The Effect of Working Capital Management on Financial Performance

Working capital is one major factor upon which the stability and survival of a business entity depend. Failure of a bank automatically connotes its working capital failure which could be highly contagious leading to a bank run on the distressed. This is one of the reasons the financial performance of the banking sector deeply depends on the efficient management of the banks’ working capital. This study specifically examines the effect of Working Capital Management (WCM) on financial performance of Deposit Money Banks in Nigeria for the period of 2010 to 2019. The study sampled Seven (7) out of the Thirteen (13) listed Deposit Money Banks in Nigeria as at 31st December 2019. Three models were formulated to guide the study with Net Interest Margin (NIM) Return on Equity (ROE) and Operating Profit Margin (OPM) as proxies for financial performance (dependent variables) of each model respectively; the independent variables are Loan to Deposit ratio (LTD) and Cash Ratio (CR) while the control variable is Bank Size (BS). The data were extracted from the annual reports of the banks.