Working Capital Management and Profitability of Quoted Manufacturing Firms in Nigeria.

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ABSTRACT

This study examined the impact of working capital management and profitability of 10 quoted manufacturing companies in Nigeria using a cross-sectional time series data for the period 2010 – 2015. The study used secondary data generated from the published annual reports and account of the sampled companies. Data were analysed using correlation and descriptive statistics using SPSS 20. The study reviewed a positive effect of cash conversion cycle (CCC), receivable collection period (RCP), and a negative effect of inventory conversion period (ICP), payables payment period (PPP), on return on assets (a mirror of firms profitability). It was found that cash conversion cycle (CCC) with a positive sign is the most significant precision variable in influencing profitability and liquidity in Nigeria. The study therefore recommended (i) that the firms should promptly collect cash from credit sales, (ii) that excess cash should be reinvested in short-term securities (assets) to generate profits (iii) that since there exists high sales turnover in the Nigeria emerging markets, government policy should target multinational companies (MNCs) for invitation to participate in investing in Nigeria by creating the right legal and regulatory framework to enable them the market for possible FDI, IPI, and FPI injection into the Nigeria domestic economy.

KEYWORDS: working capital, liquidity, profitability, cash management

TABLE OF CONTENTS

Title pagei

Certification ii

Dedication iii

Acknowledgement. iv

Abstract v

Table of Contents vi

List of Tables ix

CHAPTER ONE

INTRODUCTION 1

1.1Background information to the study1-3

1.2Statement of the problem 4-5

1.3Significance/justification of the study 5-7

1.4Objectives of Study7-8

1.5Scope of the Study 8

1.6Research Questions 9

1.7Research Hypotheses 9

1.8Limitation to the study 10

1.9Operational Definition of Terms 10-12

1.10Case Study/Historical Background 12-14

CHAPTER TWO

LITERATURE REVIEW 15

2.1Conceptual Framework 15

2.1.1 Concept of Working Capital 16-18

2.1.2. Significance Component of Working Capital Management 18-19

2.1.2.1Inventory. Management and Profitability 20-22

2.1.2.2Account Receivables Management and Profitability22-27

2.1.2.3Account Payables Management and Profitability27-29

2.1.2.4Cash Management . and Profitability29-31

2.1.2.5Cash Conversion Cycle and Profitability31-33

2.1.3Measurement of Working Capital Management 33-35

2.1.4Working Capital Policy35-38

2.1.4.1Investing in Working Capital 38

2.1.4.2Short term Financing39

2.1.5Concept of Profitability 39-40

2.1.6Profitability and Liquidity Measures 40-43

2.1.7Working Capital Management and Firm Profitability 43-44

2.1.8Consequences of Poor Working Capital Management 44-45

2.2 Theoretical Framework 45-46

2.2.1Risk and Return Tradeoff Theory 46-47

2.2.2Resource-Based Theory 47-48

2.3 Empirical Studies 48-51

CHAPTER THREE

3.0METHODOLOGY52

3.1Research Design 52-53

3.2Population53

3.3Sample and sampling Techniques53

3.4Method of Data Collection54

3.5Reliability and Validity Tests 54-55

3.6Method of Data Analysis55-56

CHAPTER FOUR

4.0RESULTS AND DISCUSSION57

4.1Presentation of Results 58-61

4.2Discussion of Results 61-63

4.3Interpretation of Results 63-65

CHAPTER FIVE

5.0 CONCLUSION AND RECOMMENDATIONS66

5.1Conclusion66

5.2Recommendations. 66-67

References 68-73

Appendices

LIST OF TABLES

Table 1Descriptive Statistics for the Model58

Table 2Correlation Analysis of Model 58-59

Table 3Regression Model Summary60

Table 4ANOVA Test of Analysis of Variance60

Table 5 Coefficient of Determination61

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Working Capital Management and Profitability of Quoted Manufacturing Firms in Nigeria.

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