Effect of Working Capital on Profitability of Selected Quoted Firms in Nigeria

Abstract

The article examines the relation between working capital management and profitability for a sample of 66 Nigerian non-financial firms for the period 1997–2007. Trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories; and the cash conversion cycle (CCC) is used as a comprehensive measure of working capital management. The results suggest that firm’s profitability is reduced by lengthening the number of days accounts receivable, number of days of inventory and number of days accounts payable. The result shows that shortening the CCC improves the profitability of the firms.