The Impact of Cash Management on Firms' Financial Performance: A Study of Some Selected Manufacturing Firms in Nigeria

Abstract

This study, "The Impact of Cash Management on Firms' Financial Performance of Some Selected Manufacturing firms” was undertaken to ascertain the relationship between cash management and financial performance of some selected firms in the manufacturing sector in Nigeria.The research examined the relationship between Cash conversion cycle, cash conversion efficiency of manufacturing firms' profit margin and return on investment.. Four hypotheses were formulated, correlation and linear regression  were conducted in testing the hypotheses. The ex-post facto and analytical research designs were employed in the study. The time series data covering a period of eleven(11) years (2000-2010) and cross sectional data of seventeen (17) firms were utilized to carry out analyses to validate the result obtained.The result confirms the theoretical negative relationship between cash conversion cycle and cash conversion efficiency of manufacturing firms. This implies that the profitability of manufacturing firms increases with shorter cash conversion cycle. A probable explanation to this finding is that when the cash conversion cycle is relatively shorter, the firm may not need external financing, which results in incurring less borrowing cost. Hence, profitability increases. It was therefore recommended that in order to increase returns on investment, manufacturing companies in Nigeria should ensure efficient cash management both in the short term and in the long run. In addition, it was suggested that in order to increase profitability, manufacturing firms in Nigeria should avoid under capitalization and under trading.