AN EMPIRICAL ANALYSIS OF WORKING CAPITAL MANAGEMENT COMPONENTS AND THEIR IMPACT ON THE FINANCIAL PERFORMANCE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA

Abstract

his study examines the relationship between working capital management and the financial performance of listed pharmaceutical firms on the Nigeria Exchange Group (NXG). Employing an ex-post facto research design, the study analyzed data from five pharmaceutical companies Fidson Healthcare PLC, GlaxoSmithKline Consumer Nigeria PLC, May & Baker Nigeria PLC, Neimeth International Pharmaceutical PLC, and Pharma-Deko PLC selected through a census approach. These firms consistently published financial statements for a 10-year period (2013–2023). The dependent variable, financial performance, was measured using Return on Assets (ROA), while working capital management was assessed through metrics including accounts receivable, accounts payable, inventory, cash conversion cycle, cash-to-sales ratio, and cash-to-current liabilities ratio. Panel data analysis, encompassing both Fixed and Random Effects models, was conducted using STATA 10, with diagnostic tests performed to ensure the validity and robustness of the results. Descriptive statistics revealed significant variability in performance and working capital management practices across the sampled firms. The Cash Conversion Cycle (CCC) emerged as a comprehensive measure of working capital efficiency, while skewness and kurtosis metrics highlighted the presence of outliers in several variables, suggesting firm-specific financial strategies. The correlation analysis indicated strong positive relationships between performance and accounts receivable as well as inventory, while accounts payable and CCC demonstrated weaker correlations with performance. The findings underscore the importance of effective working capital management practices for enhancing financial performance in the pharmaceutical sector, providing critical insights for corporate decision-making and policy formulation within the Nigerian context.