Effect of working capital management on financial performance of a state-owned enterprise in South Africa

Abstract

South Africa’s state-owned enterprises (SOEs) have reportedly found it difficult to conserve their financial position in order to improve financial performance. Working capital management (WCM) is a significant component of financial management practices by which firms can be measured and improve financial performance. The study aims to examine the employees’ perceptions of the effect of WCM on financial performance of an SOE in South Africa. Cross-sectional, quantitative research and questionnaire approaches were used to collect data from 51 respondents. The study identified the gaps in cash management. The regression coefficient suggests that there is a strong causal relationship between WCM and financial performance of the firm (r=0.597; p<0.001). The F test indicates that the relationship is statistically significant (p<0.001). It was found that review of WCM accounts for 35.7% (R2 = 0.357) of the variance in finance performance F (1, 49) = 27.1560, p<.000 and it (review of WCM) is also a significant predictor of financial performance, where the relationship was positive (β = 0.597, p<.001). The study recommends that the SOE considers WCM as a tool for its economic growth.