Abstract:
Most agro-firms in Eldoret business Centre have been operating with excess working capital and yet others operate with inadequate working capital meaning it has been difficult to manage their working capital. Businesses are expected to manage their working capital, and its components to enable them generate profitability in their businesses. The purpose of the study was to assess working capital management as a determinant of profitability on agro- firms. The objectives of the study were to assess management of accounts receivables, accounts payable, inventory and cash on firm’s profitability of agro-firms in Eldoret Business Centre. The study was guided by Baumol model, Miller-Orr model, conservative policy and inventory theory. This study adopted a descriptive survey design. The study had targeted a population of 510 respondents. Purposive sampling technique was used to sample 51 managers, while simple random sampling was used to sample 214 other employees. Data was collected using a 5 point Likert scale structural questionnaire. To determine the validity of research instrument, the items in the questionnaires’ content, structure and sequence were appropriately amended to remove any ambiguities and pilot study was carried out and experts’ opinion was sought.Reliability of proposed constructs was tested using Cronbach Alpha. The findings indicated that Working capital management had a cronbach’s alpha coefficient of 0.725, Management of accounts receivables had a coefficient of 0.716, management of accounts payable 0.797, management of inventory had a coefficient of 0.781, management of cash had a coefficient of 0.736 and profitability had a cronbach’s alpha coefficient of 0.781. The data wasanalysed using descriptive statistics that include frequency distribution tables, percentages and other measures of central tendency.From the study it was concluded that all of the postulated hypotheses were not supported. Indicating that management of accounts receivables p=0.001, management of accounts payables p=0.000, management of Inventory p=0.026 and management of Cash p=0.000 are predictor variables for profitability of agro firms. This study recommends that there is need for managers to create value for their shareholders by ensuring effective and efficient management of debtors, they should negotiate for better terms of credit with their supplies, managers should put in place effective inventory control systems to their supply chain department and lastly agro firms should ensure effective cash management and working capital practices. Owing to the limitations of the study it is suggested that same study be done but in other sectors to allow generalizations of the study findings. Working capital is not only a factor that ensures profitability of agro-firms; hence there is need for a study on the determinants of profitability in agro firms.
