MEASURING THE EFFECT OF WORKING CAPITAL MANAGEMENT ON FIRMS’ PROFITABILITY: EVIDENCE FROM QUOTED NIGERIAN COMPANIES

This paper seeks to determine the effect working capital management has on profitability of businesses, specifically publicly quoted Nigerian firms. This is against the backdrop of the trade-off between profitability and risk which most firms are exposed to. The study adopts the longitudinal research design and a combination of the fixed effect and random effect panel data analysis techniques in analyzing the dataset retrieved from the financial reports of 74 publicly quoted firms from 2010 to 2019. This technique permits analysis of within entity uniqueness and between entity heterogeneity. Cash conversion cycle, inventory turnover, average collection period and average payment period were adopted as proxies for working capital management and profitability measured by return on capital employed, return on assets, and operating profit margin. Findings of the study suggest that inventory turnover, average collection period, and average payment period are significantly associated with profitability, while cash conversion cycle has no significant explanatory influence on the profitability of the firms.