E-Business Conflict Resolution:Working Capital Management in Resolving Profitability Distress in a P

E-Business Conflict Resolution:Working Capital Management in Resolving Profitability Distress in a P

Author by Dr. Folajimi Festus Adegbie

Language: English

Abstract

British Journal of Economics,Finance and Management Sciences,UK March 2012 Volume 4 Number 2. Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the organization. Working capital is the net amount invested in the business in the financing of the flow of materials, the conversion process into finished product/service, the credit required to support the sales after allowing for external funding through the credit given by suppliers. It is observed that poor working capital management in many profit organizations has resulted into profitability distress and erosion of equity. Conflict always accompanies the implementation of the policy to affect good working management. Paradoxically; the implementation of policy change cannot proceed efficiently in an atmosphere marked by excessive or disruptive conflict as has been experienced. Other problems identified are inability of these companies to optimize working capital components, high storage cost and low profit caused by mistaking obsolesced stock for inventory in the store and the consequence of defective credit policies on an organization’s success. The objective of this paper is to assess the significant relationship between working capital management and profitability in a profit making organization with a view to resolving distress conflicts. Four hypotheses stated in null forms were tested to address the problems. Questions were administered to five manufacturing companies in Nigeria that are actively involved in e-business and whose major objective is profit maximization. Their financial statements were analyzed to determine the major working capital ratios. The results showed that there is a strong relationship between working capital management, conflict and profitability. The recommendations are that professionals are needed for effective management of working capital in a profit making organization to enhance profitability, and avoid e- business conflict. A good credit policy should always be in place to guarantee high turnover of debts.


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