Mediating effect Inflation on the relationship between Working capital Management and Profitability of Small and Medium Enterprise (SMEs) for Sustainable in North Eastern Nigeria

Abstract

This study examines the mediating effect of inflation on the relationship between working capital management and profitability of listed Small and Medium Enterprises in North Eastern Nigeria. The study covers the period of ten 10 years (2012 -2021) with the population of two hundred and twenty one listed Small and Medium Enterprises in North Eastern Nigeria as at 31st December 2021. The study adopted Correlation Research Design. The data were analyzed using OLS multiple regression technique. The study findings are that: Account Receivable Day (ARD) and cash Conversion Circle (CCC) has a positive significant impact on the Return on Asset (ROA) of SMEs in Nigeria at 1% significance level, Account payable Days (APD) has a negative insignificant impact on the Return on Assets (ROA) of SMEs in Nigeria at 1% level of significance. Inventory Turnover Day (ITO) has a negatively significant impact on the Return on Asset (ROA) of SMEs in Nigeria at 1% level of significance. Inflation also has positive and significant effect on the relationship between working capital management and profitability. The study recommend among others: The management of the Small and Medium Enterprises in North Eastern Nigeria should enhance the performance of the SMEs by maintaining the number of days in inventories to a reasonable level, should reduce the account receivable days so as to boast the profitability and performance of the companies. Also the companies should make judicious utilization of their resources by reducing the cash conversion cycle of the companies to a barest minimum, this shall in turn increase the company profitability. Also, potential investors, small business and government as well as government agencies should consider the need to examine the effect of inflation on working capital management when taking investment decision.

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