IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY OF LISTED PETROLEUM COMPANIES IN NIGERIA

IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY OF LISTED PETROLEUM COMPANIES IN NIGERIA

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TABLE OF CONTENTS

Title page        -           -           -           -           -           -           -           -           -           i                      

Declaration      -           -           -           -           -           -           -           -           -           ii                     

Certification    -           -           -           -           -           -           -           -           -           iii

Approval         -           -           -           -           -           -           -           -           -           iv        

Dedication      -           -           -           -           -           -           -           -           -           v

Acknowledgment       -           -           -           -           -           -           -           -           vi        

Table of Contents       -           -           -           -           -           -           -           -           vii

Abstract          -           -           -           -           -           -           -           -           -           viii      

                                                                                                           

CHAPTER ONEIntroduction

1.1     Background to the Study         -           -           -           -           -           -           1                     

1.2       Statement of the Problem       -           -           -           -           -           -           3

1.3       Objectives of the Study          -           -           -           -           -           -           3         

1.4       Research Questions                 -           -           -           -           -           -           4         

1.5       Research Hypotheses              -           -           -           -           -           -           4         

1.6       Scope of the Study     -           -           -           -           -           -           -           4

1.7       Significance of the Study       -           -           -           -           -           -           5

1.8       Definition of Key Terms         -           -           -           -           -           -           6

                                                                                                                       

CHAPTER TWO: Literature Review

2.1       Introduction    -           -           -           -           -           -           -           -           7         

2.2       Concept of Working Capital               -           -           -           -           -           7

2.3       Cash Management      -           -           -           -           -           -           -           12       

2.4       Credit Management    -           -           -           -           -           -           -           15

2.5       Accounting Policies    -           -           -           -           -           -           -           18

2.6       Overview of the Petroleum Industry in Nigeria-        -           -           -           19

2.7       Theoretical Review-    -           -           -           -           -           -           -           22

2.8       Empirical Review        -           -           -           -           -           -           -           24       

2.9       Empirical Literature    -           -           -           -           -           -           -           27

2.10     Summary and Gaps in Literature Review       -           -           -           -           29

CHAPTER THREE: Research Methodology       

3.1       Introduction    -           -           -           -           -           -           -           -           32       

3.2       Research Design         -           -           -           -           -           -           -           32

3.3       Population size and Sample    -           -           -           -           -           -           33

3.4       Sources of Data          -           -           -           -           -           -           -           33

3.5       Methods of Analysis- -           -           -           -           -           -           -           33

3.6       Techniques of data Collection            -           -           -           -           -           34

3.7       Model specification    -           -           -           -           -           -           -           35

CHAPTER FOUR: Data presentation, Analysis and Interpretations

4.1       Introduction    -           -           -           -           -           -           -           -           37

4.2       Data Presentation and Analysis          -           -           -           -           -           37

4.3       Testing of Hypotheses            -           -           -           -           -           -           -           40

4.4       Discussion of Findings           -           -           -           -           -           -           41

CHAPTER FIVE: Summary, Conclusion and Recommendations

5.1       Summary         -           -           -           -           -           -           -           -           42

5.2       Conclusion      -           -           -           -           -           -           -           -           43

5.3       Recommendations      -           -           -           -           -           -           -           44

            Bibliography   -           -           -           -           -           -           -           -           45

           

 

 

 

ABSTRACT

 

Working Capital is a vital element in any organizational setting that requires logical attention, proper planning and management. As resources available to organizations are scarce, it is important for allocate resources in such a manner that sound working capital is maintained and hence profitability. It is in the light of the above, that this study assessed the impact of working Capital management on the profitability of listed petroleum marketing companies in Nigeria. The exploratory research method was adopted for the study while the simple correlation analysis and simple T- test was used for hypotheses testing. The variables used were working capital and profit after tax in the listed petroleum marketing companies in Nigeria. The study selected listed petroleum companies for the period of five years (2010-2014) with the total of 25 observations. From our decision rule, the closer r is negative the weak negative correlation while the closer r is to 0, the weaker the correlation, we deduce that there is a weak negative correlation between working capital and profitability of petroleum marketing companies. Moreover the study finds that there is strongly significance positive relationship between size and firm profitability. It is therefore recommended that, appropriate measures should be taken by organization to improve the profitability level so that the working capital components would be matched with the organization’s target.

 

    

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

1.1            Background to the Study

Nigerian Economy is faced with several factors which could delay the speed of having a huge return on the resources employed by the petroleum marketing companies. The factors include; unstable and even volatile political and economic environment in Nigeria, lack of appropriate materials, corruption and mismanagement or opaque accountability, lack of adequate finance, insufficient pertinent technical expertise and unhelpful multi-national companies attitude are impediment that should be removed, an improved educational infrastructure is needed, lack of stimulating government regulatory framework and deficient infrastructural facilities to mention few.

As a result, however, proper initiative and capital (resource) management is required. It is worthy to note that out of every resource that an organization has, working capital is the most important or basic issues to be discussed. Working Capital is a vital element in any organizational setting that requires logical attention, proper planning and management. As resources available to organizations are scarce, it is believed that the management of an organization’s working capital has an important role to play in the achievement of profitability and overall performance of such an entity. This implies that a firm’s liquidity does to a large extent determine its profitability.

However, liquidity and profitability are not the same but, are the core objectives of a firm. Increase in company profitability by reducing the liquidity can bring some serious problems as goals cannot be ignored at any cost; if goal of maximizing the profit is ignored , survival is not possible for a longer time and if liquidity objective is ignored, it result to insolvency or bankruptcy. Efficient utilization of the firm’s resources leads to increased profitability and reduction in common risk and improves the firm’s value (OWOLABI and ALU, 2012). Farounbi (2005) clearly states that the amount of capital, which is readily available to an organization, is known as working capital. This that the difference between resources in cash or readily convertible Cash (current assets) and the organizational commitments for which cash will soon be required (current liabilities) is referred to as Working Capital Management. It also involves making appropriate investments in cash, market able securities, receivables, and inventories as well as the level and mix of short-term financing. In essence working capital management seeks to maintain an optimum balance of each working capital component thereby ensuring that firms operate with sufficient fund (cash flows) that will service their long term debt and satisfy both maturing short term obligation and upcoming operational expenses. This, therefore, makes it more glaring that working capital management has an important role to play in a company’s drive to achieve greater profitability. One can then say that decisions relating to working capital management must not be taken for granted (OWOLABI and ALU, 2012).

Hence, Petroleum Marketing Companies in Nigeria should try asmuch as possible to meet up with this goal so as to avoid being caught up inthe trap of ineffective management of working capital components

1.2            Statement of the Problem  

Most petroleum marketing companies in Nigeria needs sufficient resources to keep it going and ensures that such resources are maximally utilized to enhance its profitability and overall performance. Large number of business failures has been blamed on the inability of the financial manager to plan and control the working capital of their respective firms. They also lack self-confidence and control.  In most part of the world, accounting officers and other related Officers including investors focus more on the quantum of profit declared by an organization. This today has formed the basis for which strong companies are being determined. This may be misleading because a company can be endowed with assets and


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