Abstract:

The purpose of this paper is to analyze the effect of working capital management on profitability of manufacturing companies for a sample of Nine firms listed on Nairobi Securities Exchange.

Design/methodology/approach – The paper includes a conceptual as well as empirical analysis, in which data from a sample of listed firms for the period from 2006 to 2010 are analyzed to examine the effect of working capital management on profitability of manufacturing firms. The author used OLS regression techniques to test assumptions and several different models were also run.

Findings – The study reveals that effective working capital management has great impact on profitability. He suggested that managers should focus on managing working capital components to achieve profitability of their companies

Originality/value – The paper's originality and value lies in suggesting that financial managers should pay more attention to working capital management of manufacturing firms and other companies in general to optimize the value of the share holders and maintain a favorable trade-off between liquidity and profitability

Keywords: Working Capital Management; Profitability; Average Collection Period: Average Payment Period; Cash Conversion Cycle, Inventory turnover in Days

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