Acta Universitatis Danubius. Œconomica, Vol 8, No 1 (2012)

Abstract

Cash, the most liquid component of working capital has always being disregarded in financial decision making since it involves investment and financing in short term period. However, it is an important component in firm financial management decision. This study therefore investigates empirically investigate the relationship between cash management and profitability in listed manufacturing companies in Nigeria. Cash conversion cycle is used as the measure for cash management. Current ratio, debt ratio and sales growth were used as control variables. This study utilizes secondary data while Pearson’s correlation and regression analysis were used in analysing the data for a sample of 15 manufacturing companies quoted on the Nigerian Stock Exchange for the period 2005-2009.The results of the empirical finding show that there is a strong negative relationship between cash conversion cycle and profitability of the firms. It means that as the cash conversion cycle increases it will lead to decreasing profitability of the firms. The study therefore recommends that managers can create a positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level and also accounts receivables should be kept at an optimal level.