Working Capital Management And Firms Performance
[A STUDY OF MANUFACTURING COMPANIES IN NIGERIA]

1.3 Objectives Of The Study

The main objective of this study is to investigate the relationship between working capital management and the corporate performance (profitability) of the Nigerian manufacturing companies. While the specific objectives of the study are to: -

i. investigate the relationship between the accounts receivable period (as a measure of WCM) and profitability of manufacturing companies in Nigeria.

ii. investigate the relationship between inventory period (as a measure of WCM) and profitability of manufacturing companies in Nigerian.

iii. investigate the relationship between cash conversion cycle period (as a comprehensive measure of checking the efficiency of WCM) and profitability of manufacturing companies in Nigeria.

1.4 Research Questions

In a bid to actualize the research objectives, the following research questions have been formulated which serve as a guide in the researcher’s quest for answers. These questions are;

i. What is the significant relationship between the accounts receivable period (ACRP) and profitability of Nigerian manufacturing companies?

ii. What is the significant relationship between the inventory period (INVP) and profitability of Nigerian manufacturing companies?

iii. To what extent is the relationship between cash conversion cycle (CCC) and profitability of manufacturing companies in Nigeria?

iv. To what extent does the effective management of working capital affect the profitability of the Nigerian manufacturing companies?

v. What level of working capital is optimal and desirable?

vi. To what extent has the inadequacy of working capital affect the profitability of the Nigerian manufacturing companies

1.5 Research Hypotheses

A hypothesis is a conjecture or a prediction of what can be seen in the world of reality and this prediction is made from the world of theory. It is a tentative statement about the relationships that exist between two or among many variables (Asika, 2005). 

To provide an empirical support to the relationship between working capital management and profitability of the Nigerian manufacturing companies, three hypotheses have been formulated and stated in their null forms as follows:

HO1: There is no significant relationship between the accounts receivable period (ACRP) and profitability of Nigerian Manufacturing Companies

HO2: There is no significant relationship between the inventory period (INVP) and profitability of Nigerian Manufacturing Companies

HO3: There is no significant relationship between the cash conventions cycle (CCC) and profitability of Nigerian Manufacturing Companies

1.6 Scope Of Study

The scope of the study enables the researcher to circumscribe his/her research within a manageable limit (Asika, 2005).

In this research work, an attempt is made to explore the relationship between working capital management and firm’s performance for twenty (20) manufacturing firms out of the 134 manufacturing firms listed on the Nigerian stock exchange for the period 2008-2012. The twenty (20) manufacturing firms were selected based on the following criteria:

• Companies must remain listed on the Nigerian Stock Exchange (NSE) during the 2008 – 2012 periods.

• Companies must have complete financial statements for the period under review.

• Companies must be operational within the period under investigation. Manufacturing organizations were so taken into consideration since they play a very important role in the Nigerian economy.

1.7 Significance Of The Study

This study is very crucial as it will give the financial managers of these manufacturing organizations, better insights on the need to pay particular attention to the effective and efficient management of their working capital. They will be in a better position to be able to design and implement strategies and policies that  are aim at stabilizing and managing the various components of working capital especially as it significantly impact on the main aim of business which is creating shareholders’ value.

The study would further, enable the management to know at what extend they should increase their liquidity in order to make their performance up to the mark.

This is very important in improving the good will of their firms, since firms that pay creditors as at when due are considered credit worthy and gains a good reputation.

And for the academic purposes, the research work will contribute to the existing body of knowledge on working capital management and firm’s performance. Finally, it is expected that the study will serve as a source of information to students undergoing research work of this nature in the future.