The Influence of Working Capital Management on Firm Profitability: A Study of BUA Cement in Kano State
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Background of the Study
Working capital management is a crucial aspect of a company's financial management. It involves the management of current assets and liabilities to ensure that a business maintains sufficient liquidity to meet its short-term obligations while maximizing profitability. For firms in capital-intensive industries, such as cement manufacturing, effective working capital management is essential for maintaining smooth operations and achieving sustainable profitability. BUA Cement, one of the leading cement manufacturers in Nigeria, operates in a highly competitive and dynamic market. Its ability to manage working capital effectively can directly impact its financial performance, liquidity, and overall success.
In Kano State, BUA Cement plays a key role in the regional economy by providing jobs, contributing to infrastructure development, and influencing the local supply chain. However, challenges related to cash flow management, inventory control, and receivables collection can significantly impact the company's profitability. This study will examine how working capital management influences the profitability of BUA Cement in Kano State, with a focus on the company’s practices in managing short-term assets and liabilities.
Statement of the Problem
Despite the significance of working capital management in maintaining profitability, many firms, including BUA Cement, face difficulties in optimizing their working capital. Poor working capital management can result in cash flow problems, operational inefficiencies, and lost profitability. This study will address the gap in understanding how working capital management practices affect the profitability of BUA Cement in Kano State, specifically examining the firm’s strategies for managing inventory, receivables, and payables.
Objectives of the Study
1. To assess the impact of working capital management on the profitability of BUA Cement in Kano State.
2. To identify the key working capital management practices that influence the financial performance of BUA Cement.
3. To recommend strategies for improving working capital management to enhance profitability at BUA Cement in Kano State.
Research Questions
1. How does working capital management influence the profitability of BUA Cement in Kano State?
2. What are the key working capital management practices that affect the financial performance of BUA Cement?
3. How can working capital management be improved to enhance profitability at BUA Cement in Kano State?
Research Hypotheses
1. There is a significant positive relationship between effective working capital management and the profitability of BUA Cement in Kano State.
2. Inventory management and receivables collection significantly impact the profitability of BUA Cement in Kano State.
3. Improved working capital management practices will lead to increased profitability for BUA Cement in Kano State.
Scope and Limitations of the Study
This study will focus on the working capital management practices at BUA Cement in Kano State, examining their impact on profitability. Limitations include potential difficulties in accessing internal financial data and external factors that may affect the company’s working capital and profitability, such as market fluctuations.
Definitions of Terms
• Working Capital Management: The management of a company’s short-term assets and liabilities to ensure sufficient liquidity and operational efficiency.
• Profitability: The ability of a firm to generate income relative to its revenue, assets, or equity.
• Cement Manufacturing: The industrial process involved in producing cement, including the sourcing of raw materials, production processes, and distribution.
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