Working Capital Management

The study of Working Capital Management cannot be over emphasized. It Is a very Important element In corporate financing and very crucial to company survival. Companies usually require an optimal level of working capital to meet daily obligations, continue production and make profit. However, some managers fall short and the companies liquidate. According to Harris (2005) “Working capital management is a simple and straight forward Concept of ensuring the ability of the firm to fund the difference between the short- term assets and short- term liabilities.

Working Capital Management will therefore be described as the maintenance of efficient levels of Working Capital components, Current assets and Current liabilities. The past few years have been particularly challenging for companies and managers have encountered difficulties in drafting acceptable policies. Cash has become very expensive to obtain, however lenders look favorably on managers who make an effort to make the best use of resources within the working capital cycle.

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A trade-off Is said to exist between liquidly and performance, therefore the problem of drafting optimal policies that support liquidity management, risk avoidance and profitability arises and need to study it. Personally, the researcher believes this area of corporate finance is a global concept which affects organizations of all sizes and industry. Therefore a critical study of this topic area will boost the researcher’s ability to make generalizations; apply knowledge and skill to real life work scenarios.

This research investigates the trends in the management of working capital components and profitability; the effects and relationship between Working capital management and the performance of companies. However focus is on multinational manufacturing companies listed on the Nigerian Stock Exchange, for a period of five years (2006-201 1).

Working Capital Is treated as the Independent variable and Is measured by working capital cycle and performance Is the Independent variable measured by ROAR and Working Capital Management has been subject to numerous empirical research and has been investigated a number of ways. Importance has been placed on the effects of efficient Inventory management and Accounts receivables in a bid to identify the optimal level which maximizes return. Delano (2003) explained that the management of Working Capital has significant impact on the profitability of firms. The outcome of his study only re-emphasizes the argument that organizational performance is highly dependent on an optimum level of working capital.

A trade-off is said to exist between liquidity and profitability. Intense investments in current assets (inventory) and relaxed credit policies may lead to an increase in sales, prevention of stock outs, customer retention and satisfaction and company access to quality of goods before moment. However it possesses the risk of inability to meet short term obligations. Remain and NASA (2007) postulated that delaying payment to suppliers provides a flexible source of financing for the company. However, it can be argued that such form of finance may be expensive especially when the company is offered discounts.

The following are limitations of the study: manipulated. The study does not consider non-financial factors affecting the either of the research variables. Studies containing sizeable amount of numerical data is usually subject to human error. The study does not consider external economic factors. Time constraint, therefore the research can make gene