Impact of Working Capital Management Practices on Financial Health of Minimarts in Nairobi County, Kenya
Diana Chepkemoi Kiget *
Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Nairobi, Kenya.
John Mungai
Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Nairobi, Kenya.
*Author to whom correspondence should be addressed.
Abstract
Financial health reflects a firm’s ability to efficiently manage its financial resources, maintain liquidity, meet obligations, and generate profits while minimising risk. This study examined the effect of working capital management practices on the financial health of minimarts in Nairobi County, Kenya, using sales growth as the primary indicator. Minimarts play a critical role in urban retailing; however, inefficiencies in managing working capital often undermine their financial stability. The study focused on three key practices: inventory management, cash management, and accounts payable management. Grounded in the cash conversion cycle theory, the research employed a stratified random sampling technique to select 375 minimarts from a population of 2,500. Data were collected using structured questionnaires with 5-point Likert scale items and data collection matrices to capture sales growth metrics. Diagnostic tests confirmed the suitability of the data, showing no issues of normality, multicollinearity, or heteroscedasticity. Both descriptive and multiple regression analyses were applied to test the hypotheses. The findings revealed a positive and statistically significant relationship between all three working capital management practices and financial health, leading to the rejection of the null hypotheses. Inventory management exhibited the strongest effect (β = 0.685), followed by cash management (β = 0.207) and accounts payable management (β = 0.118). The model explained 37% of the variation in financial health. The study highlights the critical importance of efficient inventory control, particularly for fast-moving consumer goods. It recommends that minimarts maintain optimal stock levels and closely monitor cash flows to enhance sales growth. Overall, the findings contribute to both academic literature and practical decision-making, emphasizing that effective working capital management is essential for improving financial performance in the retail sector.
Keywords: Working capital management, inventory management, cash management, accounts payable, financial health, sales growth