The Working Capital Management Practices And Financial Performance Of Middle Level Colleges In Eldoret Town, Kenya

ABSTRACT

The financial performance of any organization is crucial dependent on the efficient management of working capital management. In virtually all cases, educational institutions is afflicted by poor financial performance due to its unique approach to the management of working capital which involves more of accounts payables and receivables than any other working capital management practises. Due to prevailing economic conditions, these Middle level Colleges are financially weakened by the decline in admissions, a problem that is further compounded by lack of established working capital management policies which expose them to delinquency risks of slow fee payment and defaults which consequently affecting their financial performance. The purpose of this study was to investigate the effects of working capital management practices and their effects on financial performance of Middle level Colleges in Eldoret town in Kenya. The specific objectives of the study were to assess the effects of cash management practices on financial performance, to establish the effects of inventory management on financial performance of Middle level colleges, to ascertain the effects of trade payable management and to determine the effects of accounts receivables on financial performance of Middle level colleges. The study was informed by stakeholder and agency theories and guided by descriptive research design in that the method was best suited as it gave an exhaustive analysis of the situation while reporting the way things with regard to the possible behaviour, attitude, values and characteristics. The study adopted the census technique because of the fewer numbers of Middle level colleges and employed a random sampling technique to target the 86 respondents who held the position of financial managers/owner and the accountants from the 43 Middle level colleges registered by the ministry of education at Eldoret Town. The researcher used structured questionnaires and documentary analysis to collect primary data from the accountants and Managers of the Colleges. The data collected were analysed using descriptive statistics to determine the mean, standard deviation, minimum and maximum of the various variables. Pearson correlation coefficient was used to analyse the relationship between the dependent variable (operating margin) and the independent variable based on the inventory turnover days, number of day‟s accounts receivable, number of day‟s accounts payable and the cash conversion cycle. Regression analysis was used to estimate the causal relationships between the financial performance variable (dependent variable) and the working capital variables (independent variables). Results from the analysis showed that these institutions have focused on working capital management practises in two aspects, that is, cash management and accounts receivables. The cash conversion cycle, APP are significant in determining the operating margins. Further, operating margin significantly correlated with cash conversion cycle (r = 0.826), accounts payable(r = 0. 634) and accounts receivable(r = 0.522) while the margins are particularly influenced by cash conversion cycle and accounts receivables. The findings show that the institutions are able to efficiently handle working capital by improving on the cash management techniques and largely implementing efficient accounts receivable practises.