Exploring the Relationship between Working Capital Management, Liquidity, and Financial Performance within the Context of Kenyan SME’s

Frankline Chasha Sogomi, Mary Kavele Patrick and Charles Guandaru Kamau
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Frankline Chasha Sogomi: Department of Accounting and Finance, Technical University of Mombasa, Kenya
Mary Kavele Patrick: Department of Accounting and Finance, Technical University of Mombasa, Kenya
Charles Guandaru Kamau: Department of Accounting and Finance, Technical University of Mombasa, Kenya

African Journal of Commercial Studies, 2024, vol. 4, issue 2

Abstract: The concept of working capital revolves around the effective administration of short-term assets and liabilities within an organization, with the ultimate goal of augmenting profitability and safeguarding against potential insolvency scenarios. In this scholarly article, we undertake a thorough evaluation of the intricate relationship between working capital management, liquidity, and financial performance within the context of Kenya, with a particular focus on small and medium enterprises. Our analysis primarily relies on an exhaustive review of pertinent academic literature that delves into the subject matter at hand. A noteworthy observation that emerged from this investigation was the realization that inadequate working capital management has the potential to precipitate the downfall of even the most prosperous corporations. The majority of the scrutinized literature unequivocally posits that a strong correlation exists between working capital management and profitability. Moreover, it is imperative to acknowledge the pivotal role played by liquidity, firm size, leverage, and various other financial ratios, as these factors constitute integral components of the overarching framework of working capital management.

Keywords: Working capital management; Liquidity; Financial performance; profitability; SME’s (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:cwk:ajocsk:2024-10

DOI: 10.59413/ajocs/v4.i2.4

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