Working Capital Management and Profitability of the Manufacturing Sector: An Empirical Investigation Of Nestle Nigeria Plc and Cadbury Nigeria PLC

Abstract

Working capital management is very fundamental to the liquidity and profitability of any organisation and the two variables are vital in evaluating the performance and ultimately deciding the survival of any organisation. This study presents an empirical investigation of the relationship between working capital management and profitability using Nestle Nigeria Plc and Cadbury Nigeria Plc as case studies. The study used correlation and regression analysis to analyse data. Quick ratio was used to measure liquidity, current ratio, trade receivable collection and trade payables payment periods were used as efficiency variables to capture the working capital manage-ment policy adopted by these companies while return on equity was used as the profitability variable. Liquidity and efficiency variables were correlated against return on equity. The study found a negative relationship between the liquidity, two of the efficiency ratios and return on equity for Nestle Nigeria Plc while it found a positive relationship between the liquidity, efficiency ratios and return on equity of Cadbury Nigeria Plc. To enhance profitable short-term investments, the study recommends that companies should manage their working capital efficiently by upgrading the quality of their assets while obsolete inventories should be written off.