The Impact of Working Capital Management on Financial Performance of Supermarkets in Arusha City – Tanzania

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue XII, December 2018 | ISSN 2454–6186

The Impact of Working Capital Management on Financial Performance of Supermarkets in Arusha City – Tanzania

Baraka P Mtani¹ & Dr. Ndalahwa Musa Masanja²

¹MBA, University of Arusha, Tanzania
²PhD., University of Arusha, Tanzania

Abstract:-Management of working capital is a crucial function of any business undertaking, supermarkets included. By the reason of its significance, this study investigated the impact of working capital management on financial performance of supermarkets in Arusha city. The study employed a co relational research design, where data was collected by using the questionnaire from 10 supermarkets which were in operation during the time of carrying out this study from January to October 2018. The collected data were analyzed using descriptive and inferential statistics. A t-test, ANOVA, correlation and regression techniques were used to examine the relationships between working capital management and financial performance. Specific objectives were: to determine the kind of policies and strategies of managing working capital employed by supermarkets, to investigate the relationship between current assets and financial performance of supermarkets, to determine the relationship between current liabilities and financial performance of supermarkets and to find out how well average collection period, average payables period, and cash conversion cycle predicted financial performance of supermarkets in Arusha city.
The study findings revealed that the dominant policy for managing working capital of supermarkets in Arusha city was the conservative policy. Financial performance responded to changes in current assets at a weak negative impact of 20.4%. On the other hand, there was a positive impact of 44% on the relationship between financial performance and current liabilities. Working capital components like average collection period, average payables period and cash conversion cycle were not the best predictors of the variations in the financial performance of supermarkets in Arusha city since the R2 was around 16%. Hence there was little justification that working capital had an impact on financial performance. It was recommended that supermarkets should consider other policies like aggressive policy not just relying on conservative policy. Future studies should be done to investigate the impact of working capital management on financial performance basing on actual financial data, where by the regression model would include current liabilities and current assets among other independent variables as components of working capital.

Keywords: Working capital management, financial performance, current assets, current liabilities, profitability.

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