WORKING CAPITAL MANAGEMENT AND CORPORATE PROFITABILITY. ANALYSIS OF NIGERIAN FIRMS, 2007 – 2012.

WORKING CAPITAL MANAGEMENT AND CORPORATE PROFITABILITY. ANALYSIS OF NIGERIAN FIRMS, 2007 – 2012.

 

ABSTRACT

Recently, the issue of many business failures in Nigeria had been linked to mismanagement of working capital in the form of high bad debts, high inventory costs and deterioration of firms’ credit standings. In view of the above, this study aims at examining the effect of mismanagement of working capital on corporate profitability and liquidity, the relationship between liquidity and profitability and the effect of use of debts in Nigerian firms. In carrying out this study, the ex-post facto research design was adopted. The population was one hundred and seventy four companies listed in the Nigerian Stock Exchange. The sample was sixty five companies which were made up of twenty six manufacturing sector and thirty nine service sector companies. The sample size was randomly selected through stratified sampling technique. Secondary data were collected from past financial annual published accounts of the firms for the period 2007 to 2012. Data collected were analyzed using both descriptive and quantitative methods. Hypotheses were tested using Regression and student T-test. Results obtained showed that inefficient management of working capital has a negative impact on corporate profitability, a negative relationship between liquidity and profitability, an inverse relationship between liquidity and profitability and also, negative effect on  profitability due to increase in debts. This study concludes that for a corporate profitability and growth to be achieved, there is need for efficient management of working capital. It also recommends that management should ensure proper and efficient use of working capital to achieve corporate growth and survival.