The Significance Of Working Capital Management In Enhancing Liquidity And Profitability In The Electricity Distribition Sector In Namibia: A Case Study Of Central Northern Electricity Distrib

ABSTRACT

The study focused on the significance of working capital management in enhancing liquidity and profitability in the electricity distribution sector in Namibia. The main motivator for the researcher to conduct the study was the fact that the electricity distribution sector has deteriorated sharply as the sector continues to be troubled by heavy gearing. This has been aggravated by mounting debt, resulting in financial stress. In this study, the positivism philosophy was adopted as well as the case study research design. In addition, questionnaires were used to collect the data. Descriptive statistics using the measures of central tendency and measures of variability namely: arithmetic means, variances and standard deviations were used to analyse the data. The study established that working capital management is significant to the electricity distribution sector. It is pivotal to the health, performance and value enhancement of business enterprises in the sector. In addition, it highlighted that the growth effect of working capital management is particularly important in the Namibian electricity distribution sector where demand is continually outstripping supply. Thus, the overall benefits of working capital management that are linked to improved liquidity, profitability and enhanced value creation and growth are indispensable to the electricity distribution sector in Namibia. This is also because they enable the sector to make critical infrastructural and technological investments to contain surging demand, and also to attract more investors in this highly capital-intensive sector. In addition, it was established that profit maximisation through working capital management enables a company to realise its ultimate objective of maximising shareholders’ wealth. By so doing, one attracts more investors to make further capital investments that would enable the sector to contain the rising demand in electricity. This is also important because high levels of profitability play a vital role in bringing external finance to the business as creditors, investors and suppliers do not hesitate to invest in such a sector. In turn the enhanced resource utilisation brought about by working capital management also leads to value creation, thereby attracting more investors. Furthermore, the profitability enhancement impact of working capital management enables the sector to plough back its own profits into the required capital investments, thus reducing dependence on expensive debt financing.