Working Capital Management Practices and Financial Performance of Public Universities in Kenya

Abstract

This study investigated the relationship between working capital management practices and the financial performance of public universities in Kenya. It recognized persistent liquidity challenges and budget deficits as significant concerns, as highlighted by the Commission for University Education (CUE) in 2021. The research analyzed the effects of accounts receivable and accounts payable management on financial performance, with the objective of providing insights into the operational efficiency and sustainability of these institutions. Data were collected from 31 public universities, focusing on key performance indicators such as liquidity ratios, profitability metrics, and solvency ratios. The findings revealed that effective accounts receivable management significantly enhanced financial performance by optimizing cash inflows, thus improving liquidity. Conversely, effective accounts payable management contributed positively by managing cash flow constraints and fostering financial sustainability. The regression analysis confirmed a statistically significant relationship between working capital management practices and financial performance, evidenced by a strong R-squared value of 0.788. Both management practices demonstrated notable impacts, with unstandardized coefficients indicating that enhancements in accounts receivable and accounts payable management significantly affected the universities’ overall financial health. This research underscored the critical importance of sound working capital management practices for the financial viability of public universities in Kenya. It concluded that these practices could mitigate liquidity constraints and improve profitability, emphasizing the need for universities to adopt stringent management strategies. Recommendations included the establishment of efficient debt collection frameworks and prompt supplier payments to optimize cash flow. The study highlighted the necessity for continuous monitoring and evaluation of working capital strategies to ensure alignment with financial objectives. Future research should explore other components of working capital management, providing a broader understanding of financial performance in higher education institutions