Determinants of working capital management among SMEs in Uganda: a case study of Kawempe Division

Abstract

Working capital management is a critical element in the survival of every firm. While the effective management of working capital leads to value creation in firms, ineffective management of working capital, on the other hand, does not only destroy value but can lead to the eventual solvency of the firm. The search for the factors that influence working capital management has, therefore, become a worthwhile exercise embarked upon by both managers and scholars. The main aim of this study is thus to investigate the determinants of working capital management on the SMEs in Kawempe Division in Uganda. In examining the determinants of working capital management, 56 SMEs in Kawempe Division were used. The study employed the descriptive research design. Stratified random sampling was employed to select the sample for the study. This, therefore, makes our results more efficient and reliable. Study findings indicate that working capital in SMEs is determined by profitability, size, sales growth, operating cycles and leverage. It was also established that cash management, inventory, receivables and payables are the major components of working capital and most SMEs use the conservative working capital management strategy, poor working capital management inversely affects growth, sales growth and leverage inversely correlate with working capital. can also be undertaken on the analyzing the working capital management of SMEs in other countries in order to compare the determinants of SME working capital in different financial systems and legal contexts. It can concluded that Working capital management involves balancing movements related to five main items – cash, trade receivables, trade payables, short-term financing, and inventory – to make sure a business possesses adequate resources to operate efficiently. Therefore, further research can be conducted in other divisions in Kampala for better comparison or generalization of the findings. Keywords: Working capital management, Determinants, SMEs, Kawempe