IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY … · Profitability is the ability to create an excess of revenue over expenses in order to attract and retain investment capital

Sahel Analyst: ISSN 1117-4668 Page 86

IMPACT OF WORKING CAPITAL MANAGEMENT ON

PROFITABILITY OF QUOTED CEMENT MANUFACTURING

COMPANIES IN NIGERIA

Bulus Jonah Saidu1

Juliet Mbanaso1

Mohammed Dahiru1

Abstract

The study assesses the impact of working capital management on the profitability

of quoted Cement Manufacturing Companies in Nigeria. It particularly

investigates Inventory Conversion Period (ICP), Accounts Collection Period

(ACP), Accounts Payment Period (APP) and Cash Conversion Cycle (CCC).

Data from the four (4) quoted cement manufacturing companies in Nigeria for

the period of eight (8) years (2009 to 2016) were analysed using descriptive

statistics (Mean) and inferential statistics (multiple regression analysis). The

study found a significant impact of inventory conversion period, accounts

collection period, accounts payment period, and cash conversion cycle on the

profitability of quoted cement manufacturing companies in Nigeria. The study

recommends that financial managers of the companies under investigation should

maximise their shareholders wealth by reducing the cash conversion cycle and to

utilise the longer period taken by accounts payment period in order to improve

their shareholders wealth.

Keywords: Inventory conversion period, Accounts collection period, Accounts

payment period, Cash conversion cycle, Working capital

management, Profitability.

Introduction

The global financial crisis of 2008 has affected the profitability of many firms

around the globe especially in the area of working capital management, which is

the life blood of every business organisation. Looking at cement manufacturing

industry, rising infrastructural development in the developing countries has led to

the increase in global demand for cement, Nigeria has the largest demand for

cement in sub-Saharan Africa and about 95 per cent of the inputs for cement

production are sourced locally (Wale, 2011). Thus, attention was drawn to

working capital management components such as cash, inventory, accounts

receivable and accounts payable in order to take the necessary measures to guard

against liquidation especially in the cement manufacturing firm that has the

1 Department of Banking and Finance, University of Maiduguri, Borno State

African Journal of Management (Vol.2, No.4, 2017), Business Admin. University of Maiduguri

Sahel Analyst: ISSN 1117- 4668 Page 87

combination of intensive labour and capital. Cement manufacturing companies

require a large amount of current assets and current liabilities with heavy

automation and machineries to be deployed in running the day to day business

activities of the company which will enable them to maximise profit.

Working capital management has a significant influence on the liquidity of

cement manufacturing companies which can affect their profitability (Paul &

Agbo, 2014). While holding too much liquidity means that some funds that can

be reinvested in marketable securities are kept idle, that is, extra funds held up in

inventories, accounts receivables or cash are often left idle and can neither

promote marketable activities nor hiring or acquisition of desired assets. On the

other hand, low working capital can account for inefficiencies in the firms’

operation. This is done where Inventories are the product a company is

manufacturing for sale and the components that make up the product (Paul &

Agbo, 2014). Inventory conversion period can be seen as the time interval taken

from the acquisition of raw material, to the production process popularly known

as work in progress down to the sale of the final product. This is calculated by

taking the value of stock from the current assets side of the balance sheet and

dividing it by cost of sales per day, the cost of sales per day is equal to cost of

sales multiply by three hundred and sixty-five days which is the number of day in

a year (Pandy, 2010). Account collection period is the time interval which goods

are sold on credit to the time that cash is received, this is calculated by taking the

debtors in the current assets side of the balance sheet and dividing it by revenue

per day; the revenue per day is equal to revenue multiply by three hundred and

sixty-five days (Biradawa, 2017). Accounts Payment Period is the time interval

taken by a manufacturer to repay his obligations or to pay his suppliers for the

goods bought on credit. This is calculated by taking the figure of creditors from

the current liabilities side of balance sheet and dividing it by cost of sales per day

(Pandy, 2010). Finally, Kurfi (2005) looked at cash conversion cycle as the time

interval from the sale of goods on cash and on credit to the time that all cash are

received. This is calculated by inventory conversion period plus accounts

collection period minus accounts payment period.

Profitability is the ability to create an excess of revenue over expenses in order to

attract and retain investment capital (Eljelly, 2004). Therefore, cement

manufacturing companies are heavily dependent on the management of working

capital because an inefficient working capital might lead to illiquidity or financial

crisis. The firm’s profitability can be measured by the rate of return on firm’s

assets (ROA), the rates of return on firm’s equity (ROE), operating profit margin

and net income. The (ROA) measures the returns to all firm’s assets and is often

used as an overall index of profitability, and the higher the value, the more

profitable the firm, it is therefore an indicator of managerial efficiency as it shows

the firm’s management converted the institutions assets under its control into

earnings. The (ROE) measures the owner’s equity employed in the firms that

indicate how well the firm has used the resources owners.

Impact of Working Capital Management on Profitability of Quoted Cement Manufacturing

Companies in Nigeria


Several studies were conducted on working capital management and profitability

of cement manufacturing companies both locally and internationally, such as

Paul and Agbo (2014), who utilised data from Nigerian cement industry to

analyse how cement manufacturing companies should finance and optimise their

working capital in more efficient ways by reducing the number of days

inventories are held, days accounts receivables are outstanding and cash

conversion cycle in order to enhance their profitability as well as create value for

their shareholders. Another study by Wangu and Kipkirui (2015) assesses the

effect of working capital management on profitability of cement manufacturing

companies in Kenya. The variables studied are inventory conversion period,

account receivables period and accounts payable period. Salami, Folajin and

Oriowo (2014) looks at working capital and the profitability of selected

manufacturing companies in Nigeria where inventory conversion period,

accounts collection period and cash conversion cycle were studied using a panel

data.

Similar studies were conducted outside Nigeria; whilst the ones conducted in

Nigeria are scanty and used a panel data and their studies were concentrated on

management of gross working capital but did not explain how the management

of net working capital might affect profitability. This study looks at the

contributions of accounts receivable period, inventory conversion period, cash

conversion cycle and in addition to previous studies is the accounts payment

period as a major source of free credit to the manufacturer which attracts no

interest and its impact on the profitability of cement manufacturing companies in

Nigeria. Therefore, this study looked at the impact of working capital

management on profitability of quoted cement manufacturing companies of

Nigeria.

Objectives of the Study

The main objective of the study is to examine the impact of working capital

management on the profitability of cement manufacturing companies quoted on

the Nigerian stock exchange. The specific objectives are to;

i. assess the impact of accounts collection period on profitability of cement

manufacturing companies quoted on the Nigerian stock exchange,

ii. examine the impact of inventory conversion period on profitability of cement

manufacturing companies quoted on the Nigerian stock exchange,

iii. assess the impact of accounts payment period on profitability of cement

manufacturing companies quoted on the Nigerian stock exchange and

iv. examine the impact of cash conversion cycle on profitability of cement

manufacturing companies quoted on Nigerian stock exchange.

Hypotheses of the Study

This study is guided by the following hypotheses;

Ho1: There is no significant impact of accounts collection period on the

profitability of quoted cement companies in Nigeria.



Ho2: There is no significant impact of inventory conversion periods on the


Ho3: There is no significant impact of accounts payment periods on the


Ho4: There is no significant impact of cash conversion cycle on the profitability

of quoted cement companies in Nigeria.

Literature Review

The concept of working capital has been viewed by a number of researchers and

scholars. Paul and Agbo (2014) define working capital as managing relationships

between a firm’s short-term assets and liabilities to ensure that a firm is able to

continue its operations, and have sufficient cash flows to satisfy both maturing

short-term debts and upcoming operational expenses at minimal costs, and

consequently, increasing corporate profitability. Biradawa (2006) defines working

capital as firm’s investment in short term assets such as cash, marketable securities, accounts

receivable and inventories. Salami, Folajin and Oriowa (2014) view working capital

as the excess of current assets over current liabilities. Working capital

components such as stock, debtors, creditors and cash that are required for the

day to day production of goods to be sold by a company. These authors have a

similar view on working capital, where they suggest that the combination of

current assets and current liabilities in running the day to day business activities is

what encompasses working capital.

The working capital components work together in a cycle from the use of cash to

acquire raw materials to the sales of finished goods in order to receive cash.

According to Ramachandran and Janakiraman (2007), working capital is the flow

of ready funds necessary for the working of a concern. The above mentioned

authors are of the opinion that working capital comprises of short term funds

invested in current assets and current liabilities, the funds in current assets are

cash that are stocked in inventories and debtors while the current liabilities are

claims of outsiders such as accounts payables, bills payables, and overdrafts

among others. In addition to their opinions, the working capital components must

be combined with fixed assets in the production of goods and services to satisfy

their customers.

Working Capital Management

Padachi (2006) opines that the management of working capital management is

important to the financial health of businesses of all sizes. This is because, first,

the amounts invested in working capital are often high in proportion to the total

assets employed and so it is vital that these amounts are used efficiently, especially

in the manufacturing sector where too much working capital is needed for daily

activities as compared to fixed assets. Secondly, the management of working

capital directly affects the liquidity and the profitability of firms and

consequently their net worth. Rahaman and Nasr (2007) consider working

capital management as striking a balance between the two objectives of a firm,

that is, profitability and liquidity. They posited that firms must strive to maximise




profits and enhance shareholders wealth but at the same time not sacrifice their

liquidity which is necessary for smooth operations and most importantly,

corporate survival.

Accounts Collection Period

Biradawa (2006) defines account receivable as the credit sales which a firm

builds by its day to day business transactions. Trade credit happens when a firm

sells its products or services on credit and does not receive cash immediately. It

is an essential marketing tool, acting as a bridge for the movement of goods

through the production and distribution stage to customer. A firm grants trade

credit to protect it sales from the competitors and to attract the potential

customer to buy its product at favourable terms (Pandey, 2010). Similarly,

Rafuse (1996) views accounts receivable (AR) as customers who have not yet

made payment for goods or services which the firm has provided. These scholars

agreed unanimously that accounts receivable is when a customer is yet to repay

his obligations for the goods or services that were received.

Inventory Conversion Period

Biradawa (2006) views inventory management as stocks of raw materials,

work in progress, component parts, suppliers and finished goods. Inventories

are the products that a manufacturer has produced, which are available for sale.

Pandey (2005a) identifies the various forms in which inventories exist in a

manufacturing company which are the raw materials, work-in- progress and

finished goods. Stocks of raw materials and work-in-progress enhances

production, while stock of finished goods is needed for smooth marketing

operations (Hadley, 2006).In the context of inventory management, Pandey

(2005b) opines that a firm is faced with the problem of meeting two differing

needs, which are to maintain a large size of inventories of raw materials, work-

in-progress for smooth production and of finished goods for continuous sales

operations. Finally, is to maintain a minimum investment in inventories to

maximise profitability.

Accounts Payment Period

Accounts payable (AP) is viewed as the claims of outsiders whose invoices have

been processed, but have not been paid (Falope & Ajilore, 2009).

Organisations often regard the amount owing to creditors as a source of free

credit because it has no identifiable interest charges. It is in view of this that

accounts payable are always regarded as a major source of working capital

financing for firms (Pandey, 2005). Therefore, strong association between

company and its suppliers will strategically improve production lines and support

credit record for future growth. Accounts payment period include average

payment period (APP) and operating cycle (Pandey, 2010).



Cash Conversion Cycle (CCC)

Elizalde (2003) views Cash conversion cycle as an important tool of analysis that

enable us to establish more easily why and how a business needs more cash to

operate and when and how it will be in a position to refund the negotiated

resources. Cash conversion cycle is considered as a comprehensive measure of

checking the efficiency of working capital management. A business can generate

losses during a number of different periods, but it cannot go on for an indefinite

period with poor cash conversion cycle Management (Dong & Su 2010).

Mathematically represented by the equation of cash conversion cycle is equal to

Inventory plus Accounts Receivables minus Accounts Payables (Dong & Su,

2010; Gill, Biger & Mathur, 2010; Gitman, 2009). Pandey (2010) argues that

depreciation and profit should be excluded in the computation of cash conversion

cycle since the firms concern is with cash flows associated with conversion at

cost, depreciation is a non-cash item and profits are not costs. A contrary view is

that the firm has to ultimately recover total costs and make profit; therefore, the

calculation of operating cycle should include depreciation, and even the profit

(Paul & Agbo, 2014).

Empirical Studies

Paul and Agbo (2014) examined the impact of working capital management

(Measured by; the number of Days Accounts Receivable are outstanding (DAR);

the number of Days Inventory Are Held (DINV); and the Cash Conversion Cycle

(CCC), on profitability (measured by Return on Assets-ROA) of Nigerian

Cement Industry for a period of eight (8) years (2002 to 2009). Data from a

sample of four (4) out of the five (5) cement companies quoted on the Nigerian

Stock Exchange (NSE) were analysed using descriptive statistics and multiple

regression analysis. The study found an insignificant negative relationship

between the profitability (measured by Returns on Assets ROA) of cement

companies quoted on the Nigerian Stock Market (NSE) and the Number of Days

Accounts Receivables is outstanding (DAR). The study also found a significant

negative relationship between the profitability of these cements companies and

the number of Days Inventory Are Held (DINV). The study finally revealed a

significant positive relationship between the profitability and the Cash

Conversion Cycle (CCC). The study concludes that, the profitability of cement

companies quoted on the NSE during the study period is influenced by number of

Days Inventories Are Held (DINV) and Cash Conversion Cycle (CCC). The

study therefore recommends that managers of these cement companies should

manage their working capital in more efficient ways by reducing the number of

days’ inventory are held to an optimal level in order to enhance their profitability

as well as create value for their shareholders. Managers of Nigerian cement

companies should also improve on their cash flows, through the reduction of their

cash conversion cycle.

Salami et al. (2014) investigated the relationship between working capital

management on organisational profitability in Nigeria with special reference to

manufacturing companies quoted in Nigerian Stock Exchange. The data used for




this study were derived from the audited financial statements of the firms listed

on the Nigerian Stock Exchange (NSE) between 2005 – 2013 which comprises of

twenty (20) manufacturing sectors was finally used as sample size. Panel data

methodology was adopted because it combined time series and cross sectional

data. The method of analysis is that of Pearson Correlation Moment Coefficient

and multiple regressions and the method of estimation is Ordinary Least Squares

(OLS). The result showed that working capital has negative and significant

relationship with the Return on Assets (ROA) and Return on Equity (ROE) at 5%

level. This implies that firms’ performance can be increased with short size of

Cash Conversion Cycle and the study recommended that cash conversion cycle

should be reduced and inventory should be turned out quickly.

Wangu and Kipkirui (2015) assessed the effect of working capital on profitability

of cement manufacturing companies in Kenya. The study used a sample of three

(3) cement manufacturing companies listed on the Nairobi Securities and

Exchange for the period of fifteen (15) years 2000 to 2014. The study used

secondary data from the cement manufacturing companies audited financial

statements. The data collected was analysed using the Karl Person Correlation

and the multiple linear regression. The study findings established that Inventory

Conversion Period (ICP) positively and significantly influences profitability

while Average Receivable Period (ARP) had a positive insignificant relationship

with profitability. The study findings also revealed that Average Payable Period

(APP) had a significant negative relationship between Leverage and Profitability

while liquidity and firm size had a positive insignificant relationship with

profitability. The study concludes that inventory days, receivables period,

liquidity, leverage and firm size positively influences profitability while payables

period negatively influences the profitability of cement manufacturing

companies.

Deloof (2003) investigated the relationship between working capital management

and corporate profitability for a balanced panel set of 1,009 Belgian firms over

the 1991–1996 periods. According to him, a longer Cash Conversion Cycle lead

to larger investment in working capital and longer Cash Conversion Cycle might

increase profitability because it leads to higher sales. However, corporate

profitability might also decrease with the Cash Conversion Cycle, if the costs of

higher investment in working capital rose faster than the benefits of holding

more inventories and/or granting more trade credit to customers. Number of

days’ accounts receivable, accounts payable and inventories were used as trade

credit policy and inventory policy while the CCC was used as a

comprehensive measure of working capital management. He found a significant

negative relation between gross operating income and the number of days’

accounts receivable, inventories and accounts payable by Belgian firms. He

emphasised that most firms had a large amount of cash invested in working

capital. It can therefore, be expected that the way working capital was managed,

had a significant impact on the profitability of firms. On the basis of these results



he suggested that managers could create value for their shareholders by reducing

the number of days’ accounts receivable and inventories to a reasonable

minimum. The negative relation between accounts payable and profitability was

consistent with the view that less profitable firms wait longer to pay their bills.

Methodology

Population of the Study

The population of this study comprised six (6) cement manufacturing companies

quoted on the Nigerian stock exchange as at 31st December 2009. These are

Ashaka Cement Nigeria Plc, Dangote Cement Nigeria Plc, Cement Company of

Northern Nigeria Plc, Larfarge Cement Nigeria Plc (WAPCO), Niger Cement

Company (NCC) and Benue Cement.

Sample and Sampling Technique

Sample of the four (4) cement manufacturing companies quoted on the Nigerian

stock exchange. i.e. (Ashaka Cement Nigeria Plc, Dangote cement Nigeria Plc,

Cement Company of Northern Nigeria Plc, and Lafarge Cement Nigeria Plc

(WAPCO), were selected using purposive sampling, because they are the only

quoted cement manufacturing companies on the Nigerian stock exchange within

the period of investigation with up-to-date statements of account and the relative

ease of availability of data due to their years in operation, performance standing

and their dominance of the industry.

Source of Data

Secondary source of data was adopted from information that has already been

classified for use, because data were collected at a particular point in time. The

data for the study were sourced from the Nigerian Stock Exchange Fact Book and

annual reports and accounts of the respective companies as at 31th December

2009, the choice of the year 2009 to 2016 is simply the availability of data.

Method of Data Collection

The data were obtained through annual financial statements of the selected

cement manufacturing companies which are published on the Nigerian Stock

Exchange. Journals, paper presented at seminars and other relevant publications

of the organisations were used for this study from 2009 to 2016.

Method of Data Analysis

The statistical tool used for data analysis is Ordinary Least Squares Method

(OLS) which is one of the most popular and widely used methods for regression

analysis with the aid of econometric software called Statistical Package for Social

Science (SPSS). The reason for using cross sectional analysis is because data are

kept annually in Nigeria for all quoted firms and the choice of Ordinary Lease

Square (OLS) is because when used on cross sectional data, it tends to yield an

unbiased and consistent result. This is used to test the hypothesis of the study.




Model Specification

This research study is modelled on a multiple regression model as;

Model

Mathematically;

Multiple regression; BnXn + C

The regression model is expressed implicitly as;

Y= β + β1X1 + β 2X2+ β 3X3+ β 4X4+ е

Where

Y= profitability

e = error term

Bo= Constant term

Bx = Coefficient to be estimated

X1 = accounts collection period

X2= inventory conversion period

X3= accounts payment period

X4 = cash conversion cycle

b1-b4 = Regression Coefficient

Data Analysis, Findings and Discussion

This study was conducted to examine the impact of working capital management

on the profitability of quoted cement companies in Nigeria. The objectives were

analysed using inferential statistics (Multiple regression and simple linear

regression) with the aid of Statistical Package for Social Science (SPSS) to test

hypotheses H01 to H04. The results were presented in tables and discussed

according to the research hypotheses.

Table 1: t-test statistics on Research Parameters Parameters Estimate Standard Error T Statistic P-Value

Constant 4.6722667 4.3193667 1.0817 0.0000

Cash conversion cycle -3.8936366 1.9717167 -0.197475 0.0012

Creditors conversion period -3.2883966 1.9689767 -0.167011 0.0191

Debtors conversion period 3.3349666 1.966867 0.169563 0.0023

Inventory conversion period 3.355966 1.9631267 0.170947 0.0051

Dependent variable: Profitability

Independent variables: Accounts collection period, Accounts payment period, Cash

conversion cycle, Inventory conversion period.

R-squared = 45.5571 percent

R-squared (adjusted for d.f.) = 37.4915 percent

Standard Error of Est. = 6.8848167

Mean absolute error = 4.9621567

Durbin-Watson statistic = 0.820291 (P=0.0000)

Lag 1 residual autocorrelation = 0.588132

Table 1 shows the impact of accounts collection periods, inventory conversion

periods, accounts payment periods and cash conversion cycle on the profitability

of quoted cement companies in Nigeria. The result revealed a significant impact

of accounts collection periods, inventory conversion periods, accounts payment

periods and cash conversion cycle on the profitability of quoted cement



companies in Nigeria. Since the p values (0.0012 0.0019, 0.0023, 0.0051) are less

than the alpha (0.05) value (p<α) the null hypotheses are rejected at 0.05 level of

significance. This means that there is a significant impact of accounts collection

periods, inventory conversion periods, and accounts payment periods and cash

conversion cycle on the profitability of quoted cement companies in Nigeria. The

table above also shows the results of fitting a multiple linear regression model to

describe the relationship between profitability and four independent variables.

The R-Squared statistic indicates that the model as fitted explains 37.4915% of

the variability in profitability. The equation of the fitted model is Profitability =

4.6722667-3.8936366 * accounts collection period + 3.3349666 * accounts

payment period -3.8936366 * cash conversion cycle 3.355966 * inventory

conversion period.

The standard error of the estimate shows the standard deviation of the residuals to

be 6.8848167. This value can be used to construct prediction limits for new

observations by selecting the option from the text menu. The mean absolute error

(MAE) of 4.9621567 is the average value of the residuals. The Durbin-Watson

(DW) statistic tests the residuals to determine if there is any significant

correlation based on the order in which they occur in your data file. Since the P-

value is less than 0.05, there is an indication of possible serial correlation at the

95.0% confidence level. In determining whether the model can be simplified,

notice that the highest P-value on the independent variables is 0.0191, belonging

to creditors conversion period. Since the P-value is less than 0.05, the term is

statistically significant at the 95.0% or higher confidence level. Consequently,

creditor’s conversion period should be removed from the model.

Discussion of Results

The study assessed the impact of working capital management on the profitability

of quoted cement companies in Nigeria. It was found that there is a significant

impact of working capital management on the profitability of quoted cement

manufacturing companies in Nigeria. Based on the data from the annual financial

statements of the four quoted cement manufacturing companies in Nigeria, the

results show that inventory conversion period, accounts collection period,

accounts payment period and cash conversion cycle have contributed

significantly to profitability.

Finding from hypothesis H1 (one) revealed that accounts collection period has a

significant impact on the profitability of quoted cement manufacturing companies

in Nigeria and a positive insignificant relationship between accounts collection

period and profitability. Aligning to this finding is a study by Wanguu and

Kipkirui (2015) that assesses the effect of working capital management on

profitability of cement manufacturing companies in Kenya for the period of 15

years (2000 to 2014), the study found a significant effect of account collection

period on profitability and insignificant relationship between account collection

period and profitability. Contrary to this finding is a study by Paul and Agbo

(2014) that examined the impact of working capital management on the




profitability of Nigerian cement industry for the period of eight (8) years (2002 to

2009), the study found a negative impact of accounts collection period on

profitability and a negative relationship between account collection period and

profitability?

Finding from hypothesis H2 (two) showed that inventory conversion period has

significant impact on the profitability of quoted cement manufacturing companies

in Nigeria and a significant relationship between inventory conversion period and

profitability. Conforming to this, Mobeen (2013 examined the impact of working

capital management on profitability of cement manufacturing sector in Pakistan

for the period of six (6) years (2003 to 2008). The study revealed a significant

impact of inventory conversion period on profitability and a significant

relationship between inventory conversion period and profitability. Again,

Wangu and Kipkirui (2015) found out a significant impact of inventory

conversion period on profitability and a significant relationship between

inventory conversion period and profitability. Paul and Agbo (2014) disagreed

with this finding though having a significant impact of inventory conversion

period on profitability but an insignificant relationship between inventory

conversion period and profitability.

The third finding from Hypothesis H3 (three) indicates that there is a significant

impact of accounts payment period on profitability and a significant positive

relationship between accounts payment period and profitability of quoted cement

manufacturing companies in Nigeria. Wangu and Kipkirui (2015) disagreed with

this finding whereas, there is a negative impact of account payment period on the

profitability and a negative relationship between accounts payment period and

profitability of quoted Nigerian manufacturing firms for the period of (2000 to

2011) using descriptive statistics and multiple regression analysis.

Finding from hypothesis H4 (four) showed a significant impact of cash

conversion cycle on profitability and a positive relationship between cash

conversion cycle and profitability of quoted cement manufacturing companies in

Nigeria for the period of eight (8) years (2009 to 2016). Aligning with this

finding, Sen and Oruc (2009) assessed the relationship between level of working

capital management and efficiency level, evidence from the top five beer brewery

firms in the world using descriptive statistics (mean) and inferential statistics

(multiple regression). The study showed a significant effect of cash conversion

cycle on profitability and though no relationship was measured and analysed.

Duru (2014) also showed a significant impact of cash conversion cycle on

profitability and a non-significant relationship with the industries profitability. In

line with this finding, Paul and Agbo (2014) found a significant impact of cash

conversion cycle on profitability and a positive relationship between cash

conversion cycle and profitability of Nigerian cement industry.



Conclusion

From the study findings, it was concluded that there is a significant impact of

working capital management on the profitability of quoted cement manufacturing

companies in Nigeria; There is a significant impact of accounts collection

periods, inventory conversion periods, accounts payment periods and cash

conversion cycle on the profitability of quoted cement companies in Nigeria this

was tested among the variables using multiple regression analysis. There is a

significant impact of accounts collection period on the profitability of quoted

cement companies in Nigeria. There is a significant impact of inventory

conversion periods on the profitability of quoted cement companies in Nigeria.

There is a significant impact of accounts payment periods on the profitability of

quoted cement companies in Nigeria. There was a significant impact of cash

conversion cycle on the profitability of quoted cement companies in Nigeria..

Recommendations

Based on the study findings the following recommendations were made;

i. The financial managers of cement manufacturing companies in Nigeria should

manage their inventories in a more efficient and effective way by reducing the

number of days inventory are held to a minimal level so as to prevent funds

being stocked.

ii. Managers of Nigerian cement manufacturing companies should reinvest their

excess accounts receivables in marketable securities to avoid funds being kept

idle. This will generate more interest to improve profitability.

iii. Since it takes a longer period to pay creditors, financial managers of cement

manufacturing companies in Nigeria should avoid borrowing from other

sources that will attract interest. Instead, they should utilise the accounts

payable as a source of free credit.

iv. In order to maximise shareholders wealth, financial manager of Nigerian

cement manufacturing companies should improve their cash flow by reducing

cash conversion cycle to an optimal level.

References

Abbasli. P & Milad. E (2012). Impact of Working Capital Management on

Profitability and Market Evaluation: Evidence from Tehran Stock Exchange.

International Journal of Business and Social Science Vol. 3 No. 10, pp 311-

316.

Adeola Odeku, (2011). Nigerian Cement Industry. PanAfrican Capital Research.

1-16.

Afza, T. & Nazir, M. (2009). Impact of aggressive working capital

Management Policy on firm’s profitability. The IUP Journal of Applied

Finance, 15 (8), 20-30.




Agburu, J.I. (2001). Modern Research Methodology (1st ed.). Makurdi, Solid

Printing and Publishers.

Akinlo, O.O. (2011). The Effect of Working Capital on Profitability of firms in

Nigeria: Evidence from General Method of moments (Gmm). Asian

Journal of Business and Management Sciences, 1(2), 130-135.

Akinsulire, O. (2005). Financial Management. Lagos: El-Toda Ventures.

Amakom, U. (2012). Manufacturing Exports in Sub-Saharan African Economies

American international Journal of Contemporary Research. 2(4), pp, 195-

206.

Ani W, Okwo I. M. & Ugwunta D. O. (2013). Effects of Working Capital

Management on Profitability. Asian Economic Financial Review. 2(8), pp

966-982

Aondona, P.A. & Alematu, A. (2014). Impact of Woking Capital on the

Profitability of the Nigerian Cement Industry. European Journal of

Auditing and Finance, 2(7), pp 17-30.

Arnold G. (2005): Corporate Financial Management 3rd Edition; England:

Pearson Education Limited.

Barine, M.N. (2012). Working Capital Management efficiency and Corporate

Profitability: Evidences from quoted firms in Nigeria. Journal of Applied

finance & Banking, 2(2), 215-237

Biradawa, K. (2006). Financial management for beginners. Lagos Nigeria:

Chrome International Press.

Deloof, M. (2003). Does working capital management affect Profitability of

Belgian firms Journal of Business finance and Accounting, 30 (3), 573-588.

Dong, H.P. & Su, J. (2010).

Dong, H.P. & Su, J. (2010). The relationship between Working Capital

Management and profitability: A Vietnam case. International Research

Journal of finance and Economics, 49(3), 62-70.

Elizalde, C. (2003). Working Capital Management in Latin America: The

receivables opportunity. Citigroup.

Eljelly, A.M. (2004). Liquidity-Profitability trade off: An Empirical

Investigation in an Emerging Market. International Journal of Commerce

and management, 14(2), 48-61.



Enemi, F.K. & Uruakpa, P. (2013). Working Capital Management and

Profitability of Firms in Nigeria. Nigerian Academy of Management Journal.

7(1), pp 78-92.

Falope, O.I. & Ajilore, O.T. (2009). Working Capital Management and

Corporate Profitability: Evidence from Panel Data Analysis of selected

quoted companies in Nigeria. Research Journal of Business Management,

3(3), 73-84.

Filbeck, G. & Krueger, T. (2005). Industry related differences in

Working Capital Management. Mid-American Journal of Business, 20(2),

11-18.

Filbeck, G; Krueger, T. & Preece, D. (2007). ). CFO Magazine’s Working

Capital Surveys: Do selected firms work for shareholders”? Quarterly

Journal of Business and Economics, 46(2), 3-22.

Ghosh, S.K. & Maji, S.G. (2004). Working Capital Management Efficiency: A

Study on the Indian Cement Industry. Management Accountant, 39(5), 363-

372.

Gill, A. Biger, N. & Mathur, N. (2010). The Relationship between Working

Capital Management and Profitability: Evidence from the United States.

Business and Economics Journal, 1(1), 1-9.

Gitman L.A. (2006). Principles of Managerial Finance (11th Edition). New York:

Addison Wesley Publishers

Gujarati, D. & Sangeetha, N. (2007). Basic Econometrics (4th ed.). Delhi: Tata

McGraw Hill Pub. Co. Ltd.

Isenrnila, P.A., E. Eragbhe & (2010).Corporate finance. Mindex publishers. K.O.

Ogiedu Benin City:

Jacob, O.A. (2014). Working Capital Management and Profitability of Selected

Quoted Food And Beverages Manufacturing Firms in Nigeria. European

Journal of Auditing and Finance Research. 2(3), pp. 10-21.S

Kaur, J. (2010). Working Capital Management in Indian Tyre Industry.

International Research Journal of Finance and Economics, 46(1), 7-15.

Krueger, T. (2002). An analysis of Working Capital Management results

across industries. Mid-American Journal of Business, 20(2), 11-18.

Kurfi, A.K. (2003). Principles of Financial Management. Benchmark publisher

limited.




Lamberson, M. (1995). Changes in working Capital of small firms in relation to

changes in economic activity. Journal of Business, 10(2), 45-50.

Mobeen U. (2013) Determination of the Working Capital Management on

Profitability. Asian Economic and Financial Review. 3(3), pp 319-332

Nigerias Cement Manufacturing Industry Report (2008). Lead Capital Limited.

Nsude, F.I. (2005). Fundamental of Statistics for Business (2nd ed.). Enugu:

CIDJAP Printing Press.

Ogundipe, S.E., Idowu, A., & Ogundipe, L.O. (2012). Working Capital

Management, firm’s Performance and Market valuation in Nigeria. World

Academy of Science, Engineering and Technology, 61(1), 1196 -1200.

Olamade, O.O. (2014). Strategic I.C.T. Use Intensity of Manufacturing

Companies in Nigeria. Journal of Asian Business Strategy. 4(1), pp, 1-17.

Padachi, K. (2006). Trends in working capital management and its impact on

firm’s performance: An analysis of Mauritian small manufacturing firms.

International Review Business Research papers, 2(1), 45-56.

Pandey, I.M (2005). Financial Management (9th ed.). New Delhi: Vikas

Publishing House PVT Ltd.

Pandey, I.M (2010). Financial Management (10th ed.). New Delhi: Vikas

Publishing House PVT Ltd

Paul A. & Agbo A, (2014). Impact of Working Capital on the Profitability of the

Nigerian Cement Industry. European Journal of Accounting Auditing and

Finance Research, 2(7), 17-30.

Petrocelli, J.V. (2003). Hierarchical Multiple Regression in Counseling

Research: Common problems and possible remedies. Measurement and

Evaluation in counseling and Development, 36(1), 9-22.

Rafuse, M.E (1996). Working capital management: An urgent need to refocus.

Journal of management decision, 34(2),59-63.

Rahaman, A. & Nasr, M. (2007). Working Capital Management and

profitability: Case of Pakistani firms. International Review of Business

Research, 3(2), 275-296.



Ramachandran, A. & Janakiraman, M. (2007) The relationship between

Working Capital Management Efficiency and Earnings before interest and

Taxes (EBIT). Journal of managing Global transitions, 7(1), 61-74.

Richards, A. B., Stewart, C. M.,& Franklin, A.(2008). Principles of Corporate

Finance. (9th ed.), New York ,Wiley and sons.

Richards, V.D. & Laughhin, E.J. (1980).A cash conversion cycle approach to

liquidity analysis. Financial Management, 9 (1), 32-38.

Salami, A. Folajin. O. & Oriowa. A. (2014) Working Capital Management and

Profitability: A Study of Selected Listed Manufacturing Companies in

Nigerian Stock Exchange. International Journal of Academic Research in

business and Social Sciences, 8(4), 287-295.

Sen, M. and Oruc, E. (2009): “Relationship between efficiency level of working

capital management and return on total assets in Ise”, International journal

of business and management, 4(10) pp. 109-114.

Shin, H.H. & Soenen, L. (1998). Efficiency of Working Capital and Corporate

Profitability. Journal of Finance Practice and Education, 8(2), 37-45.

Smith, K. (1980). Profitability versus Liquidity Tradeoffs in Working

Capital Management, New York, St. Paul: West Publishing Company

Srivastava, S. (2004). Using Six sigma methodologies to optimise

Working Capital Management. Journal of Corporate Finance Review, 9(1),

29-37.

VanHorne, J.C. (2004). A Risk-return analysis of a firm’s working capital

position. Journal of Financial Economics, 2(1), 71-88.

Wale A. (2011). Nigerian Cement Industry (A review of opportunities and

recurrent price hike), PanAfrican Capital Reseach.

Wangu K.C. & Kirkirui S.E. (2015). The Effect of Working Capital Management

on Profitability of Cement Manufacturing Companies in Kenya. Journal of

Economics and Finance 6(6), pp 53-61

www.africanfinancials.com: Annual Report of Companies; Retrieved on 14th

December 2011.

Documents

IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY … · Profitability is the ability to create an excess of revenue over expenses in order to attract and retain investment capital