Effect Of Working Capital Management On The Profitability Of Listed Manufacturing Companies In Nigeria

ABSTRACT

The study examined the effect of working capital management on the profitability of listed manufacturing companies in Nigeria. The main objective of the study is to evaluate the effect of working capital management on the profitability of listed manufacturing companies in Nigeria. The study specifically investigated the effect of current ratio, quick ratio, inventory days and trade receivable days on the profitability of listed manufacturing firms in Nigeria. To achieve the stated objectives, an ex-post facto research design was used through the published annual reports of the companies. The hypotheses were tested using multiple regression analysis. The findings revealed that there is a significant relationship between the working capital variables and the profitability of the companies. However, while some of the companies recorded a positive relationship, others recorded a negative relationship. The study recommends that poor performing firms should adequately plan and control their operations, adjust all the short falls as noted from the financial ratios calculated and bring them to standard in order to ensure the management of working capital variables.

Certification    ﾿ ii

Approval ﾿ iii                                                   

Dedication                                                                ﾿ iv      

Acknowledgements                                                  ﾿ iv          

Table of Contents                                                                                  v ﾿

Abstract ﾿ vi

1.1 Background to the study ﾿ 1 

1.2 Statement of the Problem ﾿ 3 

1.3 Objectives of the study ﾿ 4

1.4 ﾿ Research Questions ﾿ 5

1.5 Research Hypotheses ﾿ 5

1.6 Significance of the Study ﾿ 6

1.7 Scope of the study ﾿ 7

1.8 Limitation of the study ﾿ 7

2.1 Conceptual Framework ﾿ 8

2.1.1   Composition of Working Capital ﾿ 9

2.1.2      Working Capital Management ﾿ 11

2.1.3 ﾿ Working Capital Policy ﾿ 12 ﾿  

 2.1.4 ﾿ Working Capital Cycle ﾿ 13

2.1.4 Element of Working Capital Inventory ﾿ 14

2.1.5 Management of Trade Debtors or Accounts Receivable ﾿ 15

2.1.6 Management of Cash ﾿ 15 ﾿

2.1.8 Management of Creditors or Accounts Payable ﾿ 17

2.1.9   Management of Marketable Securities ﾿ 19

2.1.10 Working Capital Financing ﾿ 20

2.2 Theoretical Framework ﾿ 21

2.2.1 The Cash Conversion Cycle Model (CCC model)  ﾿ 21

2.3 Review of Related Empirical Literature ﾿ 24

3.1 Research Design ﾿ 30

3.2 Area of the Study ﾿ 30

3.3 Method of data collection ﾿ 30 ﾿

3.4 Method of Data Analysis ﾿ 30

3.5 Model Specification ﾿ 30 ﾿

3.6 Description of Research Variables ﾿ 32

3.7 Decision Rule ﾿ 32

4.1 Presentation of Data ﾿ 33

4.2 Data analysis ﾿ 38

4.3 Hypothesis Testing ﾿ 42 

4.4 Discussion of Result ﾿ 44

5.1 Summary of Findings ﾿ 46

5.2 Conclusion ﾿ 46

5.3 Recommendations    ﾿ 47 

References ﾿ 48

Appendix  ﾿ 50