WORKING CAPITAL MANAGEMENT AND FIRMS’ FINANCIAL PERFORMANCE (A STUDY OF SELECTED QUOTED MANUFACTURING FIRMS IN NIGERIA)
ABSTRACT
This research investigated the Impact of Working Capital Management on Financial performance of Firms in Nigeria. The specific objectives were to: examine the effect of debtors’ days on firms financial performance; ascertain the effect of creditors’ days on firms financial performance; determine the effect of inventory turnover rate on firms financial performance, among others, investigate the effect of cash conversion cycle on firms financial performance; evaluate the effect of size of firms on firms’ financial performance; assess the effect of age of firms on firms financial performance and ascertain the effect of current ratio on firms financial performance. In line with these objectives, eight research questions and eight hypotheses were formulated. 15 quoted manufacturing companies listed on the Nigerian Stock Exchange. The statistical tools applied in the analysis were correlation matrix, mutiple regression, ordinary least square (OLS), descriptive statistics, t-test , F-test and the E-view 9 statistical package, using dependent variables (ROA) and independent variables (ACP), were used to run the analysis. The study made use of the data obtained from the Annual Reports and Statement of Accounts of the selected 15 quoted manufacturing companies, for the period 2010 to2017. Financal performance indicators used were Return on assets (ROA), Return on equity (ROE) Return on sales (ROS) and earning per share (EPS). The independent variables were Average payment period (APP) Average collection period (ACP), cash conversion cycle (CCC), inventory turnover rate (ITO), size of firms (SZE), age of firms (AGE) current ratio and Debt/Lev (DT/LEV). Average payment period (APP) was found to be negatively and insignificantly associated with (ROA) and (EPS) in the first and third models respectively, while it is positively and significantly associaed with (ROE) and insignificantly associated with (ROS) in the second and fourth models respectively. Average collection period (ACP) has a positive and significant impact on (ROA) and (EPS) respectively in the first and fourth models, while it has negative and insignificant impact on (ROE) and (ROS) in the second and third models respectively. Cash conversion cycle (CCC) is negatively and insignificantly associated with (ROA), negativelyand significantly associated with ROE and (EPS) in the first, second and third models respectively, while it is positively and significantly associated with (ROS) in the fourth model. Inventory turnover rate has a positive and significant relationship with (ROA), (ROE), (EPS) and (ROS) in the first, second, third and fourth models respectively. Firms Debt is positively and significantly associated with (ROA),(ROE) and (EPS) in the first, second and third models respectively, and negatively and insignificantly associated with (ROS) in the fourth model. Size of firm (SZE), age of firms (AGE) are positively and significantly related to (ROA) and (EPS) in the first and third models respectively, while age of firms (AGE) is positively and significantly associated with (ROE) and (ROS) in the second and fourth models respectively. Size of firms (SZE) has a negative and insignificant relationship with (ROE) and (ROS) in the second and fourth models respectively. Current Ratio (CR) has a positive effect and significantly associated with (ROS) in the fourth model and negatively and significantly associated with (ROA), (ROE) and (EPS) in the first, second and third models respectively. In conclusion, working capital management is an essential tool in firm performance as it has been found that its proper management could add value to firms and save them from insolvency and possible bankruptcy. The absence of it will lead to loss of interested stakeholders, insolvency and outright bankruptcy. The study recommends that effective and efficient working capital management policies with the relevant mix of variables should be employed always,as it will enhance the liquidity position of companies. The study contributed to knowledge by modifying existing models and updating extant literature on the topic.
