WORKING CAPITAL MANAGEMENT AND FIRMS PERFORMANCE: A STUDY OF MANUFACTURING COMPANIES IN NIGERIA

By

Author

Presented To

Department of Accountancy

ABSTRACT  
This study investigated the relationship between working capital management
measured by account receivable period (ACRP), inventory period (INVP), cash
conversion cycle (CCC) and sales Growth (SG) and profitability performance
measured by returns on assets (ROA). The study utilized secondary data obtained
from the annual financial statements of Nigerian Manufacturing companies listed
on the Nigerian Stock Exchange (NSE) for period 2008 – 2012. Multiple
regression model were adopted for testing all the hypotheses and the study result
reveals that there was a negative significant relationship between the account
receivable period and profitability of the Nigerian Manufacturing companies. It
also reveals that the profit is significantly influenced by the number of days
inventory were held (INVP) and that the profitability performance negatively and
significantly related to the cash conversion cycle (CCC). These results suggest that
effective policies must be formulated for the individual components of working
capital. Furthermore, efficient management and financing of working capital
(current assets and liabilities) can increase the operating profitability of
manufacturing firms 
TABLE OF CONTENT
Content          Page
Title page - - - - - - - - - - i
Declaration  - - - - - - - - - - ii
Approval - - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgements - - - - - - - - - v
Abstract - - - - - - - - - - vi 
List of tables  - - - - - - - - - xi
List of figure  - - - - - - - - - xi 

CHAPTER ONE : INTRODUCTION
11 Background to the Study  - - - - - - 1
12 Statement of the Problem  - - - - - - - 3
13 Objectives of the Study  - - - - - - - 4
14 Research Questions  - - - - - - - - 5
15 Research Hypotheses  - - - - - - - 5
16 Scope of the Study   - - - - - - - 6
17 Significance of the Study  - - - - - - - 7 
References  - - - - - - - - - 8

CHAPTER TWO: REVIEW OF LITERATURE  
20 Introduction  - - - - - - - - 10
21 Conceptual Review   - - - - - - - 10 
210 Concepts of Working Capital Management  - - - - 10
211 Working Capital  - - - - - - - - 10 
212 Working Capital Management  - - - - - - 12 
213 Working Capital Management Efficiency - - - - - 13 
214 Policy of Working Capital - - - - - - - 13 
215 Working Capital Cycle - - - - -- - - 16
216 Components of Working Capital Management (WCM) - - - 18 
217 Cash Management - - - - - - - - 19 
 218 Cash Positioning - - - -- - - - - 22 
219 Cash Flow Volatility, Earnings Volatility and Firm Value - - 23
2110 Cash Budget  - - - - - - - - - 25 
2111 Management of Cash Receivables - - - - - 26
2112 Credit Standards  - - - - - - - - 26
2113 Credit Extension Policy - - - - - - - 27
2114 Credit Collection Policy  - - - - - - - 28 
2115 Inventory (Inv) Management - - - - - - 29 
2116 Need to Hold Inventory  - - - - - - - 30 
2117  Inventory Control  - - - - - - - - 31
2118  The Economic Order Quantity (EOQ) - - - - - 31
2119 Re-Order Point - - - - - - - - 32
2120 Relation to Financial Management - - - - - 32 
21201 Payables Management - - - - - - - 33
2121  Receivables Management - - - - - - - 33 
2122  Cash Conversion Cycle (CCC) Management - - - - 34
2123  Measures of Profitability - - - - - - - 34 
2124  Liquidity  - - - - - - - - - 36 
2125 Nature of Working Capital - - - -- - - - 37
2126 Trade-Off between Profitability and Risk - - - - 37
2127 The Efficient Management of Firm’s Working Capital  - - 38 
2129 The Consequences of Inefficient Management of Working Capital  39
2130 The Costs and Benefits of Firm’s Investments in Working Capital - 44
2131 The Nigerian Economy and Working Capital Management of Quoted  
Firms in Nigeria =- - - - - - - - 46 
220 Theoretical Review - - - - - - - - 47 
221 The Operating Cycle Theory  - - - - - - 48
222 The Cash Conversion Cycle (CCC) Theory  - - - - 48 
223 The Pecking Order Theory - - - - - - - 49
224  Agency Theory - - -- - - - - - 50
225 The Risk –Return Trade-Off Theory - - - - - 51
230 Review of Empirical Studies - - - - - - 51
231 Summary of Literature Review  - - - - - 57 
References - - - - - - - - - - 58
 
CHAPTER THREE: METHODOLOGY 
30 Introduction  - - - - - - - - - 60
31 Research Design  - - - - - - - - 60
32 Population of the Study  - - - - - - - 61
33 Sampling Techniques and Sample Size - - - - - 61 
34 Sources of Data Collection  - - - - - - - 61
35 Variables Used for the Study  - - - - - - 62
351 Dependent Variable  - - - - - - - - 62
252 Independent Variables  - - - - - - - 63
36 Data Analysis Techniques  - - - - - - - 65
37 Model Specification  - - - - - - - 66
38 Limitation of the Study  - - - - - - - 66 
References  - - - - - - - - - 68 

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND 
 INTERPRETATION
40 Introduction  - - - - - - - - 69
41 Presentation and Analysis of Multiple Regression Results - - 70 
42 Data Validity Test - - - - - - - - 71
43 Summary of Regression Results   - - - - - 72
44 Testing of Research Hypotheses  - - - - - 73
45 Interpretation of results and discussion of findings - - - 75
451 The Impact of ACRP on Profitability  - - - - 75
452 The Impact of Inventory Period (INVP) on Profitability - - - 75
453 The Impact of Cash Conversion Cycle (CCC) on Profitability  -  76
454 The Impact of Sales Growth (SG) on Profitability  - - - 76 

CHAPTER FIVE:  SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
51 Introduction   - - - - - - - - 78
52 Summary  - - - - - - - - - 78
53 Conclusions  - - - - - - - - - 80
531 Policy Implication - - - - - - - - 81
54 Recommendations - - - - - - - - 81
55 Suggestions for Further Research  - - - - - - 82 
Bibliography  - - - - - - - - - 83
Appendices  - - - - - - - - 86 

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