Abstract

This study investigated the effect of working capital on the performance of consumer goods companies. The objectives of this study were to analyze the firm's profitability in working capital management in manufacturing companies in Nigeria and to determine the significant correlation among current ratio, acid test ratio and cash ratio. The study employed ex post-facto research design. Five consumer goods firms were chosen through a purposive sampling technique and data were extracted from annual reports of these firms from year 2012 to 2016. A panel data regression was used to analyse the data. Working capital was proxied with current ratio (CR), acid test ratio (ATR) and cash ratio (CAR) while performance was proxied with return on asset (ROA). Findings revealed that CR, ATR and CAR were correlated with ROA although it was insignificant. The study concludes that the available working capital needed to carry out day to day activities in these organisations is not adequate and effectively managed to increase profitability. It is on this note that the researcher recommends that all stakeholders should be proactive in ensuring that the firm's policy is supportive to the maximum utilization of working capital in order to increase profitability; organisationsare to put in place working capital management policies, plans and reviewed regularly, in order to increase their profitability in a competitive business environment; employ the services of experts in the field of financial management and accounting to examine their working capital and define the factors that are affecting their working capital for appropriate measures and solutions.