Abstract
Although increment in sales/turnover enhances profitability but turnover and profitability consistency
depends primarily on liquidity position in the service sector. However, in manufacturing and
conglomerate businesses, customer satisfaction is the hallmark which cannot be achieved without
effective working capital management (WCM) policy in place. This analogy implies that WCM and
profitability are indirectly related compared to theoretical and empirical beliefs. Hence, this study
evaluates the effect of working capital variables on the profitability of sampled listed conglomerates in
Nigeria between 2003 and 2014. The secondary data used relate to average payment period (APP),
average collection period (ACP) and inventory turnover period (ITP) as explanatory variables while firm
size (SZ) and leverage (LEV) are the control variables. Profitability variables used are return on assets
(ROA) and return on equity (ROE). These data were obtained from financial statements of the selected
conglomerates and were analysed using balanced panel econometric model, while the model was
estimated using correlation matrix. Hausman specification test was used to objectively select fixed
effect model instead of random effects model for analysis purpose. The fixed effect regression results
revealed that ACP, and APP are significant determinants of profitability while ACP has negative effect
on firms’ profitability. Based on these findings, it was recommended that liquid cash should be
judiciously channeled towards operational activities with a view to expand business scope and increase
profitability. The study also recommends that companies should sufficiently plan and control their
working capital combinations with a view to cater for any shortfall and to maintain consistent
profitability.
