EFFECTS OF WORKING CAPITAL MANAGEMENT ON THE FINANCIAL PERFORMANCE OF THE PHARMACEUTICAL FIRMS IN NIGERIA

Abstract

Working capital management is a very sensitive aspect of financial management, its management is important to the survival of any business. The objective of this study is to examine the effect of working capital management on the financial performance of pharmaceutical firms in Nigeria. The study covers a period of eight years 2006 to 2013. Data for the study were collected through secondary sources using annual financial reports and bulletins of Nigeria stock exchange of the various firms covering the period under study. Working capital management was measured using account receivables, account payables, inventory and cash conversion cycle, while return on asset proxy financial performance using multiple regression technique. The study found that both account receivables and inventory were significantly and positively related with financial performance while account payable was found to be significantly but negatively related to financial performance and cash conversion cycle was found to be statistically insignificantly related to financial performance. The study concluded that both account receivables and inventory have significant, strong and positive influence on the financial performance of listed pharmaceutical firms in Nigeria, while account receivables has significant but negative influence on the financial performance of pharmaceutical firms. In view of the above, it is recommended that the management should increase their receivables collection period, reduce their account payable period, invest more in inventory and employ aggressive policies that will decrease cash conversion cycle as all these will have an overall positive effect on the financial performance of pharmaceutical firms in Nigeria.

Keywords: Receivables, Payables, Cash Conversion Circle, Inventory, Return on Asset