CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Working capital management of a firm has been recognized as an important area

in financial management. The main goal of working capital management is to teach
and keep an optimized balance between each component of working capital
(Gitmen, 2009). Traditional concept of working capital is the difference between
current assets and current liabilities, which does not provide an accurate concept of
corporate liquidity. Every organization whether profit oriented or not and
irrespective of size and nature of the business requires necessary amount of
working capital. Working capital is the most crucial factor for maintaining
liquidity, survival, solvency and profitability of business (Mukhopadhyay, 2004).
All individual components of working capital include cash, marketable securities,
account receivables and inventory management play a vital role in the performance
of any firm. In the management of working capital, the firm is faced with two key
questions. First, given the level of sales and the relevant cost considerations, what
are the optimal amounts of cash assets, account receivable, and inventories that a
firm should choose to maintain? Second, given these optimal amounts, what is the
most economical way to finance these working capital investments? To produce
the best possible returns, firms should keep no unproductive assets and should
finance with the cheapest available sources of funds. Corporate performance is a
composite assessment of how well an organization executes on its most important
parameters, typically financial, market and shareholder performance. It is a subset
of business analytics /business intelligence that is concerned with the health of the
organization, which is traditionally measured in terms of financial performance.
However, in recent years, the concept of corporate health has become broader.
Liquidity and profitability are two important and major aspects of corporate
business life (Dr K.S.Vataliya, 2009). The problem is that increasing profits at the
cost of liquidity can bring serious problems to the firm. Therefore, there must be a
trade-off between the liquidity and profitability of firms. One of these should not
be at the cost of the other because both have their own importance. If firms do not
care about profit, they cannot survive for a longer period. Also, if firms do not care
about liquidity, they may face the problem of insolvency or bankruptcy. For these
reasons, managers of firms should give utmost consideration for working capital
management as it does ultimately affect the profitability of firms. As a result,
companies can achieve maximum profitability and can maintain adequate liquidity
with the help of efficient and effective management of working capital. In addition,
the effective working capital management is very important because it affects the
performance and liquidity of the firms (Taleb et al., 2010). The main objective of
working capital management is to reach optimal balance between working capital
management components (Gill, 2011).

1.2 STATEMENT OF THE PROBLEM

An ideal business requires sufficient resources to keep it going and ensures that
such resources are maximally utilized to enhance its profitability and overall
performance. Working capital and its effect on firms’ Performance has been
studied by different researchers (Padachi, K. (2006); F.Finau, (2011); Fathi and
Tavakkoli (2009). Existing researchers among whom are; Filbeck and
Kruger(2005), Nyabwanga, Ojera, Lumumba,Odondo, Otieno (2012) to mention a
few, have stated that most successful organisation do not have problem with
management of working capital components, but this is actually misleading,
because this research work has identified a gap in this findings, by establishing that
successful organisation still have problems with management of working capital
components which is in agreement with the study of mathuva,(2010), Rahman et
al.,(2010). Most of these and other researchers identify significant association
between working capital and corporate performance. It has however been
discovered that some methods that managers use in practice to make working
capital decisions do not rely on the principles of finance, rather vague rules of
thumb or poorly constructed models are used (Emery, Finnerty and Stowe, 2004).
This, however, makes the managers not to effectively manage the various mix of
working capital component which is available to them, and as such, the
organization may either be overcapitalized or undercapitalized or worst still,
liquidate. Egbide (2009) finds out that a large number of business failures in the
past have been blamed on the inability of the financial manager to plan and control
the working capital of their respective firms. These reported inadequacies among
financial managers is still practiced today in many organizations in the form of
high bad debts, high inventory cost etc, which in turn adversely affect their
operating performance. Hence, lack of proper research study and utilization of the
working capital for the improvement of corporation in terms of performance in
Nigeria has constituted the problem of limited awareness in relation to working
capital to increase firms’ performances. Hence, there is the need to study the effect
of working capital to enhance the performance of corporations in Nigeria.
1.3 OBJECTIVES OF THE STUDY

The main objective is to examine the impact of working capital management on the
corporate performance of quoted manufacturing firms in Nigeria using case studies
of Guinness, Dangote, Nestle, Cadbury, and Unilever. The specific objectives
include:

1. To examine the impact of average collection period on corporate performance

of quoted manufacturing firms in Nigeria.

2. To examine the impact of inventory conversion period of corporate

performance of quoted manufacturing firms in Nigeria.

3. To examine the impact of average payment period on corporate performance of

quoted manufacturing firms in Nigeria.

4. To examine the impact of cash conversion cycle on corporate performance of

quoted manufacturing firms in Nigeria.

1.4 RESEARCH QUESTIONS

In order to address the major issues underlining the research, an attempt has been
made to provide answers to the following questions:

1. What is the impact of average collection period on corporate performance of

quoted manufacturing firms in Nigeria?
2. What is the inventory conversion period on corporate performance of quoted
manufacturing firms in Nigeria?

3. What is the impact of average payment period on corporate performance of

quoted manufacturing firms in Nigeria?

4. What is the impact of cash conversion cycle on corporate performance of quoted

manufacturing firms in Nigeria?

1.5 RESEARCH HYPOTHESIS

The following research propositions will be formulated for the study:

H0: Average collection period has significant impact on corporate performance of

quoted manufacturing firms in Nigeria.

Hi: Average collection period has no significant impact on corporate performance

of quoted manufacturing firms in Nigeria.

H0: Inventory conversion period has significant impact on corporate performance

of quoted manufacturing firms in Nigeria.

Hi: Inventory conversion period has no significant impact on corporate

performance of quoted manufacturing firms in Nigeria

H0: Average payment period has significant impact on corporate performance of

quoted manufacturing firms in Nigeria.
Hi: Average payment period has no significant impact on corporate performance
of quoted manufacturing firms in Nigeria.

H0: cash conversion cycle has significant impact on corporate performance of

quoted manufacturing firms in Nigeria.

Hi: cash conversion cycle has no significant impact on corporate performance of

quoted manufacturing firms in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

The need to have a sound economy and most especially enhancing the
development and sustainability of the Manufacturing industry in Nigeria informed
the researcher’s choice of the topic. It is hoped that this work will proffer solutions
to the problems associated with Working Capital Management in the
Manufacturing industry of Nigeria as a policy tool for sustainability. It will equally
be of great significance to those outside the Manufacturing industry, who are
ignorant on the factors that lead to the smooth running of any business. The study
will also be applicable in the following ways:

To provide reliable information on the importance of applying Working Capital

Management techniques in the running of an organization.

To enlighten people occupying management positions in an enterprise in the

Manufacturing industry on the variety of appraisal techniques of corporate
performance. Finally, the study will add to the existing literature on Working
Capital Management.
1.7 SCOPE OF THE STUDY

The research work will cover working capital management and how it affects the
corporate performance of theses selected quoted companies, which are Guinness
Plc, Dangote Plc, Nestle Plc, Cadbury Plc and Unilever Plc. These five (5)
companies were selected based on the availability of data, their performance in the
Nigerian Manufacturing sector, and the popularity of these companies in the
Nigerian Stock Exchange. The data obtained from the five (5) selected quoted
companies covers a period of seven (7) years from 2008 to 2015. The study used
Return on Equity (ROE), Return on Asset (ROA) and Net Profit Margin (NPM)

1.8 LIMITATION OF THE STUDY

In the process of conducting this research work, there were some limitation and
constraints. One of the limitation of the study is time constraint, there is no
adequate time to conduct this study on the large scale.

This is because the researcher has to combine other academic activities with the
research writing.

Apart from the time constraints, it was a great challenge gathering this information
due to lack of finance. The current financial condition of the country worsened the
situation.

1.9 DEFINITIONS OF TERMS

Working capital: This is measure of both a company’s efficiency and its short
term financial health. If a company’s current assets do not exceed its current
liabilities, then it may run into trouble paying back creditors in the short term. The
worst case scenario is bankruptcy. Working capital is calculated as: Working
Capital= Current Assets- Current Liabilities
 Current asset: these are balance sheet accounts that represent the value of all
assets that can reasonably expect to be converted into cash within one year.
Current assets include cash and cash equivalents, accounts receivable, inventory,
marketable securities, prepaid expenses and other liquid assets that can be readily
converted to cash.

Current liabilities: These are a company’s debts or obligations that are due
within one year, appearing on the company’s balance sheet and include short term
debt, accounts payable, accrued liabilities and other debts. Essentially, these are
bills that are due to creditors and suppliers within a short period of time.

Short term: this is concept that refers to holding an asset for a year or less, and
accountants use the term “current” to refer to an asset expected to be converted
into cash in the next year or a liability coming due in the next year.

Creditors: This is an entity (person or institution) that extends credit by giving

another entity permission to borrow money intended to be repaid in the future. A
business that provides supplies or services to a company or an individual and does
not demand payment immediately is also considered a creditor, based on the fact
that the client owes the business money for services already rendered.

Bankruptcy: This is a legal proceeding involving a person or business that is

unable to repay outstanding debts.

Financial health: this is a term used to describe the state of one’s personal
financial situation

RETURN ON ASSET (ROA): It is an indicator of how profitable a company is

relative to its total assets. ROA gives an idea as to how efficient management is at
using its assets to generate earnings. Calculated by dividing a company's annual
earnings by its total assets, ROA is displayed as a percentage.

RETURN ON EQUITY (ROE): It is a measure of profitability that calculates

how many dollars of profit a company generates with each dollar of shareholders'
equity. The formula for ROE is: ROE = Net Income/Shareholders' Equity. ROE is
sometimes called "return on net worth.
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 CONCEPTUAL FRAMEWORK`

2.1.1 MEANING OF WORKING CAPITAL MANAGEMENT

Management Working capital is the amount of funds which a company needs to

fund its day to day operations. (Nkwankwo & Osho, 2010). They include bank
balance, cash, marketable securities, inventories and accounts receivables. A
business must maintain an appropriate level of current assets. Current assets is not
a permanent investment, it is continually in use, being turned over many times in
year. It is used to finance production, to invest in stock and to provide credit for
customers. Current liabilities are organization’s commitments for which cash will
soon be required. They include bank overdraft, accounts payables and unpaid bills
(Pandey, 2008). Liquidity ratios are indications of how solvent a company is,
however a company will not become insolvent overnight rather deterioration in
these ratios are indications of insolvency.

A current ratio of 2:1 and a quick ratio of 1:1 are regarded to be indicative that a
company is reasonably well protected against the dangers of insolvency through
insufficient liquidity. A company can maintain a huge volume of working capital
in relation to its total assets or may maintain its working capital at a low level. No
matter the level of working capital held by a company, an opportunity cost is
incurred which may either be liquidity risk or lesser profit. The opportunity cost
hinges on whether the firm adopts a conservative or aggressive working capital
policy. Chowdhary and Amin (2007) refer to WCM as all the actions and decisions
of the management which affects the volume and effectiveness of working capital.
If an organisation is not effectual in handling its working capital, it will lower
profitability and lead to financial crisis as well. Both too little and too much
working capital is detrimental for a business concern. They also stressed that
WCM involves the issues that spring up in trying to handle the current assets, the
current liabilities and the connection they have within them.

2.1.2 TYPES OF WORKING CAPITAL MANAGEMENT

 Gross working capital:

This type of capital is the amount a company has invested in assets that can
quickly convert to cash. Assets high in liquidity, such as stocks, could fall
under this category.
 Net working capital:
The difference between current assets and current liabilities, net working
capital can be positive or negative and shows a company’s liquidity. When
you refer to working capital, this refers to a company’s net working capital
and indicates if it can meet its short-term financial obligations.
 Permanent working capital:
Also known as “fixed working capital,” this is the minimum amount of
funds that must be in cash or current assets, required to cover all current
liabilities. The amount of fixed capital a business requires depends on the
size and growth of that business. The bigger the business, the more fixed or
permanent working capital will be needed.
 Temporary working capital:
Also known as “variable, fluctuating, or cyclical working capital.” It is the
difference between net working capital and permanent working capital.
  Regular working capital:
This is the least amount of capital required to meet current working expenses
under normal conditions. Some examples of this capital include salary and
wage payments, materials and supplies, and overhead costs.
 Reserve Margin working capital:
Think of this type of working capital like a “safety cushion”. This is the
amount of “rainy day” funds set aside for unforeseen circumstances such as
natural disasters, strikes, layoffs, or inflation.
 Seasonal working capital:
Related to the seasonal demand of products, this kind of working capital
includes the additional amount a business needs to operate during the peak
season. It can also be considered a variable type of working capital.
 Special working capital:
Included under temporary working capital, this is for unforeseen or
exceptional circumstances such as accidents, marketing or advertising
campaigns, or new product development endeavours. This is also another
type of variable working capital.

2.1.3 ELEMENT OF THE WORKING CAPITAL MANAGEMENT

 LIQUID ASSET MANAGEMENT

Liquid management is the way in which businesses handle their liquid assets,
meaning anything that can easily be converted into cash if needed, as well as cash
itself. If your business has low liquidity, it may ru n into financial issues because
it cannot pay for normal operations or other bills. This can lead to lower
creditworthiness. If your business has high liquidity, it means that your business
isn’t allocating enough money to expand. For a healthy financial situation, your
business should find a nice balance between the two.

 ACCOUNTS PAYABLE MANAGEMENT

Accounts payable management is the way in which businesses handle the

payments and debts they owe. Your business should find a healthy balance
between making payments early and on time. The problem with waiting to make
payments until the day they’re due is that an unexpected expense might arise that
eats up all your working capital. You won’t have time to earn the working capital
necessary to make your payment, which can affect your business’s chances of
receiving more short-term or long-term funding and, if it happens often, can even
hurt your business’s creditworthiness. This, in turn, could negatively impact your
business’s reputation.

On the other hand, making payments too early can also cause issues by decreasing
your liquid assets that might be needed for other expenses, such as unexpected
costs, creating a new product, or hiring new employees. You may be tempted to
pay expenses early to get them off your plate, but before you do, make sure you
will still have enough liquid assets to cover any other costs you may have.

If you find your business in a situation where you do not have the working capital
you need to pay for an unexpected expense or growth opportunity, Backd offers
alternative funding with a quick application process.

 ACCOUNTS RECEIVABLE MANAGEMENT

Accounts receivable management is the way in which businesses handle the debts
owed to them by customers. This includes unpaid invoices and products or services
paid for on credit. Allowing customers to pay on credit or deliver products or
services before a customer has paid for them makes your business attractive
because it shows customers that you trust them, which can lead to a sense
of loyalty for your business.
At the same time, though, you have to make sure that your business has the money
it needs to pay for its day-to-day operations. It won’t have that if your customers
do not pay you for what you give them. To balance the two sides, your business
should give customers a set deadline for all payments upfront.

 INVENTORY MANAGEMENT

Inventory costs money to buy and makes your business money once sold. Proper
inventory management involves finding the right amount of inventory to have at
any given time. If you buy too much inventory, you risk having money tied to
items that aren’t selling. If you buy too little, you face the possibility of running
out and losing sales. To find that balance, look at your business’s data on what is
selling well, what isn’t, what time of year those items are selling, and how much
similar items in the market are selling for.

2.1.4 CORPORATE FINANCIAL PERFORMANCE

Corporate performance generally examines the entire financial well-being of a

business over a given period of time. It is defined as a measure of the extent to
which a firm makes use of its assets to run business activities to earn revenues. The
main source of data for determining corporate performance especially financial
performance is the financial statements, which consists of the statement of
financial position which shows the assets, liabilities and equity of a business, the
income statement that records the revenues, expenses and profits in a particular
period, the cash flow statement which exhibits the sources and uses of cash in a
period, and the statement of changes in the owners’ equity that represents the
changes in owner’s wealth.

For the purpose of this study, profitability that is, profit after tax (PAT), was used
as a measure of corporate performance. Average Collection Period (ACP) and
Corporate Performance The average collection period is used as a measure of
accounts receivable management and represents the average number of days that
the company uses to collect payments from customers. Mandipa and Sibindi
(2022) examined the relationship between working capital management practices
and financial performance of South African retail firms listed on the Johannesburg
Stock Exchange and discovered that a negative relationship exist between average
collection period and financial performance. Ibrahim, et al (2021) also found ACP
to be negatively related to business performance of listed companies in Nigeria.
Abdulazeez et. al (2018) examined the impact of working capital management on
the financial performance of listed conglomerate companies in Nigeria for a period
of ten (10) years (2005- 2014).

Abdullahi et. al (2021), Takon and Atseye (2015), Osundina (2014), Garcia
(2011). However, Micheal, et. al (2017) showed results that were inconsistent with
other findings as they revealed a positive relationship between ACP and
performance, although this relationship was not significant. Similar to this, is the
study by Wanguu and Kipkirui (2015), Muscettola (2014) and Duru (2014) that
showed a positive and significant relationship between average collections period
and performance. ACP can be better enhanced by optimizing the collection process
and methods in a company.

Inventory Conversion Period (ICP) and Corporate Performance Inventory is a

yardstick of production efficiency. Excess level of inventories decreases cash flow
while on the other side too small level of inventories may decrease sales. Inventory
Conversion Period (ICP)which is also referred to as Inventory Turnover in Days
(ITID)is the average length of time required for conversion of raw materials into
finished goods and in selling those goods. Studies have exhibited different
relationships between inventory conversion periods and corporate performance.
One of such is the study done by Mandipa and Sibindi(2022) who found that ICP
negatively impacts on performance, which is also similar to the findings of Garcia
(2011), Osundina (2014) and Zhang (2011). On the contrary, Wanguu and Kipkirui
(2015) in their work revealed a positive relationship between ICP and firm
performance while Abdullahi et.al (2021) found no relationship between ICP and
firm performance when measured by return on equity. ICP is one fundamental
variable that aids evaluating the efficiency in inventory management policy of the
organisation. This variable is supposed to exhibit a negative relationship with
profitability but if companies consume extra time in selling inventory which means
inventories are not getting converted into sales, profitability will be reduced.

2.1.5 IMPORTANCE OF FINANCIAL PERFORMANCE

According to previous research by Brynjolfsson et al. (1994), who found out the
four importance of financial performance which is as follows::

1. financial performance is a comprehensive assessment of a

company's ability to generate profits and create value for its
stakeholders. It encompasses various aspects, including
profitability, liquidity, cash flow, and efficiency, which
collectively provide a holistic view of a company's financial
health and performance.
2. financial performance analysis involves the evaluation of
financial statements, such as the income statement, balance
sheet, and cash flow statement, to assess the company's overall
financial position, identify trends, and make informed decisions.
It helps stakeholders, such as investors, creditors, and managers,
 to gauge the company's financial stability, profitability, and
sustainable growth potential, Brynjolfsson, E. and Hitt (1995, P :183-200).
3. When assessing financial performance, several key metrics come
into play. These metrics are crucial for understanding how well
a company is performing financially and can provide valuable
insights into its strengths and weaknesses. Some of the
key metrics used to evaluate financial performance include:

 Return on Investment (ROI): ROI measures the profitability of an

investment by comparing the gain or loss generated from the
investment relative to its cost. A higher roi indicates better
financial performance.
 Gross Profit Margin: This metric indicates the percentage of
revenue that remains after deducting the cost of goods sold. A
higher gross profit margin suggests better financial performance.
 current ratio: The current ratio measures a company's ability to
pay off its short-term liabilities with its short-term assets. A ratio of
1 or higher is considered favorable, indicating strong liquidity.
 cash Flow from operations: This metric measures the amount
of cash generated from the company's core business operations.
A positive cash flow from operations indicates healthy financial
performance.
 asset turnover Ratio: The asset turnover ratio measures how
efficiently a company utilizes its assets to generate sales revenue. A
higher ratio signifies better financial performance.
 debt-to-Equity ratio: This ratio compares a company's total debt to
its shareholders' equity. A lower ratio indicates stronger financial
performance and less reliance on debt financing.
 Return on Assets (ROA): ROA measures how efficiently a company
generates profits from its assets. A higher ROA signifies better
financial performance.

4. Financial performance plays a crucial role in the decision-

making processes of businesses, ranging from day-to-day
operational decisions to long-term strategic planning.
By analyzing financial performance metrics, businesses can
make informed decisions regarding. Brynjolfsson, E. and Hitt, (1998

P:49-55)

 Pricing: Assessing financial performance helps businesses

determine appropriate pricing strategies by considering factors
such as costs, profit margins, and market demand.
 Investment: Financial performance analysis helps
companies evaluate potential investment opportunities, compare
their expected returns against the company's financial goals,
and allocate resources wisely.
 Expansion: Assessing financial performance is essential when
deciding whether to expand operations, enter new markets, or
invest in additional resources.
  Cost Management: By analyzing financial performance metrics,
businesses can identify areas of inefficiency, reduce unnecessary
costs, and improve overall profitability.
 Risk Management: Financial performance analysis enables
businesses to identify potential financial risks and take appropriate
measures to mitigate them, such as diversifying revenue
streams or implementing strong internal controls.

2.1.6 MEASUREMENT OF CORPORATE FINANCIAL PERFORMANCE

According to (Schall & Halay, 1991) Financial performance is a measure of how

much a company's ability to create profit, profit or revenue. How do I measure the
company's financial performance in creating profit ?, especially companies in the
financial industry such as Banking. This can be viewed from the financial
statements. The financial statements consist of; (a) Balance Sheet, (b) Income, (c)
Cash flow, (d) Changes in capital.

These financial statements are usually prepared and reported in annual, semester
or trimester periods. It depends on his needs. Sometimes financial statements can
be made different versions depending on their interests. There are financial reports
for Directors/commissioners. There are financial reports for tax payments.

There are financial statements for the general meeting of shareholders. There are
financial statements to obtain credit loans Banking. Healthy-not a company's
finances can be analyzed from the four things above. Can be said healthy financial,
if profit surplus company. This is indicated by the ratio of operational costs to
operating income. Operating income is greater than the operational cost equals
surplus. If the opposite happens it is deficit, loss, bankruptcy, inefficiency.
Operational costs are greater than operating income (Pas & Lowes, 1997).

According to Horne, James C. Van & John M. Wachowicz, JR. (2001). There are
several ratios to measure the company's financial performance, among others;
liquidity ratio, profitability ratio, solvency ratio, efficiency ratio, leverage ratio. For
example from profitability ratio there is ROI (Return on Investment), ROE (Return
on Equity), ROA (Return on Assets), EBIT (Earning Before Interest and Tax)
profit. Liquidity Ratio consists of; fast ratio, current ratio, cash ratio, net working
capital ratio to total assets, DER (Debt to Equity Ratio). To know in detail these
ratios can be learned in the subject matter of financial management in the faculty
of economics.

2.1.7 Average Payment Period (APP) and Corporate Performance

The efficiency of firm in meeting its accounts payables can be analysed by

accounts payable turnover in days or average payment period (APP) of the firm.
APP is the average length of time between the purchase of material and labour and
when the payment of cash is actually made for them. As the business takes more
time in making payments, it will impact positively on profitability because the
company takes time to utilize these funds for a longer period. Ibrahim, et. al (2021)
revealed in their study that APP positively impacts corporate performance.
Abdullahi et. al. (2021) had similar findings in Nigeria. Also, James (2015)
revealed in their study that APP positively impacts corporate performance. This
finding is supported by that of Abdulazeez et. al (2018), Micheal, et. al (2017) and
Mathuva (2010) who found that accounts payables are positively related to firm’s
profitability. However, several other studies found negative relationship between
net operating profitability and APP. Mandipa and Sibindi (2022) found negative
relationship between APP and profitability. Duru (2014) and Osundina (2014)
examined the impact of working capital management on the profitability of
Nigerian quoted manufacturing firms for the period 2000- 2011and found that
accounts payable ratio negatively impacts the industries’ profitability. A negative
relationship between APP and firm performance was similarly discovered
byWanguu and Kipkirui (2015) who carried out their investigation in
Kenya.Similarly an alternative explanation for the negative relationship between
APP and profitability could be explained by the fact that organisations delay so
much to pay their accounts payable. Several other studies found negative
relationship between net operating profitability and APP.

Cash Conversion Cycle (CCC) and Corporate Performance Measuring liquidity

assesses the firm’s ability to cover obligations with cash flows, hence some studies
suggested that a dynamic view should be used to capture the on-going liquidity
from firms’ operations of which CCC is used as a measure of liquidity. The issue
of CCC has shown much disparity in the relationship it has with firm performance
in several studies. Falope and Ajilore (2009) investigated the impact of WCM on
firms profitability using data for 50 non-financial listed firms on the Nigerian
Stock Exchange from 1996 to 2005 and discovered that CCC negatively impacts
profitability. Mandipa and Sibindi (2022) found that CCC is negatively related to
corporate performance which was as well consistent with Ibrahim, et. al (2021),
Micheal, et. al (2017) and Garcia (2011) that showed CCC is significantly and
negatively related to corporate performance. Ogundipe, et. al (2012) results also
showed that CCC is negatively related to corporate performance. Other studies that
revealed negative relationships are those done by Jarworski and Czerwonka (2022)
who studied firms listed on Warsaw Stock Exchange, Zhang (2011), Baveld
(2012), and Rehn (2012). Contrarily, several studies also have displayed
inconsistency with the studies reviewed above. Abdulazeez et. al (2018) and
Osundina (2014) found that a positive relation exists between CCC and
profitability. The results of Duru (2014) also holds that firms’ CCC has positive
but nonsignificant relationship with performance and suggested that organisations
should make sure that accounts receivable is larger than the accounts payable
otherwise the firm will quickly become insolvent. Deloof (2003) similarly
discovered a positive relationship as he concluded that lengthier cash conversion
cycles increase profitability because it results to increased sales. It is envisaged that
CCC is negatively associated with firm’s profitability.

2.2 THEORETICAL FRAMEWORK

2.2.1 PECKING ORDER THEORY

The pecking order theory formulated by Myers and Majluf (1984) further refined
by Myers (1984) argue that firms should finance the investment opportunities with
internally generated funds, then with low risk debt and finally with equity. The
pecking order theory relies heavily on information cost to explain corporate
behavior. This information asymmetry affects the choice between internal and
external financing. According to this theory, internally generated fund is at the top
of the order, followed by external debt financing while equity financing is used
only as a last resort. This theory explains why companies choose to keep reserves
in cash or other forms of financial slack to avoid both lack of resources and the
need for external sources of funds. According to this point of view, cash is similar
to negative debt, external resources are sought when there is cash shortage, and
debts are paid when there is an excess of cash. Therefore, the company chooses a
more passive cash management policy. Myers and Majluf (1984) suggested that
the pecking order theory explains why profitable companies are less likely to
borrow, not because they have low debt targets but because they do not need funds
from external sources. On the contrary, less profitable companies issue bonds
because they do not have enough internal funds to finance investment decisions.
These firms also prefer to issue debts before issuing new shares. According to this
theory, managers from less profitable and highly profitable companies would
choose a more aggressive working capital policy, pressuring for lower levels of
current assets and higher levels of current liabilities, utilizing more financing from
suppliers, resorting to internal sources for the necessary funds needed to finance
business operations and avoid using debts and equity for financing.

2.3 EMPIRICAL REVIEW

The popular opinion of researchers on is that efficient working capital

management strategies is apt for enhanced manufacturing firm performance
across the globe. These are the studies which showed a significant
relationship between working capital management strategies and firm
performance indicators. These studies include those of Wang et al., (2020) and
Kajola etal., (2014).

They posit that working capital management has negative effect on firm
performance. Others found a positive effect which suggests that working capital
management portends adverse effect on firm performance, as increasing working
capital variables means excess use of short-term funds as against reduced usage.
Amongst these studies are Khalid et al., (2018) which averred working capital
management has positive effects on firm performance indicators.
However, a number of studies found a divergent and mixed views where those
variables of working capital management strategies tend to disagree on direction
and strength of effects on various measures of firm performance like Return on
Asset (ROA), Return on Equity (ROE), Profit After Tax (PAT), Firm value
(Tobin’s Q), or Earnings Per Share (EPS).These studies include Simon, etal.,
(2019),Vartak and Hot chandani (2019), Ling, etal(2019),Kasozi(2017)and Tariqet
al (2013). Ling, et al (2019) posit that such divergences in results can be attributed
to some factors such as variations in business environments and different
methodology for the various studies. These inconsistencies in extant empirical
literature portents a research gap.

Most of the previous studies done in Nigeria have used time frame below 2017
which suggests impending moribund of the existing studies. This is in spite of the
fact that some of them are very recent they still used a relatively old data frame
ending in 2014 (Abdulazeez, et al 2018;Uguru,etal2018),in2015,(Simon, etal
2018),in 2016 (Osuma& Ikpefan,2018), and in 2017(Akinleye&Adeboboye,
2019). The only very current studies in Nigeria like Etale and Oweibi (2020) used
only one firm (DangoteSugar) to x-ray WCM effects across quoted firms.It is also
note worthy that most of the studies in Nigeria, unlike their foreign counter parts,
could not disintegrate the working capital management strategies into separate
models that would enable managers and strategic policy corporate finance experts
to appreciate the role of each strategy on manufacturing firm performance. The
present study becomes apt to explain working capital management strategies and
performance nexus across quoted firms in Nigeria with particular interest in
the manufacturing sector, as the largest and stronghold of Nigerian economy.
 CHAPTER THREE

METHODOLOGY

3.1 DESIGN OF THE STUDY

Swanders and philip (2012) stated that research design is the general plans of how

one will go about answering research questions, specifying the sources from which

one intend to collect data, proposes to analyze the data collected. Ani and Ugwu

(2007) submitted that research design comprises of series of prior decisions that

comes together to provide a master plan for executing a research project. They

added that it is the specification procedures for collecting and analyzing data

necessary to solve the problem at hand. However survey research design was

adopted in the study.

3.2 POPULATION OF THE STUDY

Ozo (2007) defined population as the totality of people of object being considered.

The population of this study is all the manufacturing companies in Nigeria.

3.3 SAMPLE SIZE AND SAMPLING TECHNIQUE

Sampling and sample size is a process of seeking a proportion of the population

considered adequate to represent all the purpose of generalizing the finding from

the sample (Umuselarain, 2013). The sample random sampling was used because

of its openness and its ability to overcome in questionnaire administration. The

selected manufacturing company is: Nestle company.

3.4 SOURCE OF DATA

The data used for this research was from two sources. Primary and Secondary

sources. The primary source ofdata used for this study is the questionnaire. The

secondary source of data used for this study include: Books, Newspapers,

Magazine and the internet

3.5 INSTRUMENT OF DATA COLLECTION

The research instrument used in this study was mainly questionnaire and personal

interviews. The research made use of questionnaires the main instrument of

obtaining the necessary data while it was supplemented by personal interview.

Questions were drawn based on the hypothesis and statement of problem both

stated in chapter one. The questionnaire were use to select respondents answers.

Personal interview was used as a supplement to questionnaire or questions not

asked in the questionnaires.

3.6 VALIDITY OF RESEARCH INSTRUMENT

The interview and questionnaires was pretest and were conducted to validate that

the instrument content is valid or not in the sense of the respondents understanding.

The validation of the interview and questionnaire was done by the project

supervisor in order to authenticate the relevance of the instrument. Questions in the

questionnaire were meticulously chosen to reduce the undue of errors and the

research sample also validated instrument.

3.7 METHOD OF DATA COLLECTION

In collecting data for this study the primary and secondary sources of data was

employed primary sources. This are data collection first hand i.e data gathered as a

result of direct interaction with the respondent. This instrument of questionnaire

was adopted to accomplish this purpose.

Secondary data were from articles that are already undergone some statistical

analysis. This data are already available from source such as magazine, journals,

newspaper, management uniformities system and sales report.

3.8 METHOD OF DATA ANALYSIS

Data obtained were analyzed using chi-square , the method was use to analyze

these questionnaire to help deciding which hypothesis would be acceptable or

rejected.

Chi-square as the following organization

X2 = ∑ ¿ ¿

Where

X2 = chi square

Fo = observe frequency
Fe = expected frequency

∑ = sum of frequency

Df = degree of freedom

Level of significance = 5% or 0.05

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION

4.1 DATA PRESENTATION

Four hundred copies of questionnaires were administered and three hundred copies
were retrieved. The data gathered is presented in tables below.
Table 1: Gender Characteristics of Respondents
Variable Frequency Percentage(%)
Female 190 64
Male 110 36
Total 300 100
Source: field survey 2024

Table 1 shows that 190 (64%) of the respondents were female, 110 (25%) were
male.

Table 2: Age Representation of Respondents

Variable Frequency Percentage(%)
20-24 years 115 38
25-29 years 35 11
30-34 years 30 10.5
40 years and Above 120 40.5
Total 300 100
Source: field survey 2024

Table 2 indicates that 115 (38%) of the respondents were under 20-24 years, 35 (11

%) were within the ages of 25-29 years, 30 (10.5 %) were within the ages of 30-34

years, 120 (40.5 %) were 40 years and above.

Table 3: MARITAL STATUS:

Variable Frequency Percentage(%)
Single 180 60.5
Married 80 26.5
Divorced 40 13
Total 300 100
Source: field survey 2024
Table 3 indicates that 180 (60.5%) of the respondents were single, 80 (26.5 %)
were married, while 40(13%) of the respondents were divorced.

Table 4: Education Qualification?

Variable Frequency Percentage(%)

OND/NCE/SSCE 100 33.5
BSC/HND 50 16.5
Msc/Phd 120 40
Others 30 10
Total 300 100
Source: field survey 2024

Table 4 indicates that 100 (33.5%) of the respondents are OND/NCE/SSCE

holders, 50 (16.5%) the respondents are BSC/HND holders, 120 (40%) the
respondents are Msc/Phd holders, while 30 (10 %) the respondents are other degree
holders.

Table 5: Department of the respondents?

Variable Frequency Percentage(%)

Acc/Audit 50 16.5
Marketing 75 25.5
Administration 50 16.5
Operation 125 41.5
Total 300 100
Source: Field Survey, 2024
Table 5 reviled that 50(16.5 %) of the respondents are in the Acc/Audit

department, 75 (25.5%) of the respondents are in the Marketing department,

50(16.5%) of the respondents are in the Administration department, while

125(41.5%) of the respondents are in the operations department.

Table 6: Company size
Variable Frequency Percentage(%)
Less than 50 115 38
50-199 35 11
200-499 30 10.5
500 and Above 120 40.5
Total 300 100
Source: field survey 2024

Table 6 indicates that 115 (38%) of the respondents says that the company size is
less than 50, 35 (11 %) of the respondents say that the company size is 50-199 , 30
(10.5 %) of the respondents say that the company size is 200-499, 120 (40.5 %) of
the respondents say that the company size is 500 and above.

Table 7: How Frequently Does Your Company Review Its Working Capital
Management Policies?
Variable Frequency Percentage(%)
Monthly 100 33.5
Quarterly 50 16.5
Semi-Annualy 120 40
Annualy 30 10
Total 300 100
Source: field survey 2024
Table 7 indicates that 100 (33.5%) of the respondents says that their company
review their working capital policy momthly, 50 (16.5%) the respondents says that
their company review their working capital policy quartely, 120 (40%) the
respondents says that their company review their working capital policy Semi-
Annualy, while 30 (10 %) the respondents says that their company review their
working capital policy Annualy.
Table 8: What is the average payment period for your company's payables?
Variable Frequency Percentage(%)
Less than 30 days 115 38
30-60 days 35 11
61-90 days 30 10.5
More than 90 days 120 40.5
Total 300 100
Source: field survey 2024
Table 8 indicates that 115 (38%) of the respondents Sayed that the average
payment period for their company is less than 30 days, 35 (11 %) of the
respondents Sayed that the average payment period for their company is 30-60
days, 30 (10.5 %) of the respondents Sayed that the average payment period for
their company is 61-90 days, while 120 (40.5 of the respondents Sayed that the
average payment period for their company is more than 90 days.

Table 9: How does your company finance its working capital??

Variable Frequency Percentage(%)
Internal funds 170 56.5
Bank Loan 70 23.5
Trade Credit 50 16.5
Equity Finance 10 3.5
Total 300 100
Source: Field Survey, 2024
Table 9 show 170 (56.5%) of the respondents say that their company finance their
working capital through internal funds, 70 (23.5%) the respondents say that their
company finance their working capital through Bank Loan , 50 (16.5%) the
respondents say that their company finance their working capital through Trade
Credit, while 10 (3.5%) the respondents say that their company finance their
working capital through Equity Finance.
Table 10: How would you rate the overall financial performance of your
company over the past 5 years?

Variable Frequency Percentage(%)

Excellent 50 16.5
Good 10 3.5
Average 170 56.5
Poor 70 23.5
Total 300 100
Source: Field Survey, 2024

Table 10 reveals that 50(16.5) of the respondents rated the overall financial
performance of their company over the past 5 years to be excellent, 10 (3.5) of the
respondents rated the overall financial performance of their company over the past
5 years to be Good, 170(56.5) of the respondents rated the overall financial
performance of their company over the past 5 years to be Average, while 70(23.5)
of the respondents rated the overall financial performance of their company over
the past 5 years to be Poor.

Table 11: What has been the trend of your company's Return on Assets
(ROA) over the past 5 years?

Variable Frequency Percentage(%)

Increasing 70 23.5
Stable 170 56.5
Decreasing 50 16.5
Not sure 10 3.5
Total 300 100
Source: Field Survey, 2024
Table 11 show that 70 (23.5%) of the respondents sayed that the trend of their
company Return on Assets is Increasing, 170 (56.5%) of the respondents sayed
that the trend of their company Return on Assets is stable , 50 (16.5%) of the
respondents sayed that the trend of their company Return on Assets is Decreasing,
while 10 (3.5%) of the respondents sayed that they are not sure on how their
company return on asset trend have been over the past 5 years.
Table 12 : How has the management of working capital impacted your
company's profitability?

Variable Frequency Percentage(%)

Significantly positive 150 50.5
Moderately Positive 55 18.5
No Impact 50 16
Moderately Negative 25 8.5
Significantly Negative 20 6.5
Total 300 100
Source: Field Survey, 2024

Table 12 shows that 150 respondents representing (50.5%) of the respondents

sayed that the management working capital has impacted their company’s
profitability Significantly Positive, 55 (18.5%) of the respondents sayed that the
management working capital has impacted their company’s profitability
Moderately Positive, 50 (16%) of the respondents sayed that the management
working capital has no impact on their company’s profitability , 25 (8.5%) of the
respondents sayed that the management working capital has impacted their
company’s profitability moderately Negative, 20(6.5) of the respondents sayed that
the management working capital has impacted their company’s profitability
significantly Negative.

Table 13: How does your company measure its liquidity performance?

Variable Frequency Percentage(%)

Current Ratio 95 31.5
Quick Ratio 110 37.5
Cash Conversion Cycle 95 31
TOTAL 300 100
Source: Field Survey, 2024

Table 9 reviled that 95(31.5%) 0f the respondents sayed that their company

measure its liquidity performance through current ratio , 110(37.5%) 0f the

respondents sayed that their company measure its liquidity performance through
Quick ratio, while 95(31%) 0f the respondents sayed that their company measure

its liquidity performance through cash conversion cycle.

4.2 DISCUSSION OF THE FINDINGS

Gender Characteristics of Respondents:

The survey revealed that the majority of the respondents were female (64%), with
males comprising 36%. This indicates a higher representation of females in the
survey sample.

Age Representation of Respondents:

Most respondents were either 20-24 years old (38%) or 40 years and above
(40.5%), indicating that the survey captured views predominantly from younger
adults and older age groups, with fewer respondents in the 25-34 age range.

Marital Status:

A significant portion of the respondents were single (60.5%), followed by married

individuals (26.5%), and a smaller percentage were divorced (13%).

Educational Qualification:

Respondents were diverse in their educational backgrounds, with the majority

holding either an MSc/PhD (40%) or OND/NCE/SSCE (33.5%). This suggests that
the respondents had varying levels of higher education.

Department of Respondents:

The respondents worked across different departments, with the highest

representation from Operations (41.5%) and Marketing (25.5%), indicating a broad
range of departmental insights.

Company Size:

The companies surveyed varied significantly in size, with the largest group being
those with 500 and above employees (40.5%), followed by those with less than 50
employees (38%).
Frequency of Working Capital Management Policy Review:

Most companies reviewed their working capital management policies semi-

annually (40%), followed by monthly reviews (33.5%).

Average Payment Period for Payables:

Respondents indicated that their companies had varying payment periods, with the
most common being more than 90 days (40.5%) and less than 30 days (38%).

Sources of Working Capital Financing:

The primary source of working capital financing was internal funds (56.5%),
followed by bank loans (23.5%).

Overall Financial Performance Rating:

The majority of respondents rated their company's financial performance over the
past five years as average (56.5%), with a smaller percentage rating it as poor
(23.5%) or excellent (16.5%).

Trend of Return on Assets (ROA):

Most respondents observed that their company's ROA trend was stable (56.5%),
with fewer noting it as increasing (23.5%) or decreasing (16.5%).

Impact of Working Capital Management on Profitability:

A significant number of respondents (50.5%) felt that working capital management

had a significantly positive impact on their company's profitability.

Measurement of Liquidity Performance:

Companies predominantly measured their liquidity performance using the quick

ratio (37.5%) and current ratio (31.5%).

These findings provide a comprehensive understanding of the demographics,

financial practices, and performance perceptions of the surveyed companies. The
data indicates diverse educational backgrounds and departmental affiliations
among respondents, varied company sizes, and differing practices in working
capital management and financial performance assessments.
 CHAPTER FIVE
SUMMARY, CONCLUSION, AND RECOMMENDATIONS

5.1 SUMMARY

The research aimed to examine the impact of working capital management on

corporate performance in selected Nigerian manufacturing firms. Utilizing a
survey method, data was collected from 300 respondents through questionnaires.
Key metrics included gender, age, marital status, educational qualification,
department, and company size. The analysis revealed a diverse respondent
demographic, highlighting significant insights into the working capital
management practices within the surveyed firms.

The findings indicated that efficient working capital management significantly

affects the performance of manufacturing firms. Specifically, the management of
receivables, inventory, and payables were identified as crucial components
influencing corporate profitability and liquidity. The study established that
companies maintaining an optimal balance between these components tended to
perform better financially.

5.2 CONCLUSION

the research underscores the importance of effective working capital management

in enhancing the financial health of manufacturing firms. Firms that strategically
manage their working capital components can achieve better liquidity and
profitability, thereby ensuring long-term sustainability and growth. The study
recommends that manufacturing firms should adopt best practices in working
capital management to improve their financial performance and competitive
advantage.

5.3 RECOMMENDATION

Based on the findings, the following recommendations were made:

1. Optimization of Working Capital: Firms should strive to optimize their

working capital components by reducing the average collection and
 inventory conversion periods while extending the average payment period
without jeopardizing supplier relationships.
2. Policy Implementation: Companies should implement robust policies for
credit management and inventory control to improve liquidity and
profitability.
3. Financial Planning: Manufacturing firms should enhance their financial
planning processes to ensure efficient working capital management and to
avoid insolvency risks.

5.4 SUGGESTION FOR FURTHER STUDIES

The study suggests that future research could explore the impact of working capital
management on other sectors beyond manufacturing to validate the findings.
Additionally, future studies could incorporate more recent data and consider the
effects of macroeconomic factors on working capital management and corporate
performance.

These sections summarize the core findings, conclusions, and recommendations,

providing a clear direction for future research.

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APPENDIX I
Department of accountancy,

Delta State Polytechnic,

P.M.B 1030, Ogwashi-uku

Dear Respondents

I am a final year accounting student, in HND, Delta State Polytechnic, Ogwashi-

Uku, carrying out research project on the topic WORKING CAPITAL

MANAGEMENT AND CORPORATE FINANCIAL PERFORMANCE:

EVIDENCE FROM QUOTED MANUFACTURING COMPANIES IN NIGERIA

This is in partial fulfillment of the requirement for the Award of Higher National

Diploma (HND) in Accountancy.

Please in need your information for the completion of this project research.

Thanks for your co-operation.

Your faithfully,

Sike Mary Bekere.

QUESTIONNAIRE

Section A

Instructions: please tick (✓) on the box that matches your answer.

Demographic characteristics of Respondents

 1. Gender: male [ ] female [ ]
2. Age: 20-24 years [ ] 25 -29 years [ ] 30-34 years [ ] 35 - 39 years [ ] 40
and above [ ]
3. Marital status: single [ ] Married [ ] Divorced [ ]
4. Educational Qualification: OND/NCE/SSCE [ ] BSC/HND [ ] Msc/PhD [ ]
others [ ].
5. Department of the respondents: Acc/Audit [ ], Marketing [ ],
Administration [ ], Operation [ ].
6. Company size. Less than 50 [ ], 50-199 [ ], 200-499 [ ],
500 and above [ ]z

Section B
7. How frequently does your company review its working capital management policies?

Monthly [ ], Quarterly [ ], Semi-Annually [ ], Annually [ ].

8. What is the average payment period for your company's payables?

Less than 30 days [ ], 30-60 days [ ], 61-90 days [ ],

More than 90 days [ ]

9. How does your company finance its working capital? (Select all that apply)

Internal funds [ ], Bank loans [ ], Trade credits [ ], Equity finance [ ]

10. How would you rate the overall financial performance of your company
over the past 5 years?

Excellent [ ], Good [ ], Average [ ], Poor [ ]

11.What has been the trend of your company's Return on Assets (ROA) over
the past 5 years?

Increasing [ ], Stable [ ], Decreasing [ ], Not sure [ ]

12. How has the management of working capital impacted your company's
profitability?

Significantly positive [ ], Moderately positive [ ], No impact [ ]

Moderately Negative [ ]Significantly Negative.
13. How does your company measure its liquidity performance? (Select all that
apply)

Current ratio [ ], Quick Ratio [ ], Cash conversion cycle [ ].