Effect of working capital management on profitability of supermarkets in Kenya

Abstract

Working capital is an important factor for each business, regardless of its size or style. A company's operations can be disrupted; therefore, working capital management assists managers in ensuring that cash collections and disbursements match. Supermarkets have a big impact on the nation's economy because they directly and indirectly increase the country's GDP. This contact will have an impact on their performance, either directly or indirectly. The main purpose of the study is to establish effects of working capital management on profitability of supermarkets in Kenya. The study objectives included the study of the effect of accounts receivable, influence of cash management, impact of accounts payable and effect of inventory control on profitability of supermarkets in Kenya. This study was supported by resource dependency theory, profit maximization theory and agency theory to clarify how corporate governance influences the performance of family-owned businesses. The study engaged 140 participants from ten licensed supermarkets in Nairobi County and used a descriptive research methodology with standardized questionnaires for data collection. SPSS version 25 was used for both descriptive and inferential statistics in the analysis. Three diagnostic tests for multicollinearity, normalcy, and heteroskedasticity validated the data's dependability and validity. The descriptive statistics demonstrated how well the sampled respondents fit the criteria. The inferential analysis demonstrated that accounts payable, cash management, accounts receivable and inventory credit control have varying positive and significant relationships with firm profitability with all the four variables having p-values less than 0.05. The coefficient of determination (R²) was 0.4111, indicating that the regression model accounts for only 41.11% of the variability. The adjusted R² stood at 0.3893, meaning that approximately 38.93% of the variation in supermarket profitability could be explained by changes in accounts payable, cash management, accounts receivable, and inventory credit control. The study recommends that supermarkets prioritize the integration and application of financial indicators such as the accounts receivable-to-sales ratio into their financial planning and decision-making processes to enhance their financial health and profitability. Additionally, the research advises further investigation into other financial accounting factors to assess their impact on profitability within the supermarket sector.