effects of working CAPITAL Management on firms profitability: A study on selected manufacturing micro and small enterprise (MSE) in jimma town

Abstract

The general objective of this study was to determine the effects of working capital management practices on profitability of manufacturing Small and Medium Enterprises (SMEs) in Jimma town. The study adopted a cross-sectional survey research design which allowed the collection of primary quantitative data through questionnaire. From a total of 461, 214 respondents with 100 owners, 44 managers and 70 senior employees distributed proportionately were carried out for this study. Hence, 204 (95.3%) respondents were returned the distributed questionnaire. The study used stratified random sampling method by dividing the population into three subpopulations or strata. A simple random sampling method was then used to select the specific respondents for the study. Data was analyzed by descriptive and inferential statistics. Descriptive statistics such as mean and standard deviations as well as correlation and linear regression model was used to analyze quantitative data. The major findings include: length of cash conversion cycle has a material influence on the profitability of SMEs, the inventory holding period had also material influence on profitability of firms, Delaying payments to suppliers allows businesses to assess the quality of the products that were bought and can be an inexpensive and flexible source of financing, a shorter accounts receivable period are better to the firm which indicates that customers buy on credit many times and pay within a short period .On the other hand, there was a significant positive relationship between Cash conversion cycle, inventory holding, accounts receivable, accounts payable, approach of working capital and profitability of SMEs. The study concluded that managers of SMEs should accept the correct working capital management practices and identifying critical areas that may improve the profitability of SMEs. The study recommended that SMEs managers should be thoroughly trained on working capital management skills. The managers better to undergo continuous development programs through interactive symposiums, conferences, and open forums. The study encouraged for increased government support to the SMEs sector. This can be done through resource allocation in this sector. The government in combination with it agencies advised also assist SMEs in sorting out the problems of managing working capital by setting out guidelines and regulations on proper group governance in this sector. The study also recommends that in future researchers better to do a follow up study in the same area so as to monitor and evaluate for improvements in the management of working capital management practices.