Working Capital Management Cycle and Profitability of Household Supermarkets in Kenya: A Literature Review
- September 18, 2021
- Posted by: rsispostadmin
- Categories: IJRISS, Social Science
International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue VIII, August 2021 | ISSN 2454–6186
Alice Ruguru Ngari1, Charles Guandaru Kamau, PhD2
1Postgraduate Student at Mt. Kenya University, Kenya
2Lecturer at Technical University of Mombasa, Kenya
Abstract: – Working capital management involves management of short-term assets and liabilities. The purpose of this study was to examine the working capital management cycle in relation to profitability of household supermarket in Kenya. The objectives of the study were to evaluate the receivable conversion period, payable Deferral period, and inventory conversion period on the profitability of Household supermarket in Kenya. This study was guided by Operating Cycle Theory. The study used literature review methodology. The research concluded that firms that manage working capital efficiently enjoy the benefit of long survival in business, and that shareholders’ value can be raised by reducing account receivable days, by hiking stocks to a sensible level, by taking long to pay suppliers yet ensuring good terms and by minimizing the CCC days.
Key Words— Receivables management, Payables Management, Inventory Management, Profitability.
Introduction
Maximization of profit is the main goal of every business. A profitable business that earns a high profit has ability to increase owners’ wealth while any business without profit will not survive in the long run. Failure to manage working capital management (WCM) may result to incapacity to guarantee smooth running of a business’ daily operations (Aminu, 2012). Employing an effective method of managing WCM is a remarkable way for a supermarket to retain its earnings.
Incompetent methods of handling short-term resources in supermarkets have led to their downfall. Mbuthia and Rotich (2014) held that mismanagement of working capital was the main contribution of the collapse of Uchumi supermarket. For example, continuous supply of stock was affected where business could not clear debts on time due to shortage of funds. Violation of agreement with suppliers resulted to legal actions and massively reduced the supermarkets’ income. A supermarket cannot meet financial obligation if there is no sound management of working capital. The negative practices harmfully affect the firm’s returns. Nakumatt supermarket Ltd collapsed and sold off some of its branches due to mismanagement of working capital (Ogwang, 2016). The supermarket could not sustain branches due to cash flow problems.
