Effect of Working Capital Management on the Profitability of listed Consumer Goods Companies in Nigeria

Abstract

This study examined the effect of working capital on profitability of listed consumer goods companies in Nigeria. Using data obtained from the financial statement of audited annual reports and accounts of the five (5) consumer goods companies for the period of (2015–2020). The Hausman test for randomization of panel result indicated that fixed effect regression was preferred. The Wald coefficient restriction test further showed that fixed effect was better than pooled OLS for investigating the relationship in the model of the study. Regression results indicates that account payable (APP) has a negative effect on profitability proxied by return on asset (ROA) of listed consumer goods companies in Nigeria and the effect is statistically significant. Inventory turnover (INV) has a negative effect on return on asset (ROA) of listed consumer goods companies in Nigeria Exchange Group and the effect is statistically significant. Account receivable (ACR) has a positive effect on return on asset (ROA) of listed consumer goods companies in Nigeria and the effect is not statistically significant. Interest rate (INT) was positively signed but not statistically significant. It was concluded that that, working capital management proxies are determinants of profitability of listed consumer goods companies in Nigeria. It was recommended among others that the management of listed consumer goods companies should strive to reduce the accounts payable period to enhance profitability and create value for the shareholders. This could earn trade discount and confidence from suppliers.