practices In Small and Medium Enterprises in Nairobi. Chandaria School of Business [2983], 13-55. http://erepo.usiu.ac.ke/11732/83

Ngari, A. R., & Kamau, C. G. (2021). Working Capital Management Cycle and Profitability of Household Supermarkets in Kenya: A Literature Review. International Journal of Research and Innovation in Social Science (IJRISS), v(viii), 711-714. DOI: https://doi.org/10.47772/IJRISS.2021.5841

Ngari, A. R., & Kamau, C. G. (2022). The Effect of Working Capital Management Cycle on Profitability of Retail Supermarkets in Mombasa, Kenya: A Case Study of Binathman Household Supermarket in Mombasa City. Asian Journal of Economics, Business and Accounting, 22(14), 54–70. DOI: https://doi.org/10.9734/ajeba/2022/v22i1430623

Nyeadi, J. D., Sare, Y. A., & Aawaar, G. (2018). Determinants of working capital requirement in listed firms: Empirical evidence using a dynamic system GMM. 20, 1-14. DOI: https://doi.org/10.1080/23322039.2018.1558713

Sensini, L. (2020). Working capital management and performance: evidence Canadian. Journal of Administrative Sciences,, 16(1), 53-57.

Terreno, D. D., Peréz, J. O., & Sattler, A. S. (2020). Working Capital Management and Profitability: Evidence from an Emergent Economy. International Journal of Advances in Management and Economics.

Warrad, L. (2013). The Impact Of Working Capital Turnover On Jordanian Chemical Industries’ Profitability. American Journal of Economics and Business Administration, 5(3), 116-119. DOI: https://doi.org/10.3844/ajebasp.2013.116.119

Zimon, G., & Tarighi, H. (2021). Effects of the COVID-19 Global Crisis on the Working Capital. Journal of Risk and Financial Management, 1-18. DOI: https://doi.org/10.3390/jrfm14040169

Downloads

Published

2024-03-16

How to Cite

Sogomi, F. C., Patrick, M. K., & Kamau, C. G. (2024). Exploring the Relationship between Working Capital Management, Liquidity, and Financial Performance within the Context of Kenyan SME’s. African Journal of Commercial Studies, 4(2), 113-120. https://doi.org/10.59413/ajocs/v4.i2.4