The effect of working capital management on organizational profitability; case study of GCCEL, Mbale
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Date
2019-08
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Publisher
Kampala International University, College of Economics & management.
Abstract
The study was set to assess the effect of working capital management on organizational profitability at Gumutindo Coffee Cooperative Enterprise Limited. Four specific objectives guided the study, that is; to establish the effect of inventory management on organizational profitability of Gumutindo Coffee Cooperative Enterprise Limited. To determine the effect of accounts receivable management on organizational profitability of Gumutindo Coffee Cooperative Enterprise Limited. To analyse the effect of accounts payable management on organizational profitability of Gumutindo Coffee Cooperative Enterprise Limited. To examine the effect of cash management on organizational profitability of Gumutindo Coffee Cooperative Enterprise Limited The study was guided by the trade-off theory by Modigliani and Miller (1963) and the goal theory by Etzioni (1964). A descriptive case study research design was used with a mixed approach using both quantitative and qualitative data. Total population was 345 from which a sample of18] was derived using Krejcie and Morgan, (1970) table. Data was generated using questionnaire method, supplemented with interview, and documentary review. The Findings revealed that there was a moderate significant positive relationship between inventory management and organizational profitability at a correlation coefficient (R) = 0.455** given by Pearson correlation. Using predictor — inventory management, adjusted R2 was 0.202. There was a moderate significant positive relationship between accounts receivable management and organizational profitability at a correlation coefficient (1?) = Q~3Q9** given by Pearson correlation. The predictor — accounts receivable management revealed adjusted R2 of 0. 090. There was a moderate ~‘significant positive relationship between accounts payable management and organizational profitability at a correlation coefficient (R) = 0.368** given by Pearson correlation. Using predictor — accounts payable management, adjusted R2 was 0.130. There was a moderate significant positive relationship between cash management and organizational profitability at a correlation coefficient (R) = 0.411 ** given by Pearson correlation. The predictor — cash management revealed adjusted R2 of 0.164. There was a significant positive relationship between working capital management and organizational profitability at a correlation coefficient (R) = 0.563** given by Pearson correlation. The combined predictor — working capital management revealed adjusted R2 of 0.300. Recommendations were: The finance manager may advise on more investment in inventory by, sale of more shares to coffee farmers to raise more capital and supply of coffee against acquisition of shares in GCCE. The finance manager may advocate for alternative strategies to accelerate payment collection like offering discount for quicker payments to supplement borrowing against invoices. GCCE may promise a premium price to farmer and an addition of interest so that farmers increase supply coffee on credit payable in three months. Negotiate a delay of payment to credit suppliers as much as possible to maximize the use of trade credit as a source of funds which is interest free. The whole management team and the finance manager in particular needs to enforce adherence to the cash policy put into place to guide and control cash management. For example, by ensuring that cash related transactions are fully documented so that an undisputable audit trail exists. This will improve accountability and ensure that cash is safe, not idle and available when needed.
Description
A research report submitted to the College of Economics and Management in partial fulfillment of the requirements for the Award of Bachelors Degree of Business Administration (accounting and finance) of Kampala International University
Keywords
Working Capital Management, Organizational Profitability