WORKING CAPITAL MANAGEMENT AND PROFITABILITY IN NIGERIA PETROLEUM MARKET SECTOR (2000-2013)

WORKING CAPITAL MANAGEMENT AND PROFITABILITY IN NIGERIA PETROLEUM MARKET SECTOR (2000-2013)

ABSTRACT

The aim of this study is to investigate the working capital management and profitability in Nigeria petroleum marketing sector. The statistical significance between the individual component of working capital management and profitability is examined in this study. In the light of this objective the study adopted quantitative method of research approaches to test a number of research hypothesis. The study selected a sample of six (6) major oil marketers in Nigeria that have the complete annual report and accounts on Nigeria Stock Exchange for the period of fourteen years (2000-2013) with the total of 84 observations. Data was then analyzed on quantitative basis using fixed effect regression model (FEM) and OLS regression analysis to define the association between firm’s profitability and working capital management components. The results showed that Average Collection Period (ACP) has a positive and non significant impact on profitability. It means that, a firm with generous credit terms can increase sales as it allows more time for customer to make payment.  It was also found that Inventory Period (IP) has a positive and non significant impact on profitability which means that keeping high inventory saves firm from stock out and also result in more sales which leads to increase in profit. Moreover the study finds that there is no positive relationship and significant impact between Average Payment Period (APP) and profitability, it means that the shorter the account payable days, the more profitable the companies are. And finally the researcher found that Cash Conversion Cycle (CCC) has a positive and non significant impact on profitability which implies that if a firm takes more time to collect cash against credits, it will increase its profit. But despite that individual variable does not have a significant impact on dependent variables but collectively, the F- statistics shows that all the independent variables taken together have a significant impact on the dependent variable. ( that is F- Statistic = 0.02, P-value = 0.7 in ACP, F-Statistic = 0.02, P-value = 0.26 for IP and F- Statistic = 0.01, P-value = 0.09 for CCC).

Keywords: working capital management, firm size, Average Collection Period, Inventory Period, Account payable period, cash conversion cycle, and profitability.