Effects of cash conversion cycle on profitability of manufacturing firms in Nigeria

Abstract

The study determined the effect of each conversion cycle on the profitability of manufacturing firms in Nigeria while the specific objectives were to: determine the effect of account receivable conversion period on profitability of manufacturing firms in Nigeria, evaluate the effect of account payable conversion period on profitability of the manufacturing firms in Nigeria and ascertain the effect of inventory conversion period on profitability of manufacturing firms. Ex-post facto design was adopted due to the fact that the study relied solely on secondary source of data collection. The data were extracted from the annual reports and accounts of the selected manufacturing firm from 2012 to 2022. The populationof the study was the listed consumer Goods Firm listed on the Nigeria stock exchange as at 31st December 2022. The sample size of the study was ten(10) consumer goods firms namely: PZ Nigeria, Dangote Sugar Refinery Plc, Dangote Flour Plc, Nigeria Flour Mills Plc, Nestle Nigeria Plc, Unilever Nig. Plc, Cadbury Nigeria Plc, GuinnessPlc, 7-up Bottling Company and Nigeria Breweries Plc. The method of inferential statics was adopted in the analysis of the data generated. The result of the analysis showed that Account Received Conversion Period has a negative and non- significant effect on the profit after tax of the ten selected consumer Goods Firm, this is shown with the t-test of ARCP (-0.575804) with p-value of 0.5661, Account payable conversion period has a positive and non- significant effect o the profit after tax of the ten selected consumer Goods Firm, this is shown with the t-test of APCP (-0.085899) with p-value of 0.9317, Inventory conversion period had a negative and no-significant effect on the profit after tax of the ten selected consumer goods Firm, this is shown with the t-test of ICP(-0.589166) with p-value of 0.5571. The study concluded that cash conversion cycle has no significant effect on the profitability of firms in Nigeria within the period under review. Based on the analysis of data and the findings of this research, the study recommended that firms try to always reduce the number of days in cash conversion cycle in order to increase profitability as to create value for shareholders, the study suggested that manufacturing companies are required to well estimate and evaluate the cash inflows and outflows to strategies respectively. The manufacturing companies are required to properly estimate and evaluate the cash flow of the business, to well identify the long run and short run cash inflows and outflows to timely sort out the cash shortages and excess to formulate financing and investing strategies respectively.