An evaluation of working capital management practices in Nigerian retail companies: A case study of Shoprite Nigeria
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Background of the Study
Effective working capital management is crucial for the sustainability and operational efficiency of retail companies. Working capital refers to the capital used by a company to fund its day-to-day operations, including managing inventories, accounts receivable, and accounts payable. Proper management of working capital ensures that a company has enough liquidity to meet its short-term obligations while maximizing its profitability. In the context of Nigerian retail companies, working capital management has become increasingly important due to the challenges posed by inflation, fluctuating exchange rates, and economic uncertainty (Adeniran et al., 2023). Shoprite Nigeria, as a leading retail company, operates in a competitive market that requires efficient inventory management, tight control over receivables, and effective supplier relationships to maintain profitability and ensure business continuity. However, despite the significance of working capital management, many retail companies in Nigeria face challenges in managing these financial resources effectively. Previous research indicates that poor working capital management is linked to cash flow problems, operational inefficiencies, and even business failure (Oluwaseun et al., 2024). This study aims to evaluate the working capital management practices at Shoprite Nigeria, assess their impact on the company’s financial performance, and identify areas for improvement.
Statement of the Problem
The Nigerian retail sector, including companies like Shoprite Nigeria, faces numerous financial challenges, particularly concerning working capital management. Despite the critical role of working capital in maintaining operational liquidity and profitability, many retail companies struggle with managing their inventories, receivables, and payables efficiently. At Shoprite Nigeria, while the company has established practices to manage working capital, there are concerns regarding inventory turnover, cash flow management, and the timely settlement of accounts payable. These inefficiencies in working capital management may result in liquidity problems, increased borrowing costs, and compromised profitability. This study seeks to evaluate the effectiveness of working capital management practices at Shoprite Nigeria, identify existing challenges, and suggest strategies for improving these practices to enhance financial performance and operational efficiency.
Objectives of the Study
- To evaluate the effectiveness of working capital management practices at Shoprite Nigeria.
- To assess the impact of working capital management on the financial performance of Shoprite Nigeria.
- To propose strategies for improving working capital management practices at Shoprite Nigeria.
Research Questions
- How effective are the working capital management practices at Shoprite Nigeria?
- What is the impact of working capital management on the financial performance of Shoprite Nigeria?
- What strategies can Shoprite Nigeria adopt to improve its working capital management practices?
Research Hypotheses
- Effective working capital management significantly improves the financial performance of Shoprite Nigeria.
- Poor working capital management practices negatively impact the liquidity and profitability of Shoprite Nigeria.
- Implementing improved working capital management strategies will lead to enhanced operational efficiency at Shoprite Nigeria.
Scope and Limitations of the Study
This study focuses on Shoprite Nigeria, with particular attention to its working capital management practices and their impact on the company's financial performance. The study will analyze data from Shoprite's financial reports over the past five years (2020-2025). Limitations include the potential bias in self-reported data from the company and the challenge of generalizing findings to other retail companies in Nigeria.
Definitions of Terms
- Working Capital: The difference between a company’s current assets and current liabilities, representing the short-term financial health of the company.
- Retail Companies: Businesses involved in the sale of goods or services directly to consumers.
- Liquidity: The ability of a company to meet its short-term financial obligations using its most liquid assets.
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