Working capital management practices and financial performance of small and medium enterprises (SME) in Ashanti Region

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.