The Effect Of Working Capital Management On Organisational Profitability; Case Study Of Gccel, Mbale

ABSTRACT

The study was set to assess the effect of working capital management on organisational profitability at Gumutindo Coffee Cooperative Enterprise Limited. Four specUlc objectives guided the study, that is; to establish the effect of inventory management on organisational profitability

of Gumutindo Coffee Cooperative Enterprise Limited. To determine the effect of accounts receivable management on organisational profitability of Gumutindo Coffee Cooperative Enterprise Limited. To analyse the effect of accounts payable management on organisational

profitability of Gumutindo Coffee Cooperative Enterprise Limited. To examine the effect of cash management on organ isational profitability ofGumutindo Coffee Cooperative Enterprise Limited

The study was guided by the trade-offtheory by Modigliani and Miller (1963) and the goal theory by Etzioni (1964). A descriptive case study research design was used with a mixed approach using both quantitative and qualitative data. Total population was 345from which a sample of 18] was derived using Krejcie and Morgan, (1970) table. Data was generated using questionnaire method,

supplemented with interview, and documentary review. The Findings revealed that there was a moderate sign~lcant positive relationship between inventory management and organisational profitability at a correlation coefficient (R) = 0.455** given by Pearson correlation. Using predictor — inventoly management, adjusted R2 was 0.202. There was a moderate sigi4!lcant

positive relationshz~ between accounts receivable management and organisational profitability at

a correlation coefficient (1?) = Q~3Q9** given by Pearson correlation. The predictor — accounts receivable management revealed adjusted R2 of 0. 090. There was a moderate ~‘ignificant positive relationship between accounts payable management and organisational profitability at a correlation coefficient (R) = 0.368** given by Pearson correlation. Using predictor — accounts

payable management, adjusted R2 was 0.130. There was a moderate significant positive relationship between cash management and organisational profitability at a correlation coefficient (R) = 0.411 * * given by Pearson correlation. The predictor — cash management

revealed adjusted R2 of 0.164. There was a significant positive relationship between working

capital management and organisational profitability at a correlation coefficient (R) = 0.563** given by Pearson correlation. The combined predictor — working capital management revealed adjusted R2 of 0.300. Recommendations were: The finance manager may advise on more investment in inventory by, sale ofmore shares to coffee farmers to raise more capital and supply

of coffee against acquisition of shares in GCCE. The finance manager may advocate for alternative strategies to accelerate payment collection like offering discountfor quicker payments to supplement borrowing against invoices. GCCE may promise apremium price to farmer and an addition of interest so that farmers increase supply coffee on credit payable in three months. Negotiate a delay ofpayment to credit suppliers as much as possible to maximize the use oftrade credit as a source offunds which is interest free. The whole management team and the finance manager in particular needs to enforce adherence to the cash policy put into place to guide and

control cash management. For example by ensuring that cash related transactions are fully documented so that an undisputable audit trail exists. This will improve accountability and ensure that cash is safe, not idle and available when needed.

TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGMENTS iv

TABLE OF CONTENTS v

LIST OF TABLES ix

LIST OF FIGURES x

LIST OF ABBREVIATIONS! ACRONYMS xi

ABSTRACT xii

CHAPTER ONE 1

1.0 Introduction 1

1.1 Background of the Study 1

1.2 Statement of the Problem 5

1.3 General Objective 6

1.4 Specific Objectives 6

1.5 Research Questions 6

1.6 Scope of the Study 6

1.6.1 Content Scope 6

1.6.2 Geographical Scope 7

1.6.3 Time Scope 7

1.7 Significance of the Study 7

1.8 Justification of the Study 7

1.9 Definition of Key Terms 8

1.10 Conceptual Frame Work 9

1.11 Conclusion 11

CHAPTER TWO 12

2.0 Introduction 12

V

2.1 Theoretical Review 12

2.1.1 Trade off theory by Modigliani and Miller (1963) 12

2.1.2 Performance Measurement — Goal Theory by Etzioni (1964) 14

2.2 Review of the Main Concepts of the Study 15

2.2.1 Working capital management 15

2.2.2 Organisational Profitability 16

2.3 Actual Review 18

2.3.1 Inventory Management and Organisation Profitability 18

2.3.2 Accounts Receivable Management and Organisation Profitability 21

2.3.3 Accounts Payable Management and Organisation Profitability 23

2.3.4 Cash Management and Organisation Profitability 26

2.4 Conclusion 29

CHAPTER THREE 30

3.0 Introduction 30

3.1 Research Design 30

3.2 Area of Study 30

3.3 Study Population 30

3.4 Sampling Procedures 31

3.4.1 Sample Size 31

3.4.2 Sampling Techniques 31

3.5 Data Collection Methods and Instruments 32

3.5.1 Questionnaire Survey 32

3.5.2 Interviews 32

3.5.3 Documentary Review 33

3.6 Quality Control Methods 33

3.6.1 Reliability 33

3.6.2 Validity 34

3.7 Data Management and Analysis 35