An Assessment of the impact of working capital management on firm performance: a case study of Chemplex Corporation

Abstract

The aim of this study was to assess the impact of working capital management on firm performance, specifically Chemplex Corporation. The guiding objectives of the study were as follows, to assess the effects of the accounts payable period on firm performance, to ascertain the effect of the accounts receivable period on firm performance, to determine the impact of the cash conversion cycle and inventory turnover on firm performance, and to evaluate the impact various working capital management approaches on the firm performance. Literature review shows that working capital is required for the day-to-day running of a business and all businesses need working capital to survive. Firms should strategies to maintain optimal working capital. Empirical studies conducted on Vietnam-listed firms have shown that managers can create positive shareholder value by managing the right cash conversion cycle and keeping all other components at optimal levels. The researcher used explanatory research, to explain the relationship between working capital management on firm performance. Chemplex Corporation's 2019-2022 financial statements were used in the analysis and a sample of 94 employees was used, nevertheless, a total of 28 responded. The average receivable collection period, cash conversion cycle, average payment period, and inventory turnover, were used as proxies for working capital management, and business performance was measured using the Operating profit margin. Correlation and Regression correlation analyses were applied to the data to determine the relationships between working capital management and its components and the operating profit ratio of the firm. The findings constitute the following; accounts receivable days and accounts payables exhibited a negative association with profitability meaning that slower collections are associated with high profitability, hence firms can improve profitability by extending the collection period and reducing accounts payables days, and the profitability increases. The inventory conversion period and cash conversion period showed a positive association with profitability, meaning that longer inventory turns and shorter cash conversion cycle creates good value for money. In relation to working capital management practices; It was found that the days for accounts receivable were longer than the days for accounts payable of the company. The study found that the company had a moderate inventory conversion period. In addition, the study recommends that managers focus on shortening the cash conversion cycle, inventory conversion period, and accounts payables period to create positive value for the company's shareholders