Emphasizing the Working Capital Management and Firms’ Profitability: Evidence from Quoted Firms on the Nigerian Stock Exchange

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Emphasizing the Working Capital Management and Firms’ Profitability: Evidence from Quoted Firms on the Nigerian Stock Exchange

February 15, 2021 Science and Technology 0

Over the years, it seemed that businesses were not subject to careful management of short-term assets, resulting in either excessive or insufficient working capital, which in turn affected their profitability. Working capital and the series that it shapes are handled by management of working capital. This paper analyzed working capital management and the profitability of companies in Nigeria quoted companies on the Nigerian Stock Exchange to empirically satisfy this (NSE). In order to examine this relationship based on a balanced panel of 10 listed firms during the period 2008-2017, a panel data approach was used with various regression estimators. It was found that the cash collection duration and the cash delivery period had a negative effect on the return on assets, but the impact was only significant for the −0.064 cash payment period (p = 0.000 < 0.05) on the field, as opposed to the −0.032 cash collection period estimate (p = 0.077 > 0.05). It was also found that both the current ratio and the inventory duration had a positive effect on the return on assets, but the impact was only significant for the current ratio of 8.172 (p = 0.000 < 0.05) on the land, as opposed to the estimate of 0.045 (p = 0.438 > 0.05) for the inventory period. The study concluded that the management of working capital influenced the profitability of companies in Nigeria. It was also advised that although the shorter collection was retained, payment to creditors should not be extended in order to enjoy cash discounts (if any) and that businesses should be cautious in the management of raw materials in order to prevent idle capital that could have a detrimental effect on their financial performance. Finally, the researcher suggests conducting additional studies and analysis on the management of working capital and the profitability of companies in the banking sector.

Author (s) Details

Olaoye Festus Oladipupo
Department of Accounting, Ekiti State University, Ekiti State, Nigeria.

Falana Olatunbosun
Department of Accounting, Ekiti State University, Ekiti State, Nigeria.

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