Effects of Working Capital Management on Financial Performance of Energy and Petroleum Companies Listed at Nairobi Securities Exchange

Abstract

Purpose – This paper sought to establish the effect of Working Capital Management on the financial performance of Energy and Petroleum Companies listed at the Nairobi Securities Exchange.

Methodology – The study was modelled as correlation survey. A data collection sheet was used to collect secondary data from the published financial statements of all Energy and Petroleum companies listed at Nairobi Securities Exchange for a period of eight years between 2007 and 2014. Both descriptive and quantitative analyses were adopted. Pearson correlation, regression and ANOVA analysis were also conducted.

Findings - The study suggests that Working Capital Management influence the Return on Assets significantly. 17.8% of the variations in profitability were influenced by variations in the Working Capital Management. The study establishes that the influence of Working Capital Management on profitability is statistically significant. The study finds weak negative associations between profitability and inventory conversion period, accounts collection period, accounts payable period and cash conversion cycles. The study establishes that the negative relationships between accounts payable period, cash conversion cycle and profitability are statistically significant. The relationships between accounts collection period, inventory conversion period and performance are not statistically significant.

Implications - It is incumbent upon the Finance Managers of Energy and Petroleum companies listed at Nairobi Securities Exchange to understand the Energy and Petroleum business operations, and put in place robust Working Capital Management framework because of significant and positive impact on the financial performance of these companies.

Value - A vibrant and profitable Energy and Petroleum sector has been identified as a key pillar to the achievement of Kenya’s Vision 2030. It is critical therefore, to re-evaluate existing Working Capital Management framework of these companies for robustness in order to realize the Vision 2030.