Effect of Working Capital Management on the Profitability of Listed Consumer Goods Companies in Nigeria

The study examines the effect of working capital management on the profitability of consumer goods companies listed on the Nigerian Stock Exchange. Specifically, the study sought to determine the extent to which number of days account receivables, inventory, and number of day of account payable affects return on asset (ROA) of consumer goods companies on the NSE. The populations for the study consist of consumer goods companies listed on Nigerian Stock Exchange. The study covers a period of 5 years from 2014-2018. Data collected were analyzed using multiple regression analysis via the Statistical Package for Social Science (SPSS) version 20. The study reports a negative and insignificant influence of trade receivable collection period and trade payable payment period on ROA while inventory conversion period has a positive insignificant effect on ROA of consumer goods companies. Therefore, it is concluded that working capital management has insignificant effect on companies’ profitability in consumer goods companies in Nigeria. The study recommends that companies should adopt a policy of prompt collection of debts, ensure adequate liquidity by ensuring current assets exceed current liabilities.

cash flow that will service their long term debt and satisfy both maturing short term debt obligations (debt) and unforeseen operational cost. Hence, organizations should try as much as possible to meet up with this objective to avoid be caught up in the trap of inefficient management of working capital components.

Objectives of the Study
In this paper, working capital management and profitability of listed consumer goods companies in Nigeria is empirically examined, with objectives of determining the extent to which working capital management affects profitability.

Literature Review
Working capital management has elicited considerable interests among scholars and researchers and generated several studies and viewpoints in different environments. The following sections explore some of these works.

Profitability as an Objective of a Company
Companies have numerous objectives but the prime one among them is shareholders' wealth maximization and to achieve this, companies needs to maximize its profit. Businesses cannot survive in the long run without profitability (Damilola 2007). Profit as the most appropriate measure of corporate performance, it is a tool for efficient resources allocation under competitive market conditions (Pandey, 2005). Conceptually, profitability refers to the ability of companies to generate profit on the amount invested. It is measured with income and expenses. Expenses are the costs of resources used up or consumed by the activities of the business. It is the level at which company's earnings is bigger than its cost (Paul & Agbo, 2014). Profitability refers to the company's ability to generate profits as return on their money invested; profitability ratios reflect the competitive situation of the company in addition to the quality management. It is reflects the success or failure of the company (Robinson, Henry, Pirie & Broihahn 2015). Profitability ratios include the following return on capital employed, return on shareholder capital, return on asset, return on equity, gross profit, operating profit and net operating profit (Owolabi & Aleyomi 2010;Samuel & Fidelis 2015;David, 2010;Francis 2015;Karaduman 2011). This paper adopts ROA as measure of profitability.

Nature and Working Capital Strategies
The primary objective of any company is profitability and for any company to maximize its profit, it must ensure a balance between current assets and current liabilities (working) capital) (Haris 2005). Working capital refers to the cash utilization by business firms in their daily operational activities. According to Adeniji (2008), it is capital available for conducting day-today operations of an organization represented by its current asset. In the same vein, it is an item that is needed for the day-to-day production of goods to be sold by a company (Akinlo 2011). Uremadu, Egbeide and Enyi (2014), described working capital as the item required for the day-to-day production of goods to be sold by a company. Working capital is the amount invested in current assets of the company. Generally, it is assumed that the ideal ratio of current asset to current liabilities is 2 to 1. Working capital is one of the most important problems that company's manager may face. It plays an importance role for the company's' maintenance and growth. Working capital is the stock stored that has a conversion or resale value in order to gain profit. It consists of about 30% to 40% of a company's total investment (Nwachukwu, Odo & Nwachukwu, 2016). The current asset component of working capital are asset which can be converted into cash within an accounting year and consist majorly of cash and cash equivalents, trade receivables, short term securities, bills receivables and inventories. Current liabilities components are those claims of outsiders which are expected to mature for payment within an accounting year and consist of trade payables or creditors, bills payable and outstanding expenses (Pandey 2005).
The return earned by a company depends to a large extent on the investment in working capital. Nevertheless too much investment in current asset can result in a company getting low return on investment while companies with few current assets may also face challenges in meeting its daily and smooth operations. According to Abdul and Mohammed (2007), they stated that the reason why managers spend more time on daily management of working capital is that current assets are short lived investments that are often being transformed into other types of asset. Working capital management is therefore a crucial area in financial management. It involves the decision of the amount and composition of current assets and the financing of those assets (Abdulrasheed, Khadijat, Sulu & Olarewaju, 2011). To ensure a proper management of working capital, a company must consciously formulate polices or principles relating to each components of working capital (receivables payables and inventories cash and short-term investments) in order to minimize the possibility of illiquidity and inefficiency (Damilola, 2007;Chittenden, Poutziouris, & Michaelas, 1998)

as stated in Musa & Adamu 2018).
A company can usually adopt one of the three types of working capital policies; namely aggressive, conservative and moderate polices (Damilola, 2007). An aggressive policy with regard to the level of investment in working capital means that a company chooses to operate with lower levels of inventory, trade receivables and cash for a given level of activity or sales (Chittenden et al., 1998). According to them an aggressive policy will increase profitability since less cash will be tied up in current assets, but it will also increase risk since the possibility of cash shortages or running out of inventory is increased.
The second strategy is the conservative and more flexible working capital strategy for a given level of turnover would be associated with maintaining a larger cash balance, perhaps even investing in short-term securities, offering more generous credit terms to customers and holding higher levels of inventory (Chittenden et al., 1998). Such a policy will give rise to a lower risk of financial problems or inventory problems, but at the expense of reducing profitability.
The third strategy a company could adopt is the moderate working capital policy. A moderate policy would tread a middle path between the aggressive and conservative approaches. It should be noted that the working capital policies of a company can be characterized as aggressive, moderate or conservative only by comparing them with the working capital policies of similar companies (Chittenden et al., 1998). There are no absolute benchmarks of what may be regarded as aggressive or otherwise, but these characterizations are useful for analyzing the ways in which individual companies approach the operational problem of working capital management

Working Capital Management and Profitability
The review shall be based on previous studies related to the theme of the study which is found to be most relevant and related. Examination of various studies on the effect of working capital management present different opinions. While some noted a positive effect of WCM on profitability, some results indicated a negative effect of the independent variable on the dependent variable. Nevertheless, some results gave a mixed result of both positive and negative effect of WCM on profitability.
In Nigeria, Samuel, Abolade and Adeyemi (2019) studied the effect of working capital management on the profitability of listed manufacturing firms in Nigeria. The study was based on secondary data and the study period was 2006-2015. 30 firms listed on the Nigerian Stock Exchange were selected for the study. Panel data was applied as research methodology. The result show account payment period is statistically significant and has negative effect on profitability and it also indicates that account collection periods have negative effect on profitability. Following similar result is the study by Musa and Adamu (2018) on the effect of working capital management on profitability of listed bottling companies in Nigeria. A total of 7 bottling companies were considered for the study for a period of 2001-2014. Multiple regression analysis was adopted for the study and the study reveals that inventory turnover days has a positive and strong impact on profitability. The study also reveals that account receivable days have negative but significant effect on profitability while account payable days has positive but insignificant impact of profitability. Paul and Agbo (2014) in their study examined the impact of working capital management on the profitability of Nigerian cement industries for a period of 2002-2009 with a target population of 5 cement companies. Multiple regression analysis was analysis was adopted and the result indicates an insignificant negative relationship between the profitability (measured by ROA) and the number of days accounts receivables are outstanding. The study also found a significant negative relationship between the profitability of these cements companies and the number of day inventory are held. The study finally revealed a significant positive relationship between the profitability and the cash conversion cycle. Richard, Dadson and Peter (2013) examined working capital management: evidence from Ghanaian listed manufacturing firms. Secondary data were used for their study which covered 13 listed manufacturing firms in Ghana for a period of 2005-2009 using panel data methodology. Their study revealed that account receivable days has negative effect on profitability while account payable days has negative but insignificant effect on profitability. Also in South Africa, Jason (2017) conducted a study on the effect of working capital management on profitability with his study centres on listed manufacturing firms in South Africa with a total of 69 manufacturing firms. The study covers a period of 2007-2016 and panel data was used in analyzing the data. The findings revealed that the average collection period and the average payment period are negative and statistically significant for profitability, implying that firms which efficiently manage their accounts receivable and those that pay their creditors on time perform better than those that do not. Additionally, a positive statistically significant relationship between the number of days in inventory and profitability was supported suggesting that firms which stock-up and maintain their inventory levels suffer less from stock-outs and avoid challenges of securing financing when needed. Also in Kenya, Daniel and Ambrose (2013) examined working capital management and profitability of listed manufacturing and construction firms listed on the Kenya Securities Exchange for a period of 2003-2012. Ordinary least square regression model were used in analyzing the data and the result revealed that number of days account receivable and number of days account payable have negative effect on profitability while number of days inventory turnover has positive effect on profitability.
Arunkumar and Radharamanan (2012) examined the effect of working capital management on profitability of Indian manufacturing firms. The study period was of 2005-06 to 2009-10 i.e. for 5 years and methodology used on this study was correlation and regression analysis. The results of research shows that in correlation analysis Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.11, No.18, 2020 profitability has negative relationship between profitability and debtor day, inventory day and creditor day. And a result of regression analysis shows that there is positive relationship between number days of inventory and number of days of account payables. Also, Asefi, Bandarian and Ghatebi (2013)

The Methodology of the Study
The research design adopted for this study was correlation research design approach. The target population consists of consumer goods companies listed on the Nigerian Stock Exchange. This involves a total of 24 companies out of which 13 companies were selected. Others were left out due to non-availability or incomplete data during the period under study. The data used in this work were extracted from the annual reports and accounts of sampled companies covering the period of 2014-2018 and transformed into the specific attributes of variables for the number of years the research cover. Microsoft Excel software was used to transform the variables into a format suitable for analysis, after which the Statistical Package for Social Science (SPSS) was used to analyze the data.

Variable Operationalization
This study establishes the relationship between working capital management and profitability and profitability is proxied by return of assets (ROA) is our dependent variables while working capital management measured by working capital components TRCP (Trade Receivables Collection Period), ICP (Inventory Conversion Period), TPPP (Trade Payable Payment Period) is our independent variable. ROA is a measure of the overall effectiveness of the company in generating profit with available assets. The independent variables are computed as follows: TRCP = Trade receivable/Sale*365 days ICP = Inventory/Cost of sales*365 days TPPP = Trade payable/cost of sales*365 days

Model Specification
The analysis was guided by the following linear models ROA = f (TRCP, ICP, TPPP, COSIZE.)……………………………………….………1 Assuming a linear relationship between the variables, the specification of the regression equation for the main model 1 above could be written explicitly states as: ROA = β0 + β1TRCP + β2ICP+ β3TPPP+ β4COSIZE+uit ………….……....………….2 Where, ROA is return on assets (our measure of profitability), TRCP is the trade receivable collection period, ICP is the inventory conversion period, TPPP is the trade payables payment period. COSIZE connotes natural logarithm of total assets; it is included in the model as a control variable to measure company size. β0 is the intercept of the regression and β1, β2 and β3 are the coefficients of the regression, while uit is the error term capturing other explanatory variables not explicitly included in the model.

Data Presentation, Analysis and Hypothesis Testing
The data for this study representing the independent variables TRCP, ICP, TPPP and the control variables COSIZE were collected from the sampled companies for the period of 2014-2018. The tables of the data used are included in the appendix to this study.

Data Analysis: Multiple Regression Analysis
Regression analysis is used to find the effect of independent variables on dependent variables. In this study working capital management is taken as independent variable and financial performance proxied by return on asset is considered as dependent variables. The analysis was however guided by the specific model, which is recalled below: ROA = β0 + β1TRCP + β2ICP+ β3TPPP+ β4COSIZE+uit The summary of the summary of the regression results are presented in tables 1, 2 and 3; Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.11, No.18, 2020    From the result presented above, the standard coefficient are -0.067, 0.075, -0.252 and 0.91 for TRCP, ICP, TRPP and COSIZE respectively, their P-value stands at 0.926, 0.597, 0.638, 0.116 and 0.476 (p>0.05) which are not significant. The negative sign in TRCP and TPPP indicates that a decrease in debt collection period will lead to an increase in profitability and verse versa though they are statistically not significant. This suggests that they are good in explaining the financial success of consumer goods companies but not a critical factor when making a decision on improving profitability. The result is consistent with David and Ambrose (2013); and Richard, Dadson and Peter (2013); and Asefin, Badarian and Ghatebi (2013) but contradict the finding of Musa and Adamu (2018). Also inventory turnover days shows a beta value of 0.075 and a (p>0.05) which is positive but has insignificant effect of companies profitability. The result is consistent with the findings of Arunkumar and Radharamanan (2012); and Jason (2017). This result contradicts the finding of Paul and Agbo (2014). The result of company size also show positive but insignificant effect on companies profitability

Hypothesis Testing
This study was anchored on one principal hypothesis that 'working capital management, measured by its components (TRCP, ICP, and TPPP) has no significant effect on the profitability of listed consumer goods companies in Nigeria. The regression results indicate that only one of the components of working capital management (TPPP) has a significant effect on ROA. However the combined effect of the independent variables of 8.1% on the dependent variable is respected.
Besides, the ANOVA table shows an F-value of 0.898 and p-value is 0.471 which is greater than 0.05 means that working capital management as a whole has no significant effect on ROA of listed consumer goods companies in Nigeria. We hereby accept the null hypothesis.

Conclusion and Recommendations 6.1 Conclusion
This paper examines the effect of working capital management on the profitability of listed consumer's goods companies in Nigeria. This research work covered 13 listed consumer goods companies for a period of 2014-2018. For measuring working capital management, trade collection receivable period, inventory conversion period and trade payable payment period were taken as independent variables. Company profitability is measured by return on assets. Working capital forms an essential part of total assets and liabilities of many manufacturing companies in Nigeria. Therefore its management will have a significant effect on profitability. Regression analysis was used to find out the effect of working capital management on company's profitability by using secondary data. The paper discovered that all the components of WCM affects profitability at varying levels. Also the paper revealed that the combined effect of the components of WCM has a relative significant predictable power on profitability.

Recommendations
Based on the revelation from this study we make the following recommendations i. The result of this study suggests that account receivable days are an important factor that affects profitability of Consumer Goods Company. The study therefore, recommends that managers of consumer goods Company in Nigeria should continuously monitor their account receivables days with a view to reducing the number of day's cash are tied up with customers in order to make it available for running the business. ii.
To ensure adequate liquidity, companies should maintained a standard of 2:1 of current asset to current liabilities as this will provide adequate cash to meet current obligations. Relevant financial ratios computed from the annual reports of (Cadbury Nig.