EFFECTS OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA

 EFFECTS OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA.  A RESEARCH PROJECT TOPIC ON BUSINESS MANAGEMENT

ABSTRACT

Working capital management involves the management of the most liquid resources of the firm which includes cash and cash equivalents, inventories, trade debtors and other receivables. Most firms do not ensure optimal level of working capital and this has been a major obstacle to their overall profitability. The study examined the impact of working capital management on the profitability of manufacturing firms listed on the Nigerian Stock Exchange market. Correlation and ex-post facto research designs were used in a sample of 10 manufacturing firms. Secondary data for a period of 6 years (2011-2016) was used, general Least Squares (GLS) multiple regression was employed in data analysis. The study found that working capital management (account receivables collection management, accounts payables management, cash conversion cycle management) has a significant impact on the profitability of listed manufacturing firms in Nigeria. It is therefore recommended among others that managers should focus on collecting receivable as soon as possible because it is better to receive inflows sooner than later, and delay payment of creditors in order to invest the money in short-term securities which are profitable. Also, the cash conversion cycle should be elongated to the extent that it maximizes profit.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The sustainability of a firm heavily depends on the ability and success of its financial management function (Karaduman, H. A., Akbas, H. E., Caliskan, A. O., & Durer, S. 2011). Traditionally, corporate finance involves capital budgeting, capital structure and working capital management. However, working capital management is also a very important field of corporate finance, because of its considerable effects on the firms profitability and liquidity (Nazir and Afza, 2009 and Alshubiri; 2011) In order to maintain its activity, firms typically need two types of assets: fixed assets and current assets. Fixed assets which include, building, plant, machinery, furniture, fixture and fitting among others are not only purchased for the purpose of resale, but also for operational purposes (Singh and Pandey, 2008). On the other hand, current assets are seen as key components of the firm’s total assets.

 EFFECTS OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA.  A RESEARCH PROJECT TOPIC ON BUSINESS MANAGEMENT