Working Capital Management and Firms Profitability: Evidenced from the Consumer Goods Sector in Nigeria

Abstract

The consumer goods sector is a vital sector in Nigeria due to the tremendous contributions of the sector to the growth of her economy. Despite this, there is a dearth of studies on the effect of working capital management (WCM) on the profitability of this sector in Nigeria, and the few studies that have been conducted have used other profitability measures different from the profitability measure (return on sales) used in this study. Also, conflicting results have been reported by previous studies on the effect of WCM on the profitability of the consumer goods sector in Nigeria. Hence, this study investigated the effect of WCM on the profitability of the consumer goods sector in Nigeria. The study employed an expost- facto research design and data were obtained from 13 (Thirteen) quoted consumer goods firms on the Nigerian Stock Exchange for the period of 2011- 2020. Descriptive analysis, Pearsons’ Correlation, panel ordinary least square estimation, and Hausman test were conducted. The Hausman test chose the fixed effect model as the appropriate model and the results showed that cash conversion cycle and accounts payable days have a significant positive effect on the profitability of Consumer goods firms in Nigeria, while inventory days have a significant negative effect on their profitability. The study showed that effective WCM has a significant impact on the profitability of consumer goods firms in Nigeria and recommended that managers are to adopt strategies that would aid the achievement of efficient WCM practices.

Keywords: Working Capital Management, profitability, Consumer goods sector