Effect of Working Capital Management on the Profitability of Listed Oil Manufacturing Firms in Nigeria

ABSTRACT
This study examines the effect of working capital management on the profitability of listed manufacturing firms in Nigeria, focusing on the period from 2016 to 2023. Specifically, the research investigates the impact of Current Ratio (CR), Inventory Turnover Period (ITP), and Cash Conversion Cycle (CCC) on Profit Before Tax (PBT). Using data from the annual reports of 22 manufacturing firms listed on the Nigerian Exchange Group, the research employs random effect regression analysis to assess the relationships between the variables. The findings reveal that CR has a significant positive effect on profitability, indicating that higher liquidity enhances financial performance. In contrast, both ITP and CCC have significant negative effects on profitability, suggesting that efficient inventory management and a shorter cash conversion cycle are crucial for improving profitability. These results emphasize the importance of maintaining adequate liquidity while efficiently managing inventory and cash flow to optimize profitability. The study supports financial theories, including the Keynesian Liquidity Preference Theory and the Trade-Off Theory, which highlight the role of liquidity and resource optimization in enhancing financial outcomes. Based on the findings, the study recommends that manufacturing firms maintain an optimal current ratio, improve inventory turnover efficiency, and reduce the cash conversion cycle to boost profitability. Furthermore, regular assessments of working capital management strategies are advised to ensure sustainable financial performance. The study acknowledges limitations, such as its sector-specific focus and reliance on secondary data, and suggests future research could explore other sectors, extend the study period, and incorporate additional financial indicators.