Impact of working capital management on corporate profitability of nigerian manufacturing firms: 2000 to 2011

Thesis Overview

<p> </p><div><p><strong>INTRODUCTION</strong></p><p><strong>1.1 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; </strong><strong>Background of the study</strong></p><p>The sustainability of a firm heavily depends on the ability and success of its financial management function (Karaduman et al 2011). Traditionally, corporate finance involves capital budgeting, capital structure and working capital management, capital budgeting and structure, such as investments in fixed assets are about the management of long-term capital and attract more attention than working capital management in finance literature. However, working capital management is also a very important field of corporate finance, because of its considerable effects on the firms profitability and liquidity (Nazir and Afza, 2009, Chiou, et al 2006, and Alshubiri; 2011) In order to maintain its activity firms typically need two types of assets, fixed assets and current assets. Fixed assets which include, building, plant, machinery, furniture, fixture and fitting among others are not only purchased for the purpose of resale, but also for operational purposes (Singh and Pandey, 2008). On the other hand, current assets are seen as key components of the firm`s total assets. A firm may be able to reduce its investment on fixed assets by leasing, but this becomes practically difficult for current assets. (Afza and Nazir 2008)</p><p>A firm’s investment in current assets such as cash, bank deposits, short term securities, accounts receivables and inventories are called working capital. To put it differently, net working capital is the surplus of current assets over the short term liabilities and represents the liquidity margin available to meet the cash demands in order to maintain the daily operations and benefit from the profitable investment opportunities (Yaday, Kamtt and Manjrekar, 2009, Padachi, 2006).</p></div><h3></h3><br> <br><p></p>