An Analysis Of The Efficiency Of Working Capital Management At The Roads Contractor Company Limited

ABSTRACT

Working capital is the most vital part of any business. Working capital management is one of the ways in which a financial manager manages the operational resources of a business. It involves the decision regarding the composition and amount of current assets and current liabilities. Working capital is the life-blood of any corporate. In this study the researcher has selected the Road Contractor Company, (RCC), from the top 97 State Owned Enterprises, (SOEs). This study is based upon primary data and secondary data that was collected from the website of the company, the company’s annual reports, for the financial years 2007-2011. The aim of this study was to investigate the disposal and management of RCC’s working capital and to examine the elements that hinder the efficiency of working capital management at the Roads Contractor Company Limited. Forty three employees from the RCC were selected and interviewed through semi-structured questionnaires. Using financial ratios, the study performed an analysis of the financial statements of the RCC for the financial years ended 2007/08, 2008/09, 2009/10 and 2010/11. Working capital management of RCC is mainly affected by the nature of business, scale of operations, business cycles, seasonal factors, production cycles, credit allowed, credit availed, operating efficiency, industry competition and inflation among others. Using the technique of ratio analysis, the study found that different components of working capital management such as liquidity management, inventory management, accounts receivable management and accounts payable management are not properly managed thereby affecting the overall system of working capital management and company performance. The study further found that the company has a negative net working capital, hence, making it difficult for the company to meet its operation’s demands. Recommendations derived from this study are that RCC needs to adequately improve its working capital management by ensuring proper management of its current assets and current liabilities. The company needs to efficiently and effectively collect its accounts receivables to ensure adequate cash flow in the working capital cycle. The company also needs to honour its obligations to suppliers in order to keep the customer-supplier relationship and secure credit facilities.