Investing Cash flow and Financial Performance of Listed Consumer Goods Manufacturing Companies in Nigeria
Vol.6 Issue 2
One of the major issues that require attention in the consumer goods manufacturing sector is cash flow management and this has led to failure of many businesses. However, not much has been reported on the relationship between cash flow and financial performance. This study therefore was undertaken to investigate the relationship between cash flow and financial performance of listed consumer goods manufacturing firms in Nigeria. Corporate cash flow was operationalized as net cash flow from operating activities, net cash flow from investing activities, and net cash flow from financing activities, all in ratio scale, while return on asset and return on equity were used as proxies for financial performance. Trade credit policy was used as moderator variable. Panels of secondary data were collected from the annual reports of thirteen (13) listed consumer-goods manufacturing firms, covering the periods of 2012 to 2019. Univariate, bivariate and multivariate statistics were employed to analyse the collected data on complementary basis, using 5 percent level as the significance threshold. Univariate analysis was done using the descriptive statistics; bivariate analysis was done using Pearson’s product moment correlation while multivariate analysis was done using multiple regression analytical technique in line with fixed-effect model. Following the analyses, result showed that 76.7% of the variability of return on asset was jointly explained by all three components of cash flow, with each being significant at 1% level of significance. Apart from cash flow from investing activities which showed a positive sign, both cash flows from operation and financing activities were negatively related with return on asset. The result is similar for return on equity. However, when trade credit policy was introduced as a moderator variable, all the components of cash flow remained significant in their relationship with return on asset, while only cash flow from operating activities remained significant in relation to return on equity. Accordingly, it was concluded that the concern about cash flow report being tainted with financial misreporting is unproven. Accordingly, this study recommends among others that firms should be mindful of their individual peculiarities with regards to the sensitivity of their profitability to liquidity in designing their trade credit policies. Also, firms should endeavor to strike an appropriate balance between profitability and liquidity in order to optimize both, among their recommendations.
