WORKING CAPITAL MANAGEMENT EFFECT ON PERFORMANCE
ABSTRACT
This study analyzes the impact of working capital management on firm’s performance in Nigeria for the period of 2006 – 20011. For this purpose, balanced panel data of 50 firms is used which are listed in the Nigerian Stock Exchange. Results were analyzed by using the OLS regression and Pearson Correlation techniques. The results indicate that there is a positive relationship between working capital management and firm’s profitability in Nigeria. The results also revealed that there is positive relationship between current assets components of stock and profitability of companies in Nigeria and the study also conclude that there is negative relationship between cash conversion cycle (CCC) and profitability in Nigerian.
It was further recommended that managers should adopt a conducive policies and enabling environment that can promote effective and efficient revenue generation.   
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1    Background to the Study                    
1.2    Statement of the Problem                    
1.3    Research Questions                         
1.4    Research Objectives                         
1.5    Research Hypotheses                     
1.6    Scope of the Study                         
1.7    Relevance and Significance of the Study            
1.8    Limitation of Study                        
1.9    Definition of Terms                         
   Reference                                 
CHAPTER TWO: LITERATURE REVIEW
2.1     Introduction                            
2.2    Working Capital and Profitability                
2.3    Working Capital Management and
Performance of Firms                         
2.4    Working Capital and Management Efficiency        
2.5    Aggressiveness and Conservativeness of Working Capital Policy                        
2.6    Working Capital Approaches and Firms Returns     
2.7    Politics of Management Operating Cycle with Different Effects on Profitability And Risk    
2.8    Firm’s Capital Expenditure on Working Capital    
2.9    Independent Variables                        
2.10    Dependent Variables             
References                                 
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    Introduction                            
3.2    Research Design                             
3.3    Population                                
3.4    Sample Size                             
3.5    Method of Data Collection                     
3.6    Measurements of Variables                    
3.7    Method of Data Analysis                     
3.8    Model Specification                        
    References                                 
CHAPTER FOUR: DATA PRESENTATION ANALYSIS AND INTERPRETATION
4.1     Introduction                            
4.2     Presentation and Analysis of Data                
4.3     Test of Hypothesis                         
4.4    Discussion of Findings                
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMEDATIONS
5.1     Summary of the Study                        
5.2     Conclusion                                
5.3     Recommendations                        
Bibliography                            
Appendix                                 
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
Working capital management is among the most important decision taken by the financial manager. It directly affects the profitability and is considered on of the most important parts of financial decision making (Has et al 2011). Net working capital is the excess of current asset over current liabilities of a firm. It determines the strength of the business and its liquidity position means, more the working capital, more the liquidity of the firm. Working capital could be permanent or temporary; former is the amount of current assets company must possess for longer period of time to offset its current liabilities while later is the excess of current assets to meet seasonal current liabilities (Van Horn, 2005).
    According to Raheman and Nasr, (2007) management of current assets to meet short term obligations of the company is working capital management (WCM). Objectives of the WCM is to make sure that firm meets the operating requirements and also remain in a position to plan short term debt when they fall due (Mohamad  & Noriza 2010). Mismanagement of working capital will lead a firm to liquidity crisis by reducing its profitability and credibility, so managing working capital effectively is necessary for going concern of the business necessary for going concern of the business and also for its profitability (Siddique & Khan, 2009). Earlier we have classified WCM as temporary and per management, now we are classifying it as aggressive and conservation. Aggressive WCM refers to the firms strategy of having fewer current assets in proportion of total assets or having high proportion of current liabilities as compared with the total liabilities of the company, it leads a company to low liquidity or higher profitability (Van Horne & Machwicz, 2004). Conservative WCM technique appears with the philosophy of using long term source should be used for the entire investment in the current assetgs and short term should be used only for urgent situation. Distinct features of conservative WCM are increased liquidity and less but more interest has to be paid on the seasonal requirement for the entire period. Large firm focus on higher sales with fewer on cash basis which leads to greater cashflow problems and seasonality while smaller firms major focus is stock management and credit management policies with low profitability. When a firms credit sales increases their account receivables increases which leads to less inventory in the stock and accounts payables also increases. These three components (accounts receivable, accounts payables and inventory) of cash conversion cycle have different ways by managed in order to maximize firm’s profitability. In order to make cash conversion cycle more effective, equilibrium should be maintained in accounts receivable, accounts payables and inventory that have positive significant impact on profitability of a firm.
1.2    STATEMENT OF THE PROBLEM
    A firm is required to maintain a balance between liquidity and profitability while conducting its day to day business operations. This aspect is more important in all enterprises in Nigeria. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role within the business. This requires that business must be run both efficiency and profitably.
    Moreover the intention of the researcher is to elicit responses from business organization on their view about working capital management effect on performance, especially how it affect their efficiency and profitability.
1.3    RESEARCH QUESTIONS
i.    Is there a relationship between net working capital and firms profitability in Nigeria?
ii.    Is there a relationship between cash conversion cycle (CCC) and profitability of companies in Nigeria?
iii.    Is there a relationship between current assets component of stock and profitability of companies in Nigeria?
iv.    Is there a relationship between liquidity ratio and profitability of companies in Nigeria?
1.4    RESEARCH OBJECTIVES
    This research work has the following objectives;
i.    To examine if there is relationship between working capital management and firms profitability in Nigeria.
ii.    To find out if there is relationship between cash conversion cycle (CCC) and profitability of companies in Nigeria.
iii.    To ascertain whenever there is relationship between current assets components of stock and profitability of companies in Nigeria.
iv.    To determine whether there is relationship between liquidity and profitability of companies in Nigeria.
1.5    RESEARCH HYPOTHESES
i.     H0:    There is negative relationship between working capital management and firms profitability in Nigeria.
Hi:    There is positive relationship between working capital management and firms profitability in Nigeria.
ii.     Ho:    There is negative relationship between cash conversion cycle     (CCC) and profitability of companies in Nigeria.
    Hi:    There is positive relationship between cash conversion cycle     (CCC) and profitability of companies in Nigeria.
iii.     Ho:    There is negative relationship between current assets components of stock and profitability of companies in Nigeria.
Hi:    There is positive relationship between current assets components of stock and profitability of companies in Nigeria.
iv.     Ho:    There is negative relationship between liquidity and     profitability of companies in Nigeria.
    Hi:    There is positive relationship between liquidity and     profitability of companies in Nigeria.
1.6    SCOPE OF THE STUDY
    The scope refers to the boundary of the study. The scope in this research work was narrowed down to companies in Edo state.
1.7    RELEVANCE AND SIGNIFICANCE OF THE STUDY
    Working capital management effects on performance has not been thoroughly studied in Nigeria. Therefore, this study will contribute to fill the gap in knowledge understanding how companies achieve high performance has significant implications for companies owners/managers, employees, and the economy in which the company operates. High level of performance can facilitate firm growth and subsequent profit performance, which in turn can yield employment gains and contribute to the general economic health of a state, region, or nation. Conversely, low performance may lead to firm stagnation or failure, and the negative economic ramifications commensurate with these outcomes.
    This study could also help in the enlightenment of existing and potential investors of matters concerning working capital management effects on firm’s performance in Nigeria. It will afford the general public an  insight into the importance of effective and transparent working capital management in Nigeria and also increase and improve the awareness and knowledge of students.
1.8    LIMITATION OF STUDY
    Corporate from respondents to supply enough information in the questionnaire created problem of inadequate data for analysis. Lack of funds and time was also a limitation and as a result the geographical coverage of the research was restricted to Edo State (Benin City).
1.9    DEFINITION OF TERMS
1.    Working  capital: This measures how much liquid assets a company has available to build its business. It also refers to current assets minus current liabilities.
2.    Liquidity: This is the degree to which an asset or security can be bought or sold in the market without effective the assets price.
3.    Cash conversion cycle: It is a metric that expresses the length of time, in days, that it takes for company to convert resources input into cash flows.
4.    Account receivable: Money which is owned to a company by a customer for products and service provided on credit.
5.    Profitability: This refers to the potential of a venture to be financially successful.
6.    Performance: The accomplishment of a given task measured against present known standards of accuracy, completeness, cost, and speed.
REFERENCES
Haq Ikram W, Muhammad Sohail, Khalid Zaman & Zaheer
Ala (2011) “The relationship between working capital management and profitability: A case study of cement industry in Pakistan”. Mediterranean Journal of social sciences; 2(2).
Raheman, Abdul & Mohammed Nasr. (2007), “Working
capital management and profitability – case study of Pakistan firms”. International review of business research paper, 3(6): 279-300.
Shin, H.H. and Soenen, L. (1998). Efficiency of working capital
management and corporate profitability, financial practice and education, 8(2):37-45.   
Van Horne, J.C. and Wachowicz, J.M. (2005), Fundamentals of
financial management, 12th edition, prentice hall publishers, New York.