WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF FIRMS IN CONSUMER GOODS SECTOR IN NIGERIA

Abstract

Working capital management is one of the most vital areas while making the profitability comparison among firms and involves the decision of the amount and composition of current assets and the financing of this assets. Working capital management is necessary because of its effect on profitability and risk and also determines the running of the business firm, and consequently, its value and long term survival of the firm. The success of these companies depend largely on proper financing and management of working capital. Many consumer goods firms are facing problems with their collection and payment procedures, strategy and policies as well as not paying attention to inventory basis. These have negatively affected profitability of the firms and in turn have affected the value of the companies. This study examined the relationship between working capital management and profitability of selected consumer goods firms in Nigeria. The objectives of this study is to evaluate and examine the relationship between net working capital, debtors collection period, creditors payment period, and inventory conversion period on the profitability of firms in consumer goods sector in Nigeria. This research study adopts descriptive research design and ex-post facto research design. The population of the study comprised the 25 consumer goods firms listed at the Nigerian Stock Exchange, as at December 2017. Purposive and convenience sampling technique were used to select 19 companies out of 25 quoted companies in the industry which have complete data till at least 2017 in the Nigerian Stock Exchange Fact Book. Time series were extracted using secondary source from the published financial statements of the firms and Nigerian Stock Exchange from 2013- 2017. Data were examined and analyzed quantitatively using descriptive and inferential statistics. Findings revealed that net working capital had positively and no significant effect on the return on assets of selected consumer goods sector in Nigeria(R 2 = 6%; Adj R- sq= -5%; and F- stat =.5.32, p<.05) . Debtor’s collection period has positively and non-significant effect on return on asset of selected consumer goods sector in Nigeria (R 2 =3%; Adj R –sq= -7%; and F-stat=3.09, p<.05). Creditors payment period also influenced return on assets of selected consumer goods sector in Nigeria (R 2 = 1%; Adj R- sq = -2%; and F-stat = 8.36, , p<.05). Inventory conversion period influenced return on assets of selected consumer goods sector in Nigeria (R 2 =9%; Adj Rsq = -10%;and F-stat =0.095, , p<.05). The study concluded that working capital management have no significant influence on profitability of consumer goods sector in Nigeria. It was recommended that management of selected consumer goods firms should pay close attention and focus to sound management of their working capital management components as they influenced their profitability.