Liquidity Management and Financial Performance: Evidence from Selected Listed Manufacturing Companies in Nigeria
Keywords:
Liquidity, Financial performance, Current ratio, Quick ratio, Cash conversion Cycle
Abstract
This study examined the impact of liquidity management on the financial performance of listed manufacturing companies in Nigeria. Employing an ex-post-facto research design, secondary data was utilized to explore the relationship between the variables. The study focused on a population comprising all manufacturing companies listed on the NGX, with a sample of ten (10) companies selected for analysis. Data were extracted from their annual financial reports spanning a ten-year period (2014–2023) and analyzed using multiple regression techniques. The findings revealed that the current ratio negatively and insignificantly affects the financial performance of the selected manufacturing companies, while the cash conversion cycle has a positive but insignificant effect. The study also found that the quick/acid test ratio significantly influences the financial performance of the selected manufacturing companies in Nigeria. Consequently, it recommended that manufacturing firms adopt credit policies aimed at minimizing unnecessary inventory accumulation and implement inventory management strategies that reduce stock investments while enhancing profitability. Additionally, it was advised that manufacturing companies should efficiently manage their cash conversion cycle to optimize returns on investment and amplify its limited positive impact on their performance.
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References
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Nworie, G. O., and Mba, C. J. (2022). Modelling financial performance of food and beverages companies listed on Nigerian exchange group: the firm characteristics effect. Journal of Global Accounting, 8(3), 37-52.
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Onyekwelu, U. L., Chukwuani, V. N. and Onyeka, V. N. (2018). Effect of Liquidity on Financial Performance of Deposit Money Banks in Nigeria. Journal of Economics and Sustainable Development, 19-28.
Orshi, T. S. (2016). Impact of liquidity management on the financial performance of listed food and beverages companies in Nigeria. Published Thesis, Federal University Dutsin-Ma.
Patjoshi, K. P. (2016). A Study on Liquidity Management and Financial Performance of Selected Steel Companies in India. International Journal of Advanced Information Science and Technology, 108-117.
Qahfi R.S and Defi D.H (2021) Influence Current Ratio, Debt to Equity Ratio and Total Asset Turnoveron Return on Equity in the Transportation Sector Industry. International Journal of Business Economics (IJBE), 2(2), pp 99-112.
Raykov, E. (2017). The liquidity-profitability trade-off in Bulgaria in terms of the changed financial management functions during crisis. Management, 22(1), 135–156.
Sathyamoorthi, C.R and Mogotsinyana, M and Mashoko, D. (2020) Liquidity Management and Financial Performance: Evidence From Commercial Banks In Botswana. International Journal of Financial Research, 11(5).
Syed, A. (2015). Impact of liquidity and management efficiency on profitability: An empirical study of selected power distribution utilities in India. Journal of Entrepreneurship, Business and Economics, 3(1), 31–49.
Terseer, W (2020). Effect of liquidity management on the financial performance of banks in Nigeria. European journal of business and innovation research, 7(4), 30-44.
Waluyo, J and Tiya, S.A (2019) The Effect of Current Ratio (CR) and Debt to Equity Ratio (DER) on Return on Equity (roe) at PT Aneka Tambang. Tbk. Pinisi Discretion Review, 3(1) Page. 83- 92.
Wardah, G.S, Azalia P and Wily M (2023) The Effect of Debt-to-Equity Ratio (DER) and Current Ratio (CR) on Return on Equity (ROE) in the Food and Beverage Companies. Himeka Journal of Interdisciplinary Social Science, 1(1).
Yeti, K and Nadila O (2021) The effect of Current Ratio and Debt to Equity Ratio on Return on Equity of Pada PT. Permodalan Nasional Madani. Lensa Ilmiah Jurnal Manajemen dan Sumberdaya, 1(1) pp. 53-61.
Adekanmi, A. D., Odewole, P. O., and Adeoye, E. T. (2022). The effect of liquidity management on financial performance of selected listed food and beverage firms in Nigeria. KIU Interdisciplinary Journal of Humanities and Social Sciences, 3(1), 325-345.
Akenga, G. (2017). Effect of liquidity on financial performance of firms listed at the Nairobi Securities Exchange, Kenya. International journal of science and research, 6(7), 279-285.
Alhassan, I., and Islam, K. A. (2021). Liquidity management and financial performance of listed oil and gas companies in Nigeria. International journal of accounting & finance review, 8(1), 15-25.
Aniyah1, Supriyanto, Dwi, F.C., Dewiana N, Teguh Y, and Masduki A (2020) Analysis of the effect of quick ratio, Total assets turn over, and Debt to equity ratio on return on equity at PT. XYZ. Journal industrial engineering & management research (JIEMAR), 1(3) ISSN ONLINE: 2722 – 8878.
Bordeleau, E. and Graham, C. (2019). The impact of liquidity on bank profitability. (downloaded from https.//www.researchgate.net on 21st February, 2019)
Chabbal, A. Y., & Umar, A. I. (2022). Liquidity Management and Corporate Profitability: Evidence from Nigerian Listed Consumer Goods Companies. Fane-Fane International Multi-Disciplinary Journal, 6(1), 130-140.
Christopoulos, A. G., Dokas, I. G. and Mantzaris, D. H. (2020). The Estimation of Corporate Liquidity Management using Artificial Neural Networks. International Journal of Financial Engineering and Risk Management, 1(2), 193-210.
Doğan, Mesut; Kevser, Mustafa (2020) The Determinants of Cash Conversion Cycle and Firm Performance: An Empirical Research for Borsa Istanbul Turkey. Management and Economics Review, 5(2), pp. 197-206.
Effiong, S. and Enya, F.E (2020) Liquidity Risk Management and Financial Performance: Are Consumer Goods Companies Involved. International Journal of Recent Technology and Engineering, 9(1), 580-589.
Ejike, S. I. & Agha, N. C. (2018). Impact of operating liquidity on profitability of pharmaceutical firms in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(3), 73–82.
Eke, .C and Jinjiri, K.R (2022). Liquidity management and its impact on financial performance of quoted consumer goods companies in Nigeria. International Journal of Management, Social Sciences, Peace and Conflict Studies, 5(2), p.p. 125- 143.
Ibe, O. S. (2013). The Impact of Liquidity Management on the Profitability of Banks in Nigeria. Journal of Finance and Bank Management, 37-48.
Ibida, N. J. F., and Emeka-Nwokeji, N. A. (2019). Effect of corporate social responsibility (CSR) on financial performance of oil and gas companies in Nigeria. Journal of accounting, business and social sciences, 2(1), 56-73.
Jensen, M. C. and Warner, J. B. (1998). ‘The Distribution of Power Among Corporate Managers, Shareholders, and Directors’, Journal of Financial Economics, 3(20), pp. 3-24
Lanemey, P.B., Sumanti, E. R., and Aseng, A. C. (2022). An Empirical Study of Quick Ratio and Profitability on Manufacturing Firms in Indonesia. Society, 10(2), pp. 525-533.
Lufiyandi, S and Justina, A .J (2020) The Impact of Quick Ratio, Debt to Equity Ratio, Firm Size, and COVID-19 Toward Return on Equity: A Case Study of Tourism, Restaurant, and Hotel Companies Listed on the Indonesia Stock Exchange (IDX). The 2nd ECOBESTHA Conference.
Lusy, Y.B, Thyophoida W.S., Maria W (2018). The Effects of Current Ratio and Debt-To-Equity Ratio On Return On Asset and Return On Equity. International Journal of Business and Management Invention (IJBMI), 7(12), pp. 31-39.
Lyndon, M. E. & Paymaster, F. B. (2016). Liquidity management and profitability: A study of selected food and beverage companies in Nigeria. International Journal of Management Sciences, 7(4), 217–225
Mahmudin, Elfreda, A. L, Beatrix, T. (2018) The Effect of Current Ratio (CR), Debt to Equity Ratio (DER), Total asset Turnover and Firms Size to Return on Equity in Mining Companies Listed on the Indonesia Stock Exchange. Research Journal of Accounting and Business Management (RJABM); P-ISSN: 2580-3115; E-ISSN: 2580-3131.
Mohd, Y. and Asif, P. (2018). Impact of liquidity, solvency and efficiency on profitability of Steel Authority of India Limited. International Journal of Research in Management, Economics and Commerce, 6(9), 25–31.
Muhamad, A.N.H and Yayang A.N (2022). Analysis Of The Effect Of Current Ratio, Total Asset Turnover, Debt To Equity Ratio, Net Profit Margin Toward Return on Equity of Manufacturing companies listed on the JSX. International Journal of science Education and Technology Management, 1(1), pp. 1-15.
Muhammad, K. (2018) Cash Conversion Cycle and Firms’ Profitability a Study of Tobacco Industry of Pakistan, International Journal of Research in Social Sciences.
Nguyen, T.P and Sundaresan, M (2018) The Effects of Cash Conversion Cycle on Profitability: An Insight into the Agriculture and Food Industries in Thailand. Asian Journal of Business and Accounting 11(1).
Nworie, G. O., and Mba, C. J. (2022). Modelling financial performance of food and beverages companies listed on Nigerian exchange group: the firm characteristics effect. Journal of Global Accounting, 8(3), 37-52.
Omaliko, E. and Okpala, N. (2020). Effect of TSA on solvency of listed deposit money banks in Nigeria, World Journal of Finance and Investment Research, 5(1), 32-47
Onyekwelu, U. L., Chukwuani, V. N. and Onyeka, V. N. (2018). Effect of Liquidity on Financial Performance of Deposit Money Banks in Nigeria. Journal of Economics and Sustainable Development, 19-28.
Orshi, T. S. (2016). Impact of liquidity management on the financial performance of listed food and beverages companies in Nigeria. Published Thesis, Federal University Dutsin-Ma.
Patjoshi, K. P. (2016). A Study on Liquidity Management and Financial Performance of Selected Steel Companies in India. International Journal of Advanced Information Science and Technology, 108-117.
Qahfi R.S and Defi D.H (2021) Influence Current Ratio, Debt to Equity Ratio and Total Asset Turnoveron Return on Equity in the Transportation Sector Industry. International Journal of Business Economics (IJBE), 2(2), pp 99-112.
Raykov, E. (2017). The liquidity-profitability trade-off in Bulgaria in terms of the changed financial management functions during crisis. Management, 22(1), 135–156.
Sathyamoorthi, C.R and Mogotsinyana, M and Mashoko, D. (2020) Liquidity Management and Financial Performance: Evidence From Commercial Banks In Botswana. International Journal of Financial Research, 11(5).
Syed, A. (2015). Impact of liquidity and management efficiency on profitability: An empirical study of selected power distribution utilities in India. Journal of Entrepreneurship, Business and Economics, 3(1), 31–49.
Terseer, W (2020). Effect of liquidity management on the financial performance of banks in Nigeria. European journal of business and innovation research, 7(4), 30-44.
Waluyo, J and Tiya, S.A (2019) The Effect of Current Ratio (CR) and Debt to Equity Ratio (DER) on Return on Equity (roe) at PT Aneka Tambang. Tbk. Pinisi Discretion Review, 3(1) Page. 83- 92.
Wardah, G.S, Azalia P and Wily M (2023) The Effect of Debt-to-Equity Ratio (DER) and Current Ratio (CR) on Return on Equity (ROE) in the Food and Beverage Companies. Himeka Journal of Interdisciplinary Social Science, 1(1).
Yeti, K and Nadila O (2021) The effect of Current Ratio and Debt to Equity Ratio on Return on Equity of Pada PT. Permodalan Nasional Madani. Lensa Ilmiah Jurnal Manajemen dan Sumberdaya, 1(1) pp. 53-61.
Published
2024-11-29
How to Cite
B. Riku, R., P. Hassan, A., & S. Samson, S. (2024). Liquidity Management and Financial Performance: Evidence from Selected Listed Manufacturing Companies in Nigeria. GPH-International Journal of Business Management, 7(10), 94-110. https://doi.org/10.5281/zenodo.14246969
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