WORKING CAPITAL MANAGEMENT AND PROFITABILITY OF LISTED PHARMACEUTICAL FIRMS IN NIGERIA.

ABSTRACT

Working capital management involves the management of the most liquid resources of the firm which includes cash and cash equivalents, inventories, trade debtors and other receivables. Most firms do not ensure optimal level of working capital and this has been a major obstacle to their overall profitability. The study examined the impact of working capital management on the profitability of Pharmaceutical firms listed on the Nigerian Stock Exchange market. Correlation and ex-post facto research design were used in a sample of 5 Pharmaceutical firms. Secondary data for a period of 10 years (2002-2011) was used, and Ordinary Least Squares (OLS) multiple regression was employed in data analysis. The study found that working capital management (account receivables collection management, accounts payables management, inventory management, cash conversion cycle management, operating cash flow management) has a significant impact on the profitability of listed pharmaceutical firms in Nigeria. It is therefore recommended among others that managers should focus on reducing inventory days, collect receivable as soon as possible because it is better to receive inflows sooner than later, and delay payment of creditors in order to invest the money in short-term securities which are profitable. Also, the cash conversion cycle should be elongated to the extent that it maximizes profit.