Corporate liquidity and profitability of listed food and beverages firms in Nigeria

Abstract

The management of corporate liquidity plays a pivotal role in maintaining the financial health of the company during the normal course of business. The objective of this study is to examine the effect of corporate liquidity and profitability of listed Food and Beverages Firms in Nigeria. The study covers the period of six years 2009 to 2014. Data for the study were extracted from the firms’ annual reports and accounts. After running the OLS regression, a robustness test was conducted for validity of statistical inferences, the data was empirically tested between the dependent and the independent variables. A multiple regression was employed to test the model of the study using Robust OLS. The results from the analysis revealed a strong positive relationship between quick ratio, accounts payable, IFRS, firm size and ROA of Listed Food and Beverages Firms in Nigeria, while accounts receivable was found to be inversely significantly related to ROA of Listed Food and Beverages Firms in Nigeria. Cash conversion cycle was inversely but statistically not significantly related to ROA. In line with the above findings, the study recommended that the management of listed Food and Beverages Firms in Nigeria should maintain a higher quick ratio as it will have a positive impact on their profitability and that it has empirically proved that higher quick ratio signifies more profitability, they should also try to reduce their collection period because shorter collection period increases their profitability. Finally, the management should also delay their short term obligations as it was found that more profitable firms do wait a little longer to pay their bills.

Keywords: Quick ratio, accounts receivable, accounts payable, cash conversion cycle, IFRS, firm size, return on asset.