Impact of Working Capital Management on Profitability of Small and Medium Scale Enterprises (SMES) In Addis Ababa(The Case of Nifas-Silk-Lafto and Kirkos Sub Cities)
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Date
2011-06
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Addis Ababa University
Abstract
Small and medium enterprises occupy a prominent position in the development agenda of many
developing countries like Ethiopia. The number of SMEs in Ethiopia is steadily growing. But,
much more important than their number is their current status, stage and pace of development.
Despite the tremendous increase in number of SMEs, little research exists that examines working
capital management of small and medium enterprises (SMEs) in developing countries, especially
in Ethiopia.
The purpose of the study is to identify the impact of working capital management on the
performance of the SMEs in Nifas silk and Kirkos sub cities and to give recommendations based
on the problems. In doing so both Primary and secondary data was collected from 30 SMEs in
those Sub cities of the capital city; Addis Ababa. The primary data was collected through the use
of questionnaires and secondary data was gathered from the financial statements of the
enterprises. The population of the study includes all SME’s operating within organization for
women in self employment (WISE). Data analysis was done using descriptive statistics and
quantitative methods (correlation and regression).
The findings of the paper suggest that working capital is negatively affected by the time period
required by the enterprises to receive their debts, pay their bills and collect cash. Beside that the
financial leverage, size and current ratio of those SME’s under study have impact on the
availability of adequate working capital requirements.
Key words: net operating profitability, small and medium enterprises, working capital
management
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Keywords
Net operating profitability; small and medium enterprises; working capital managemen