IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PRODUCTIVITY OF MANUFACTURING COMPANIES

IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PRODUCTIVITY OF MANUFACTURING COMPANIES

ABSTRACT

The management of current assets and short term funds is as important as that of  fixed assets and long term funds. Therefore, the need for effective working capital management cannot be overemphasized in manufacturing companies for realization  of their objectives. The effectiveness of that working capital management depends largely on proper financing of working capital. It was therefore considered appropriate in this research to evaluate the impact of working capital financing management policieson productivity of manufacturing firms in Nigeria. The main objective of the study was to come up with evidences that establish the relationship between working capital management policy and productivity of a firm, and identify the working capital management policy that contributes most to the productivity of a firm under different conditions. To achieve this objective, six (6) manufacturing companies that are quoted in the Nigerian Stock Exchange were selected as a case study, and a sample of one hundred and fifty (150) respondents who were employees of the companies was used in the study. Thus, data from primary sources were analyzed using simple descriptive research design. In addition, three (3) hypotheses were formulated and tested for significance using the t- test statistic technique. The secondary data were collected from the published financial statements of the companies under study and analyzed using correlation coefficient and financial ratios for the period 1999 to 2003. The research revealed that companies using different working capital management policieshad different profitability, which concluded that there is significant relationship between working capital management policy and productivity of manufacturing company, and such relationship depends on the operating performance of the firm. It was also discovered that manufacturing companies that adopt conservative working capital management policy are more profitable especially when the demand for company’s product is high. Finally, the researcher recommended that manufacturing companies should employ qualified financial managers so as to effectively control cost of production and balance the trade off between cost of sales and quality of products manufactured in order to boost sales. It was also recommended that factors affecting working capital needs should be critically studied, so that investment in working capital would be appropriate to avoid high risk ofuncertainties.

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