WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF FIRMS QUOTED IN NIGERIA

Abstract

This research analyses the impact of working capital management on the profitability of firms listed in Nigeria during the period from 2019 to 2024. This study employs a quantitative, ex-post-facto research design, analysing a sample of 25 firms across three sectors: industrial goods, healthcare, and construction/real estate, drawn from the population of all listed firms in the Nigerian exchange group. The researcher performs a preliminary analysis utilising descriptive statistics and a pairwise correlation matrix before executing the panel regression analysis. We conducted the Hausman specification test as a diagnostic tool for the analysis. The research results show a mixed picture: working capital turnover and current ratio have positive but not strong effects on profitability, while the cash conversion cycle has a negative and strong effect on the profitability of listed firms in Nigeria. The study concludes that liquidity and turnover are significant elements of working capital management; however, they do not independently influence profitability. Conversely, an increase in the cash conversion cycle is likely to result in a substantial reduction in firm profits. The study suggests that firm management should develop strategies to enhance profitability by reducing cash conversion cycles, ensuring optimal liquidity levels, and implementing best practices from established firms.