Abstract:
Working capital management is a very sensitive area in the field of financial
management. The working capital management of a firm in part affects its
profitability. A firm is required to maintain a balance between liquidity and
profitability while conducting its daily operations. The aim of this study is to
investigate the effect of working capital management practices on financial
performance of Small and Micro Enterprise in Sokoban Wood Village in
Ashanti region. This objective was accomplished through establishing the
effect of inventory, receivables and payables and cash management practice
on the financial performance. Cross-sectional survey was adopted where
quantitative data was collected from a paper-based questionnaire. A stratified
random sampling technique was used to sample one hundred and fifteen
owners of SMEs in Sokoban Wood village. Data was analyzed using
descriptive statistics such as frequency distribution, percentages, means and
standard deviation. Multiple regressions were used to test the main hypothesis
of this study. It was found that various inventories are kept by different SMEs
in Sokoban Wood Village but majority of them keep finished goods, and have
a system in place which they use for stock counting. The study established that
there was a statistical significant relationship between all the factors:
inventory, accounts receivables and payables, and cash management practices
and firm’s profitability. As inventory, accounts receivables and payables, and
cash management practices values increase profitability also increases in
value.
