Impact Of Effective Working Capital On The Profitability Of Manufacturing Firms

INTRODUCTION
From time to time manufacturing firms and organizations have been making tremendous efforts in the administration of their working capital. Many of them have adopted various survival strategies to maintain sustenance.
This primacy reposed on adequate recognition by financial experts of the importance of maintaining an optimum level of working capital and obviate the claim that greater importance is attached to profitability than the management of working capital.
Effective working capital management of all aspect of current assets which includes cash, marketable securities, debtors and stock (inventories) and current liabilities. The two most important aim of the working capital refers to the firm’s ability to generate the maximum profit from the available resources for its owners.
While solvency means the firms continuous ability to meet maturity obligations. Effective management of working capital is areas of great concern to every business organization.

1.1 BACKGROUND OF THE STUDY
Business organization exists in a rapidly changing environment which threatens the survival.
Many of them have adopted various survival strategies to maintain sustenance, hence this, has become the control philosophy of most manufacturing business concerns. For business to survive, it must make a sustainable profit in order to experience growth and to meet their financial obligations as they fall due. This aspect of survival objectives form the central focus of their research work which bothers on the impact of working capital management on the profitability of manufacturing firms.

1.2 STATEMENT OF PROBLEM
Effective working capital management can make a different between the survival and death of business endeavour. Liquidity, insolvency and general demise of business firm particularly the manufacturing firms have becomes an increasing problem facing business firms. Therefore, this study aims at addressing such problem.

1. The misappropriate management of working capital
2. Establishment of relationship between working capital management and profitability.
3. The liquidity and insolvency of manufacturing firms..
4. Non-implementation of an adequate working capital management policy.
5. The problem of not meeting the required production and sales level by the manufacturing firm.
6. Increasing inefficiency in working capital financing
7. The problem of maintaining optimum financing policy
8. Unplanned and non-negotiable sources of fund and granting of credit unnecessary by the manufacturing firm.
Generally, the problem at state is to identify the difficulties encountered by the manufacturing firms in realizing that profit is made at the expense of running an inefficient working capital.
However, effort would be made to analyze the above state problems and to offer useful suggestions on how they would be solved in order that profitability of manufacturing firms would increase.

1.3 OBJECTIVE OF THE STUDY
Effective working capital management in most manufacturing firms has gained the firm’s survival objectives as a going concern. However, there has been inherent inefficiencies effective working capital. This has resulted to the liquidation of many firms.
Considering the foregoing, the purpose of this work includes the following:
1. To identify the dangers of shortage or excess of effective working management.
2. To obviate the claim that greater importance is attached to profitability than the management of working capital.
3. To create awareness of the optimum level of current assets and to maintain so as to avoid liquidity which invariably affect of profitability.
4. To emphasize the need and goals of establishing a sound and credit policy.
5. To emphasize the need for investing surplus cash in marketable security.
Above all, the researcher has the ultimate objectives of lighting the best possible ways of enhancing the profitability of manufacturing firms through proper and efficient management of working capital.

1.4 RESEARCH QUESTIONS
The following are the research questions:
1. What is waking capital management?
2. Is adequate attention paid to working capital management?
3. Are there needs for stock (inventory) management?
4. Are there dangers stick mismanagement?
5. Does effective cash management and control achieve and ideal for business unit?
6. Does the marketing policy of a company permits credit sales
7. Is legal actions taken against defaulting debtors?
8. Are bad debts normally written off?
9. What factors are considered in investing excess cash in marketable security?
10. Is there any relationship between working capital management and profitability?
11. Does effect working capital management increase profitability?
12. Does working capital management enhance the growth of a firm?
The response given by the staff of Nigeria Breweries to the above questions will be analyzed in chapter four of this work.

1.5 STATEMENT OF HYPOTHESIS
Ho: Effective working capital management does not increase the profitability of manufacturing firms.
Hi: Effective working capital management increases the profitability of manufacturing firms.
Ho: Effective working capital management does not enhance the growth of the manufacturing firms.
Hi: Effective working capital management enhances the growth of the manufacturing firms.
Ho: There is no direct relationship between effective working capital management and profitability
Hi: There is direct relationship between effective working capital management and profitability.

1.6 SIGNIFICANCE OF THE STUDY
It is essential that at any time, a business should be in a position of stabilized solvency, in order to pay its debts, as they fall due and to take advantage of such business opportunities such as discount and implementation of venture plans.
Therefore, on completion of this research work, it will contribute immensely to the effectiveness of working capital management in Nigeria Breweries Plc Aba. The manufacturing firms will be made to understand that excessive and inadequate working capital positions are dangerous from the form point of view.
The study will also make suggestions for the improvement on the control system of firms in managing their working capital and in making a proper balance between cost of liquidity and liquidity.
In addition, the study will make manufacturing firms understand the need and goals of establishing sound credit policy and the possible ways of implementing it.
Lastly, the study will make remain a source of reference for a related subject matter in the future. Also, it will provide a bearing material for students business, organization and the society in general that will be studying about working capital management for a development purposes.

1.7 SCOPE OF THE STUDY
Working capital management is a global concern. It posses problem to both big and small entities, even the government is involved in this great concern. However, the researcher has decided to limit the working to a manageable scope.
On this note, this research work deals with working capital of Nigeria Breweries Plc Aba. The working capital components which are identified and analyze in this study are stock (inventory), debtors (accounts receivable) marketable security, cash and current liability account payable.

1.8 DEFINITION OF TERMS
Some definitions of terms that may impede readers understanding are enumerated below for their understanding and appreciation of this research work.
Working Capital: This is the gross investment in current assets.
Impact: This is defined as positive or negative effect over something.
Effectiveness: This is seen as achieving your set goals and objectives
Manufacturing Firm: This is a firm or company where all goods and products are manufactured and made ready for the consumer use or consumption.

1.9 HISTORICAL BACKGROUND OF THE CASE STUDY
Nigeria Breweries is a Public Limited Liability, company with many branches all over Nigeria. It has a total shareholders fund (equity) of N26,186,746,000 as at 2013 financial year. The company became a full fledge incorporated company in 1946 as Nigeria Breweries Limited (NBL) as at 1960, the company was wholly owned by foreigners who founded it.
Consequently, upon the Nigeria enterprises, promotion degree 1972, 40% of the Nigeria Breweries shares became assessable to Nigeria.
Nigeria Breweries was founded to address the difficulties witnessed in the production of larger beer, cruder, larger beer, star larger beer, maltina, legend beer, Kristi, schweppes, tonic water, ginger alo and lemonade. In order to achieve the goal of maximum satisfaction to consumers, the company established Lagos head quarter and branches in Kaduna, Ibadan, Benin City, Enugu and Aba.