Working Capital Management and Firms’ Profitability: Evidence from Consumer Goods Sector in Nigeria (2011-2018)

Abstract

Firm’s profitability tends to be maximised as a result of efficiency and interrelationship between some prominent factors like a firm’s size, working capital, financial and operational risks among others. However, from all these factors, working capital is crucial as it affects the operational activities of firms. This study investigates the impact of working capital management on the profitability of firms in the consumer goods sector in Nigeria. Generalised least squares technique was used to analyse the data extracted from the audited financial statements of sampled firms for the period of 2011 to 2018. The study revealed that at 0.05 level of significance, average collection period has a significant positive impact on the profitability of consumer goods firm; inventory holding period has no significant impact on profitability of consumer goods firms; average payment period has significant negative impact on the profitability of consumer goods firms. The study concluded that working capital management plays a significant role in the profitability of consumer goods firms in Nigeria. The study, therefore, recommended that firms should negotiate favourable credit terms with both their customers and suppliers while at the same time, reduce their cash conversion cycle for improved profitability.