International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue IV, April 2020 | ISSN 2321–2705

Working Capital Management and Financial Performance of Selected Quoted Firms in Nigeria

Yakubu Abubakar¹, Dangana Umaru², Olaifa Oluwafemi Olumuyiwa^3
1Gbenga Olowe & Co Chartered Accountants Firm
²College of Education, Gidan Waya, Nigeria
³Department of Accounting, Ahmadu Bello University, Zaria, Nigeria

Abstract: – This study examines the impact of Working Capital Management on Financial performance of selected quoted firms in Nigeria. The study has been conducted in different parts of the globe and in Nigeria with different findings which are mixed and inconclusive. The population of the study consists of ten (10) firms quoted on the Nigerian stock exchange as at 31st December 2019 out of which ten (10) firms were selected as samples for a period of seven (11) years from 2009 to 2019 based on purposeful sampling technique. The study uses multiple regressions as a tool for analysis. The proxy for working capital management were cash conversion period, debt equity ratio and inventory conversion period while the proxy for financial performance was Return on Equity (ROE).The study reveals that Cash Conversion Cycle showed a positive significant impact on financial performance of selected quoted firms in Nigeria while Debt Equity Ratio and Inventory Conversion Period have no significant impact on financial performance of selected quoted firms in Nigeria.

Keywords: Working Capital Management, Financial performance, Debt Equity Ratio, Cash Conversion Cycle, Firm Size.

I. INTRODUCTION

Working capital, also known as Net Working capital, is the difference between a company’s current assets and its current liabilities. Net operating working capital is a measure of a company’s liquidity and refers to the difference between operating current assets and operating current liabilities. Working capital is a measure of a company’s liquidity, operational efficiency and its short-term financial health. If a company has substantial positive working capital, then it should have the potential to invest and grow. If a company’s current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors, or even go bankrupt. Working capital is also seen as a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital is equal to current assets.