Working Capital Management and Financial Performance of Listed Pharmaceutical Companies in Nigeria

Authors

  • Sherif Babajide Balogun Department of Accountancy, Federal Polytechnic, Ilaro, Ogun State
  • Olukunle Ibukun Fatogun Department of Accountancy, Federal Polytechnic, Ilaro, Ogun State

Keywords:

Account Receivable Period, Cash Conversion Cycle, Financial Performance, Return on Investment, Working Capital

Abstract

This study examines the impact of working capital management on the financial performance of selected pharmaceutical companies listed in Nigeria. Specifically, it investigates the effects of the Account Receivables Period (ARP), Number of Days Inventory Held (NDIH), and Cash Conversion Cycle (CCC) on the Return on Investment (ROI) of these companies. A panel data regression analysis was employed, using both fixed and random effects models, to analyze data spanning from 2012 to 2021 as extracted from the annual reports of the selected pharmaceutical companies. The results from the random effects model as optimal from the Hausman test revealed that ARP has a significant negative impact on ROI ( = -0.02295, t=-3.8315, p-value < 0.05), indicating that longer receivables periods are associated with lower financial performance. In contrast, CCC shows a significant positive relationship with ROI ( = 0.00631, t= 2.6418, p-value < 0.05), suggesting that a well-managed cash conversion cycle can enhance profitability. However, NDIH does not exhibit a statistically significant effect on ROI ( = 0.00616, t= 1.470321, p-value > 0.05), implying that inventory holding periods may not directly influence financial returns in this sector. These findings underscore the importance of efficient working capital management practices in optimizing financial performance within the pharmaceutical industry in Nigeria. The study contributes to the growing body of literature on working capital management by providing insights into the specific dynamics at play in the pharmaceutical sector, offering practical implications for managers and policymakers aiming to improve corporate profitability.

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Published

2024-12-27

How to Cite

Balogun, . S. B., & Fatogun, O. I. (2024). Working Capital Management and Financial Performance of Listed Pharmaceutical Companies in Nigeria. Ife Social Sciences Review, 32(2), 156–170. Retrieved from https://issr.oauife.edu.ng/index.php/issr/article/view/266