Liquidity Management and Profit Performance of Pharmaceutical Manufacturing Firms Listed In Nigeria Stock Exchange.


Grace Ofoegbu N , Ann Duru N , Vincent Onodugo ,

Download Full PDF Pages: 01-13 | Views: 359 | Downloads: 101 | DOI: 10.5281/zenodo.3464795

Volume 5 - July 2016 (07)


This study examined the impact of liquidity ratios on the profitability of pharmaceutical companies that are quoted on Nigeria stock exchange. Manufacturing companies were chosen based on the fact that they are very crucial to the development of adequate and proper healthy conditions for the nation and needs to be viable in their operations to satisfy the public expectations from them. The variables studied are the liquidity ratio, the debt ratio, the receivable ratio, and the sales growth ratio. The researchers used only secondary sources of data. The data were extracted from the annual report and financial statements of selected manufacturing pharmaceutical entities in Nigeria covering the period 2000 to 2011. The date was analyzed and the hypotheses were tested using multiple regression analytical tools. The findings show that the liquidity ratio and profitability of the companies’ studies are significantly and positively related. The debt ratio and the sales growth ratio have a positive but not significant impact on profitability of the firms. The receivable ratio has a negative impact on the profitability but the relationship is not significant. The study then recommended that the companies should engage experts in the management of their receivables, or train and retrain their managers on management of liquidity. They should also intensify efforts in the collection of debts from customers. Debt collector’s services can be obtained from consultants who are experts in the field. Realizing that unhealthy competition can affect the working capital position of firms, the study equally recommended that the government should take action towards regulating these businesses to avoid some growing companies falling into liquidity difficulty as a result of the competition.


Liquidity Ratio, Receivables Ratio, Sales Growth Ratio, Debt Ratio, Pharmaceutical, Profitability


  1. Adebiyi, S. O., 2015. Why Small Business Fail. Accessed 4 th May, 2015.
  2. African Development Bank Group, 2015. Revitalizing Africa’s Pharmaceutical Industry. Available from Accessed 30th May, 2015.
  3. Arvit, K.; Mallik, D. S.; and R. Debdas, 2005. Working capital and profitability: A study on their relationship with reference to selected companies in Indian Pharmaceutical industry. GITMAN Journal of management, 3(2): 51 – 62.
  4. Asiao, C. and A. K.Tahmiscioglu, , 1997. A Panel analysis of liquidity constraints and firm Investment. Journal of American Statistical Association, (92): 455 – 465.
  5. Ben-Caleb, E. O. and U. U. Uwuigbe, 2013. Liquidity Management and Profitability of Manufacturing Companies in Nigeria. IORS Journal of Business Management (IOSRJBM), 9(1): 13 – 21.
  6. Bhunia, A., 2007. Liquidity Management of Public Sector Iron and Steel Enterprises in India. Vidyasager University Journal of Commerce, 12.
  7. Bhunia, A. and U. I. Khan, 2011. Liquidity Management Efficiency of Indian Steel Companies (a Case Study). Far East Journal of Psychology and Business, 3(3): 1 – 13.
  8. Busutti, J., 2014. Tackling Cash flow Problems: Prevention is better than cure. Availble from Accessed 30th June, 2015.
  9. Chiou, J., and L. R. Cheng, 2006. The Determinants of Working Capital Managements; The Journal of American Academy of Business, (1): 149 – 155.
  10. Eljelly, A. M. A., 2004. Liquidity - Profitability Trade-off: An empirical investigation in emerging market. International Journal of Commerce and Management, 14(2): 48-61.
  11. Elemuwa, C., 2013. Medical Laboratory Services in Primary Healthcare. Available from Accessed 30th June, 2015.
  12. Enyi, E. P., 2005. Applying Relative Solvency to Working Capital Management. The BreakEven Approach. New York: Kafi University Press
  13. Fulmer, J. G. Jr., Finch, J. H., Smythe, T. I. Jr., and T. H. Payne. 2016. Growing Sales an Losing Cash: Assisting Your Small Business Customer with Cash Flow Management. Available from Retrieved 14 July, 2016
  14. Huston, D., 2015. What is Liquidity Management? Available from Accessed 24th April, 2015.
  15. Investinganswer 2016. Days Working Capital. Available at
  16. Karaduman, H. A., Akbas, H. E., Caliskan, A. O., and T. H. Durers, S. 2011. The relationship between working capital management and profitability: evidence form and an emerging market. International Research Journal of Finance and Economics, (62): 61 – 67.
  17. Kaveh, A., and Mohammed, R. K. 2013. The Study of Factors Affecting Working Capital of Pharmaceutical Companies Accepted in Tehran Stock Exchange. World of Science Journal, 1(14): 66 – 67.
  18. Kim, C. S., Mauer, D. L., and Sherman, A. E., 1998. The Determinants of Corporate Liquidity: Theory and Evidence. Journal Financial and Quantitative Analysis, 33 (3),:335 - 359
  19. Lyrondi, K. and Y. Lazaridis. 2000. The Cash Conversion Cycle and Liquidity Analysis of the Food Industry in Greece. Social Science Research Network. Available from Accessed 20th August 2015.
  20. Mansueto Ventures. 2009. Cash Management. Available from Accessed 30th June, 2015
  21. Merritt, C. 2016. The Effect of Revenue Increase on Working Capital. Available from Retrieved 14 July, 2016
  22. Nadeem, I., Naveed, A. R. Zeeshan, 2014. Relationship between Working Capital Management and Profitability: Evidence from Pakistan. International Letters of Social and Humanistic Sciences, (20): 14 – 25. Available at Retrieved on 12/07/16
  23. Ndukauba, V.; Obaniyi, B.; Tinuoye, K.; and O. James., 2011. Nigerian Healthcare and Pharmaceuticals Sector Updates. Available from www.…. Accessed 30th June, 2015
  24. Nwangi, J. K., 2008. Relationship between Sales Growth, Profitability and Firm Value in Firm Value Creation Strategy: A Study of Companies in Young Emerging Market Economies. Available from Accessed 30th June 2015.
  25. Olaopa, B., 2013. Over $44m Investment In Nigeria Pharmaceutical Industry. Available from Accessed 21 May 2015.
  26. Olugbenga, J., 2010. An Appraisal of the relationship between working capital and liquid Assets of Nigerian companies: A comparative study of then selected companies. Journal of research in National development, 8(1).
  27. Okafor, N., 2011. Pharmaceutical Industry in Nigeria is Facing Tough Times. Available from Accessed 30th June 2015.
  28. Owolabi, S. A., and S. S. Obida, 2012. Liquidity Management and Corporate Profitability: Case Study of Selected Manufacturing Companies listed on the Nigerian Stock Exchange. Business Management Dynamics, 2(2): 10 – 25.
  29. Price, J. E.; Haddock, M. D.; and H.R. Brock, 2003, College Accounting (Tenth Edition), Irwin; McGraw-Hill.
  30. PriceWaterhouseCoopers 2014. Cash for Growth PwC Annual Global Working Capital Survey. Available from Retrieved on 14th July, 2016.
  31. Priya, K. and B. Nimalathasan, 2013. Liquidity Management and Profitability: A Case Study of Listed Manufacturing Companies in Sri Lanka. Internatisonal Journal of Technological Exploration and Learning (IJTEL), 2(4).
  32. Proshare 2015. Nigeria’s Pharmaceutical & Health Care Sector (A Critical Analysis). Available from Accessed 1st July 2015.
  33. Renato, S.V., 2010. The relationship between Liquidity and Profitability. Available from Accessed 1st July, 2015.
  34. Russel, U., 2015. Cash Flow Problems in a Business. Available from Accessed 1st July 2015.
  35. Singh, J. P.; Pandey, S., 2008. Impact of Working Capital Management in the Profitability of Hindalco Industries Limited; the IUP Journal of Financial Economics, (4): 62-72
  36. Victor C. L., Samuel A., and Eric K. B., 2013. The Relationship between Liquidity and Profitability of Listed Banks in Ghana. International Journal of Business and Social Science, 4(3):48 - 56
  37. Vishanani, S., and B. K.Shah, 2007. Impact of working capital management policies on Corporate performance. An empirical study. Global Business Review, 8(2): 267-281.

Cite this Article: