WORKING CAPITAL MANAGEMENT AND ORGANIZATION PERFORMANCE: THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND ACCOUNT RECEIVABLE

Ajanaku, Emmanuel Ademola, & Ekundayo, Oluwayomi Ayoade

Department of Accounting, Joseph Ayo Babalola University, Ikeji-Arakeji, 

Actuarial Science & Insurance Department, Joseph Ayo Babalola University, Ikeji-Arakeji.

Email: Ajibest2001@yahaoo.com, oaekundayo@jabu.edu.ng

ABSTRACT

This study examined working capital management and organizational performance of selected metal manufacturing companies in Osun State, Nigeria. Specifically, the study examined the effect of accounts receivable, accounts payable, and inventory on performance of metal firms. The study made use of secondary data obtained from the 2000-2015 annual reports of the sampled companies. Data obtained were analyzed using the Levin, Lin and Chen unit root test, the panel co-integration test (to ascertain if there exists long run co-movement among the variables), and fixed effect panel regression. The result showed that, account receivable was significant on the profitability of the firm. The account receivable accounted for over 78 percent of the profit, which implied that one percent increase in accounts payable raised the profit margin of the metal firms to 55 percent. Inventory in the selected metal companies revealed a strong positive and significant impact on profitability investment at 1%, 5% and 10% levels of significance. Accordingly, the study concluded that, as a matter of policy:  accounts receivable which was a larger source of the firm’s profitability should be strategically enhanced. It was recommended that measures should be put in place by the management of the Metal Companies to enhance sales promotion of the firm’s products.

Keywords: Working Capital, Cash cycle, Inventory, Trade discount, Accounts Receivable, Accounts Payable