Working Capital Management and Growth of Merchandizing Micro and Small Enterprises Along River Road Nairobi

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Date

2010-06

Journal Title

Journal ISSN

Volume Title

Publisher

Daystar University, School of Business and Economics

Abstract

This study examined the impact of good working capital management on growth of micro and small-sized (MSEs) enterprises in Kenya. The aim of this work was to determine the extent to which good working capital management determined the growth of MSEs in Kenya, by studying MSEs along Nairobi’s River Road Area. The study considered use of turnover levels and employee size as growth indicators, as a combination of the two is more reliable and gives a clearer picture on their performance, not only on sales level alone but also on their smallness in terms of employment level. The MSE sector plays a key role in national development of the country, through employment creation, industrial transformation and provision of specialized products for local markets, among others, despite their being faced with problems such as limited access to external finance and management. The theoretical framework for this study consisted of studying the various components of working capital management (WCM) and optimal working capital levels as it implicates the administration of current assets as well as current liabilities. WCM is the main part of a firm’s short-term financial planning since it encompasses the management of cash, inventory and accounts receivable/payable, and the way in which they are managed determines the way these firms grow in size and turnover. A descriptive research design was used in this study which involved a study of 61 merchandising MSEs along Nairobi’s River Road. The data collected was analysed using descriptive statistics and correlations. The study established that MSEs did not employ optimal working capital management practices and this affects their growth and size. x There was insignificant correlation between turnover and employee size explaining the fact that turnover was not adequate to warrant additional employees. Optimality on cash was not maintained as these MSEs were not liquid, experienced problems in meeting their daily and periodic expenses, borrow from shylocks and friends instead of from banks and experienced discontinuation of services by their service providers. Non- optimality in management of receivables and payables was experienced in the sense that MSEs generally did not sell merchandise on credit and did not take advantage of credit sales offered by their suppliers, hence limiting turnover growth that was pertinent to their growth. On inventories, these MSEs held inadequate stock levels thus experienced problems in boosting turnover, and the little held suffered obsolescence and losses. There was however gradual increase in turnover levels over the years but employee size growth reflected a random movement over the same period. This reflected that that poor working capital management practices resulted into lower growth in the number of employees.The study recommended that MSEs should hold more cash to improve their liquidity and also invest surplus cash in profitable ventures such as in marketable securities, they should take advantage of credit sales and trade credit, and they need to hold optimal levels of inventories and track slow moving and obsolete stocks. Overall good working capital management practices would lead to growth in both turnover and employee size.

Description

MASTER OF BUSINESS ADMINISTRATION in Finance

Keywords

capital management, small-sized (MSEs) enterprises, performance

Citation

Muriu, K. S. (2010). Working Capital Management and Growth of Merchandizing Micro and Small Enterprises Along River Road Nairobi. Daystar University, School of Business and Economics