The Relationship between the Management of Payables and the Return to Investors
15 Pages Posted: 20 May 2017
Taryn Moodley
University of Pretoria - Gordon Institute of Business Science
University of Pretoria - Gordon Institute of Business Science; University of Pretoria - Gordon Institute of Business Science
Chris Muller
Independent
Date Written: February 23, 2015
Effective working capital management assists a firm in achieving improved liquidity through the management of the components of receivables, inventory and payables. Previous studies have established that changes in working capital have a strong positive correlation to profitability and that whilst changes to receivables and inventory have a positive correlation to profitability, changes in payables have an inverse relationship. The inverse correlation of payables and profitability is contrary to the theory that advocates extending payment terms as a means of managing working capital and improving liquidity. We apply a style-based test to an extensive database of Johannesburg Stock Exchange (JSE) listed South African companies over the period 1986 -2014. We find that for those companies in industries that have a significant investment in payables, there is a significant association between payable days and shareholder return, which supports the general theory of working capital management.
Keywords: working capital management, accounts payable
JEL Classification: G30, M21, M41
Suggested Citation: Suggested Citation
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Effects of Accounts Payable on the Profitability of Agricultural Firms in Kenya: A Case of James Finlay's
Accounts payable is regarded as source of free credit, since either goods have been supplied or services rendered but payment will be made on later date. Where organizations have financial constrains to procure raw material or pay business services, can utilize accounts payable as source of external sources of finance to improve production line. The objective of the study was to established the effect of accounts payable on the profitability of agricultural firms in Kenya; A case study of James Finlay’s in Kericho County. Descriptive research design was employed to describe the effect accounts payable has on profitability of firms. Target population comprised of respondents from James Finlay’s located in Kericho County. The study used primary data collected through questionnaires. Data was analyzed by descriptive statistics. Correlation and regression analysis was adopted to establish the relationship between accounts payable and profitability. ANOVA F statistics used to establish goodness of fit using level of significance in the regression model. The study revealed that accounts payable has negative effect on the profitability of agricultural firms. The study recommended the company to retain high level of account payable since is one of the cheapest source of finance hence should be maximized to improve profitability and also to reduce the cost of finance.
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Improving Accounts Payable Processes
Ool, kheit (2019).
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Tiivistelmä, selaa kokoelmaa, henkilökunnalle.
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