Working capital management and financial performance of small and medium scale enterprises in Hoima municipality
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Date
2018-07
Authors
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Journal ISSN
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Publisher
Kampala International University, College of Economics and Management
Abstract
Working capital management plays a significant role in better performance of business entities. This paper analyses whether SMEs in Hoima Municipality carry out the recommended working capital management practices and the effect of Working Capital Management (WCM) on the financial performance of these enterprises. The study employs a quantitative research design which is useful in establishing the relationship of working capital management and financial performance. In addition, the study employs a cross sectional survey to establish whether SMEs in Hoima Municipality carry out WCM practices. A sample of100 SME5for a period of2011 to 2016 is to be used. However, a total of 89 responses were received. The study relies on both primary data, collected through a questionnaire, and secondary data collected from annual reports and financial statements of SMEs in Hoima Municipality. The WCM components to be used for the purpose of this study are, Accounts Payable Period (APP), Inventory Conversion Period (ICP) and Average Collection Period (ACP). Return on Assets (ROA) was used as the proxy for financial performance. The study employs a regression analysis and the Pearson‘s’ correlation analysis is to be used to test the significance of relationship between WCM and financial performance of SMEs in Hoima Municipality. The results of the study indicate that 62.9% of the SME‘s in Hoima Municipality do not have a written policy on WCM However, they are informally adopting some of the WCM practices. The results further indicated there is a significant positive relationship between WCM components (APP, ACP and ICP) and financial performance of SMEs in Hoima Municipality at a 0.05 significance level. A positive correlation coefficient of0.833 was established between ROA and the ACP indicating a significant positive relationship between ACP and ROA. A positive correlation coefficient of 0. ~O9 was also established between ROA and ICP indicating a significant positive relationship between ROA and ACP. Finally a positive correlation coefficient was established between ROA and APP indicating a significant positive relationship between ROA and APP.
Description
A research report submitted to the College of Economics and Management in partial fulfillment of the requirement for the award of Bachelor’s degree in Business Administration of Kampala International University
Keywords
Working Capital management, Financial performance, Small and medium scale enterprises, Hoima Municipality