The Effects of Working Capital Management on Financial Performance of Selected SME’s In the Manufacturing Sector of Ghana

Abstract

The manufacturing firms under the SME sector has and continue to contribute significantly to the national GDP. One challenges faced with SME’s especially in the manufacturing industry is poor finance management coupled with poor working capital management. Firms can’t carry on with their business without working capital even though they have a healthy turnover. Therefore, Firm’s that lack the ability to identify significant working capital management practises will continue to cause poor performance to the firm. The broad aim of this research was to define the effects of working capital management on the financial performance of SME”s in the manufacturing sector with an objectives; To examine the effect of working capital management on the financial performance of selected SMEs in the manufacturing sector of Ghana and to evaluate the shortterm financing choices available to the firms and recommending a financing method to optimize working capital management. The research assignment requires in-depth review and analysis hence, the use of primary data or data from direct source via a well-structured surveys. Yamane‟s (2009) sampling method was used to determine the sample size. The study data was analysed for descriptive and inferential statistics purpose. Descriptive statistics such as graphs, charts, tables and mean, percentage, minimum, maximum analysis were used for the presentation of data. A linear correlation model was used to analyse the quantitative data and was tested to explain the relationship between working capital management and firm’s performance of SMEs. The study results of the analysis indicated that the dependent variables are significant and have an effect on ROA of SMEs. The study concludes that managers need to be focused and adopt to the paradigm shift of effectively managing working capital management. The study recommended that, in view of the recent happenings in the financial sector it will be prudent if firms adopt a policy of entrusting management of working capital to highly skilled and trained personnel’s.