Effect of Working Capital Management on Profitability of Flour Mills of Nigeria PLC

Abstract

The study investigated the effect of working capital management on the profitability of Flour Mills of Nigeria Plc. Specifically the study sought to determine the extent to which Number of Days of Accounts Receivable; Number of Days of Inventory; and Number of Days of Accounts Payable affect Gross Profit Margin (GPM) of Flour Mills of Nigeria Plc. The study was anchored on Trade-off theory of capital structure. The study adopted co relational descriptive non-experimental research design approach based on data derived from the past annual reports of Flour Mills of Nigeria Plc. Data collected was analyzed using Pearson correlation technique via the Statistical Package for Social Science (SPSS) version 20. The study reports a positive and significant influence of Number of Days of Accounts Receivable; Number of Days of Inventory; and Number of Days of Account Payable on gross profit margin (GPM) of Flour Mills of Nigeria Plc. The implication of the result which showed a positive impact of working capital management variables on gross profit margin of FMN indicates that the longer the number of days it takes a firm to be paid for sales made and inventory held, the less profit it is expected to make. The study recommended that Flour Mills of Nigeria Plc should be very apt in reducing the number of days of account receivables and inventories to a reasonable minimum in order to boost profitability.

Keywords: Working capital, Profitability, Accounts receivable, Accounts payable, Inventory, Flour mills, Nigeria.