Effect of Working Capital Management on the Profitability of Selected Manufacturing Companies in Nigeria

Abstract

There is no doubt that the ultimate objective of any firm is to maximize profit. However, the preservation of the liquidity of a firm is an important objective too and it is the efficient management of the various components of working capital that helps to preserve liquidity. This paper therefore examined the effect of working capital management on profitability of selected manufacturing companies. Secondary data gathered from the annual reports of six selected companies in Nigeria covering the period between 2006 and 2013 was used for the study. Purposive sampling technique was adopted and data collected was analysed using panel data least square method of regression. The study found a significant negative relationship between the components of working capital (DCP, APP and ITID) and profitability (ROI). The study therefore concluded that working capital management has significant impact on profitability of manufacturing companies and recommended that companies should manage their cash, accounts receivables, inventories and accounts payable with a view to reducing the cash conversion cycle so as to increase their profitability amongst other things.