Abstract

Working capital is the capital of a business which is used in its day-to-day trading operations, calculated as the difference between current asset and current liabilities. Working capital management mvo ves t e application ofstrategies and policies in the use affirm's current assets and liabilities in such a way that an optimum level ofworking capital is maintained. In essence, the goal ofworking capital management is to promote a satisfying profitability and maximizes shareholders va ue. The study analysed the effect of working capital management on the performance of manufacturing companies in Nigeria, to tackle the problem of using wrong method in measuring working capital; overcapitalization or undercapitalization of stock and neglecting of operating cycle by examining the extent to which working capital affect return on asset, return on equity and net profit margin. Regression analyses was carried out on the data to determine relationships between working capital management and return on asset, return on equity and net profit margin. The study established that CA/TA and CL/TA both has relationship with return on equity, CL/TA has a significant relationship with return on assets while CA/TA has no significant relationship with return on assets, CA/TA has a significant relationship with net profit margin while CL/TA has no significant relationship with net profit margin. The study recommends that the manufacturing firms should manage their working capital efficiently to achieve optimal profitability. This can be achieved by improving the inventory control process, collecting receivables in line with the agreed credit terms and by delaying payments to suppliers. All these will lead to shortening the cash conversion cycle resulting to an increase in profitability. It is also recommended that there should be proper inventory management system to avoid over stock of inventory. Manufacturing firms should engage in relationship with those suppliers who allow long credit time period and those customers who will take short paymentperiod.