THE EFFECT OF WORKING CAPITAL MANAGEMENT ON FINANCIAL PERFORMANCE OF MEDIUM-SCALE BUSINESSES IN LIRA CITY A CASE OF MASS PLUMBING AND TILES HARDWARE, LIRA CITY WEST ALONG OLWOL ROAD
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Date
2024-09-17
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UGANDA CHRISTIAN UNIVERSITY
Abstract
This study aimed at establishing the effect of working capital management on financial
performance of Medium-Scale Businesses in Lira City, with reference to Mass Plumbing and
Tiles Hardware, Lira City West along Olwol Road. The objectives included; to establish the
relationship between inventory management practices and the financial performance of
medium-scale businesses in Lira City, to analyze the relationship between receivables
management strategies and the financial performance of medium-scale businesses in Lira
City, and to examine the relationship between cash management practices and the financial
performance of medium-scale businesses in Lira City.The study employed a correlational
research design. The study population comprised of Managing Directors, Finance Manager,
Accounts Officers, Inventory Managers, Operational staff, and Cashiers; totaling to 24
respondents. These were simple randomly selected. Data was collected using questionnaires.
Quantitatively data was collected by use of frequencies and percentages as well as inferential
analysis. The results of objective one indicated that there is a significant relationship between
inventory management practices and the financial performance of medium-scale businesses
in Lira City (.686**). This implies that maintaining optimal inventory levels has positively
impacted our business's cash flow, and the use inventory management software to track and
manage our stock efficiently. Thus, therefore, there is 47.1 % variation in financial
performance is explained by changes in inventory management practices. These results depict
that inventory management practices is significantly related with improved financial
performance in medium-scale businesses (β1 =0.686, p<0.01). The study also indicated that
there is a significant relationship between receivables management strategies and the financial
performance of medium-scale businesses in Lira City (.589**). This implies that timely
collection of receivables has positively impacted business’s cash flow. Thus therefore, there
is 34.6% variation in financial performance is explained by changes in reviewable
management strategies. In the study results confirm that reviewable management strategies is
significantly related to improved financial performance in medium-scale business (β1 =0.589,
p<0.01). The study finally indicated that there is a significant influence of cash management
practices on the financial performance of medium-scale businesses in Lira City (.342**). This
implies that in situations where there is cash management strategies, business experiences
minimal cash shortages due to efficient cash management practices, and business regularly
prepares cash flow forecasts to manage liquidity, then financial performance is likely to be
affected. Thus therefore, there is 11.7% variation in financial performance is explained by
changes in cash management practices. In the study results confirm that cash management
practices significantly influence the financial performance of medium-scale businesses that
practice it (β1 =0.342, p<0.02). Basing on the above study findings, it was concluded that
working capital management has a statistically significant relationship with financial
performance of Medium-Scale Businesses in Lira City. The recommends that the
management of medium-scale businesses should not over-concentrate on manipulating the
levels of working capital with an attempt to increase the entrepreneurs’ profitability. They
should therefore focus other factors other than working capital, which improve profitability
of the entrepreneur; and areas of further research were suggested.