Title: Efficient working capital management as the tool for driving profitability and liquidity: a correlation analysis of Nigerian companies

Authors: Ambrose Adekola; Martin Samy; Dave Knight

Addresses: School of Accounting, Finance, and Economics, Leeds Beckett University, City Campus, The Rose Bowl, Portland Gate, Leeds, LS1 3HB, UK ' School of Accounting, Finance, and Economics, Leeds Beckett University, City Campus, The Rose Bowl, Portland Gate, Leeds, LS1 3HB, UK ' School of Accounting, Finance, and Economics, Leeds Beckett University, City Campus, The Rose Bowl, Portland Gate, Leeds, LS1 3HB, UK

Abstract: This study focused on working capital management role in driving organisations profitability and ensuring adequate liquidity level. The study compiles financial data for 50 Nigerian-quoted non-financial services companies between 2002-2011. The data was subjected to statistical analysis using ANOVA. The results obtained from the hypothesis developed indicates that variables of profitability and liquidity reinforce each other in some sectors through a positive relationship while trade-offs exist between them in other sectors. The study also established a negative relationship between the cash conversion cycle, and gross and net operating profit. The positive relationship between current ratio and both gross and net operating profit indicates that liquidity and profitability reinforce each other rather than the trade-off anticipated by traditional working capital management theory. Finally, the study established that the relationship between profitability and liquidity is neither concave nor linear, and that the relationship is affected by the sector within which a firm operates.

Keywords: circulating capital; working capital management; correlation analysis; Nigeria; profitability; liquidity; ANOVA; cash conversion cycle; gross operating profit; net operating profit.

DOI: 10.1504/IJBG.2017.081957

International Journal of Business and Globalisation, 2017 Vol.18 No.2, pp.251 - 275

Received: 16 Jul 2015
Accepted: 09 Nov 2015

Published online: 11 Jan 2017 *

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