Effect of Working Capital Management on the Profitability of Agro-Allied Firms in Enugu State

Inefficient working capital management has been frequently cited as a primary cause of liquidity crises and declining profitability among agro-allied firms in Nigeria, particularly as the sector grapples with post-pandemic supply chain disruptions and inflationary pressures. This study examined the effect of working capital management on the profitability of agro-allied firms in Enugu State, focusing on registered food processing and agricultural input companies. The study was anchored on the operating cycle theory, which links the efficiency of working capital conversion to firm profitability. A longitudinal research design was adopted, with a population of 47 registered agro-allied firms in the state. A sample of 30 firms was selected through stratified random sampling, and secondary data spanning 2020 to 2024 were extracted from their financial records. Data were analyzed using pooled ordinary least squares and random effects panel regression. Findings showed that cash conversion cycle length was negatively related to profitability, while inventory turnover ratio and accounts receivable management had positive and significant effects on net profit margin. The study concluded that shortening the cash conversion cycle through efficient receivables and inventory management significantly enhances the profitability of agro-allied firms. It was recommended that firm managers should implement just-in-time inventory systems and adopt stricter credit policies to optimize working capital cycles.

Keywords: Working capital management, profitability, agro-allied firms, cash conversion cycle, operating cycle theory