The Impact of Working Capital Management on Financial Performance: Evidence from Sokoine University of Agriculture

Abstract

This study aims to investigate the effects of working capital management (WCM) components on financial performance of Sokoine University of Agriculture (SUA), focusing on how variations in the Average Collection Period (ACP), Average Payment Period (APP), Inventory Conversion Period (ICP), and Cash Conversion Cycle (CCC) influence financial performance measured in Gross Operating Profit (GOP). The study adopted a longitudinal research design utilizing a time series data from SUA’s annual financial statements covering the fiscal years 2013/14 to 2022/23. A multiple linear regression analysis was conducted to assess the effects of the WCM components on GOP, providing a comprehensive understanding of their financial implications. From the analysis, it was revealed that lnACP and lnCCC are negatively associated with GOP, indicating that delays in receivables collection and extended cash conversion cycles diminish financial performance. Conversely, lnAPP is positively related to GOP, suggesting that longer payment periods for liabilities can enhance financial performance. A longer lnICP also negatively impacts GOP, underscoring the need for effective inventory management. Moreover, this study offers fresh insights into the financial management practices at SUA, highlighting the significant effect of WCM on institutional profitability. By providing evidence of how different components of WCM affect financial outcomes, it delivers practical recommendations for improving financial performance through strategic management of working capital. The research contributes valuable knowledge to both academic and practical discussions on financial management in educational institutions.