|dc.description.abstract||This study examined the determinants of working capital investment levels in the manufacturing and construction firms because there is no unanimity on its drivers despite the importance of working capital. Three objectives were identified: to investigate the managers’ perceptions on the determinants of working capital investment levels; to establish the manager’s opinion target working capital investment level; and to interrogate empirically, the influence of determinants of working capital on working capital investment levels in the manufacturing and construction firms listed at NSE. A questionnaire was used to solicit manager’s opinion and regression analysis was used to establish the influence of determinants of working capital on working investment levels.
The findings were that managers monitor working capital investment levels on a daily basis; use current ratios and net working capital to total assets as indicators of capital and they suggested a target current ratio of 2:1. It was the managers’ opinion that the six variables, cash conversion cycle, operating cash flow, debt ratio, firm size, return on assets and sales are factors to consider in setting working capital investment levels. However size is a lowly ranked determinant. Regression results show that when current ratio is used as proxy of working capital investment level and simple regression model is run; cash conversation cycle, return on assets and size do not individually explain variations in current ratio [working capital investment levels]. However debt capital ratio and sales explain variations in current ratio. When net working capital is used as a proxy of working capital investment level and a simple regression model is run; cash conversion cycle, debt capital ratio, size and sales individually explains variations in this ratio. However cash from operations and returns from assets do not explain variations in working capital investment levels. When multiple regression models are run, a higher percentage of variations in working capital investment levels are explained by the variables. However, the fact that sales are negatively related to working capital investment level remains to be a puzzle.
Therefore, managers ought to be clear on this important issue of working capital by specifying a target working capital investment level. The target working capital investment level can then be used to evaluate the efficacy of managers in carrying out their working capital functions. This information should be disclosed in annual report. Secondly, firms should develop a composite working capital index that is useful in predicting working capital investment levels.||en_US