Working capital management and financial performance of service firms in Uganda

Abstract

Working capital management is largely taken to be a crucial aspect in determining financial performance of any organization. The purpose of the research study was to investigate working capital management and financial performance of service firms and Grand Imperial Hotel was targeted case study as a way of completing a standardized and tabulated questionnaire. The study established that hotel businesses are major contributors of an economy’s revenue globally. In general the service offered are based on quality and making sure that they meet customer needs and demands. Working capital management aims at maintaining an optimal level of each working capital components of cash, receivables and others so as to arrive at appropriate levels of working capital to minimize risks and effectively prepare for uncertainty. The study was conducted to establish the relationship between working capital management and financial performance of service firms in Uganda. Specifically, the study was carried out to establish the relationship between cash management, inventory management and payables management and financial performance of service firms in Uganda and a case study of Grand imperial was used to obtain the data. The methodology used to analyze the findings of the study was cross sectional and a sample of 60 was used to determine how well service firms perform. Both primary and secondary sources of information were used. Primary sources included responses from staff and employees of the hotel. Secondary data was obtained from internet, online journals and text books. The findings indicated that the hotel has a cash policy that enables it to deal with receivables from customers and cash payment to suppliers. With this cash policy, the hotel is able to improve its financial performance. It was also concluded that the hotel employs trade credit as a short-term source of finance and maintains a good relationship with suppliers. One of the authors asserted that trade credit is the simplest and most important source of finance in business and that managing right suppliers builds trust and confidence. Therefore, service firms in Uganda should be in position to adopt appropriate working capital management indicators to subsequently maximize profit while minimizing costs of various operations.