Effect Of Liquidity Management on Performance of Manufacturing Firms in Nigeria

Abstract

This study examined the effect of liquidity management on the performance of manufacturing firms in Nigeria, with the primary objective of determining how liquidity management influences firm performance. Specifically, the study assessed the influence of the current ratio, quick ratio, and working capital ratio on return on assets of selected manufacturing firms. An ex-post facto research design was adopted, and a sample of ten companies was selected using the purposive sampling method. Secondary data were obtained from the audited annual reports of the sampled firms, covering the period 2015 to 2024. The hypotheses were tested using Ordinary Least Squares (OLS) regression. The findings revealed that the current ratio had a positive and significant effect on financial performance, with a coefficient of 5.982516 and a p-value of 0.0385, indicating that adequate liquidity improves profitability. Furthermore, the quick ratio had a coefficient of 8.750908 with a p-value of 0.3271, indicating an insignificant effect on financial performance, suggesting that maintaining higher levels of quick assets does not necessarily enhance profitability. The working capital ratio had a coefficient of 2.96E-06 with a p-value of 0.0014, confirming a positive and significant effect on financial performance, which implies that efficient working capital management contributes to firm profitability. The study recommends that firm management should adopt stronger liquidity policies to maintain sufficient liquidity buffers to meet short-term obligations without disrupting daily operations. It also recommends that finance managers should actively monitor and optimise the quick ratio by balancing current assets and current liabilities to avoid liquidity shortages and reduce the risk of financial distress. Furthermore, regulators and policymakers should introduce and enforce corporate governance guidelines requiring listed firms to maintain healthy working capital ratios in order to promote stability and investor confidence in Nigerian firms.