AN ANALYSIS OF THE IMPACT OF WORKING CAPITAL MANAGEMENT ON COMPANY LIQUIDITY: A CASE OF CHIPINGE DISTRICT HOSPITAL.

ABSTRACT

Working capital management is vital and it has become the lifeblood of any

organisation. This research study “Analysis of the impact of working capital

management on company liquidity: The case of Chipinge District Hospital.” This

research study sought to examine the implications of effective working capital

management on organisation’s liquidity. The research sought to fulfill objectives

such as assessing the influence of average collection period, average creditors’

payment period and the effects of cash conversion cycle on liquidity as well as

making specific recommendations for improvement in liquidity. The research looked

at, among other issues definition of working capital management, efficient working

capital management, gross working capital and net working capital, permanent and

temporary working capital, optimum working policy, impact of cash conversion

cycle, debtors’ collection period and creditors payment period on liquidity. Beside

these, other aspects covered include working capital financing, empirical literature on

the impact of working capital management on liquidity and effective management of

cash, inventory, account receivables and trade payables. In carrying out the research,

the researcher used descriptive research design, both primary and secondary sources

of data were used. A target population of 49 was used and a sample size of 25 was

employed. The research make use of both probability and non-probability sampling

methods. Probability techniques used was stratified random sampling. On nonprobability

sampling techniques, convenience and purposive sampling methods were

employed. Self-completion questionnaires and interviews were used as the research

instruments. From the information gathered during the research, it was noted that

cash conversion cycle, debtors’ collection period, inventory conversion period and

creditors’ payment period are significant indicators of working capital management.

More so it has been revealed that the organisation had a longer average collection and

payment period. Cash conversion cycle and debtors payment period have a strong

negative relationship with liquidity. A strong positive relationship between creditors’

payment period and liquidity has been observed. Besides this, it has been noted that

cash and inventory management techniques were fairly understood and used in the

hospital. Basing on the findings of the research, it has been concluded that working

capital management has an influence on liquidity, shorter creditors’ payment period

reduces cash flow position of the organisation. Furthermore, longer average

collection period reduces cash flows. Lack of proper cash flow forecasting leads to

revenue and expenditure mismatch and causes cash crisis. From the research findings,

the researcher recommended the organisation to set realistic cash flow forecasts and

create a sound and defined credit policy and improve its collection procedures. Its

operations requires to be computerised in order to enhance efficiency. Again, internal

control systems needs to be reviewed periodically and develop modern internal

control systems. and lastly but not the least an organisation –wide approach is

required to enhance wholesome effective working capital management.