Impact of Operating Liquidity on Profitability of Pharmaceutical Firms in Nigeria

Abstract

Operating liquidity involves the most liquid resources of the firm which includes cash and cash equivalents, inventories, trade debtors and other receivables. Most firms do not ensure optimal level of operating liquidity and this has been a major obstacle to their overall profitability. The study examined the impact of operating liquidity on the profitability of Pharmaceutical firms listed on the Nigerian Stock Exchange. Correlation and expost facto research design were used in a sample of 5 Pharmaceutical firms. Secondary data for a period of 10 years (2002-2011) was used, and Ordinary Least Squares (OLS) multiple regression was employed in data analysis. The study found that operating liquidity (account receivables collection, accounts payables management) has a significant impact on the profitability of listed pharmaceutical firms in Nigeria. It is therefore recommended among others that managers should, collect receivable as soon as possible because it is better to receive inflows sooner than later, and delay payment of creditors in order to invest the money in short-term securities which are profitable.