Working capital management and financial performance: The case of small and medium sized businesses in economic distress

Abstract

This paper examined the impact of working capital management practices on the financial performance of small and medium-sized enterprises (SMEs) in the Kumba Municipality. The principal objective of the study was to examine the impact of working capital management practices on the financial performance of small and medium-sized enterprises (SMEs). The research adopted a descriptive and causal research design based on the primary data collected using a well-designed and self-administered questionnaire. A stratified random sampling technique was employed to select a sample size of 97 respondents. A regression analysis was conducted, and a Pearson correlation was employed to ascertain the strength of the relationship between working capital management practices and the financial performance of SMEs. The findings of the study indicate that inventory management and accounts receivable management practices exert a significant influence on the financial performance of SMEs. Moreover, inventory management emerges as the variable with the highest explanatory power for financial performance, as it serves to secure the long-term future of the company through speculation. In light of these insights, the study proposes that SMEs should adopt effective working capital management practices, such as inventory management and accounts receivable management. Additionally, reducing the cash conversion cycle could prove beneficial for SMEs, as it may lead to increased sales through enhanced customer satisfaction.

Keywords:  Working Capital Management, Financial Performance, Small and Medium Size Enterprises.

Classification JEL: G32

Paper type: Empirical Research