Working Capital Management and Financing: Implications for Corporate Profitability Among Quoted Consumer Goods Firms in Nigeria

Abstract

This study examined the effect of working capital management financing on the organizational profitability of listed consumer goods manufacturing companies in Nigeria over the period 2015 to 2024. The study was motivated by the need to provide updated, sector-specific empirical evidence on this relationship in view of the significant macroeconomic disruptions experienced in the Nigerian operating environment in the post- 2020 period, and by the inconsistent findings reported in prior Nigerian literature regarding the disaggregated components of working capital financing. Guided by the Cash Conversion Cycle theory, the study adopted an ex-post facto research design and purposively sampled ten consumer goods manufacturing companies listed on the Nigerian Exchange Group, generating a balanced panel of 100 firm-year observations. Secondary data were extracted from the audited annual reports of the sampled companies, and five separate regression models were estimated, one for each of the study's five research hypotheses, with return on assets as the dependent variable and firm size, leverage, and sales growth retained as control variables. Each model was estimated via Pooled OLS, with results cross-checked using Fixed Effects and Random Effects panel estimators, and the Hausman specification test applied to select the preferred estimator. The results showed that average collection period (B = - 0.0657, p = 0.008), inventory conversion period (B = -0.0672, p = 0.0003), and cash conversion cycle (B = -0.0613, p < 0.001) each exerted significant negative effects on return on assets, while average payment period exerted a significant positive effect (B = 0.0396, p = 0.044); the corresponding null hypotheses were therefore all rejected. Current ratio did not exert a statistically significant effect on profitability (B = 0.338, p = 0.709), and the corresponding null hypothesis was not rejected. The study concluded that working capital management financing is a significant determinant of profitability among listed Nigerian consumer goods manufacturing companies, and recommended that management strengthen receivables and inventory management practices while strategically utilising extended trade credit from suppliers as a cost-effective financing source.

Keywords

References