Effect of Capital Expenditure on Working Capital Management of Selected Food And Beverage Companies in Nigeria

Orenuga, Funmilayo Olufunso (2015)



This study examined the trend and pattern of working capital as well as analysed the trend and pattern of capital expenditure and identified the factors that determine the effective management of working capital. It also determined the effects of capital expenditure on working capital management. These were with the view to contributing to the literature on the nature of capital expenditure and providing a policy framework on working capital management in relation to capital expenditure of organizations. Secondary data were used for this study. The data were obtained from the Annual and Statement of Accounts of the selected quoted companies. The study sample consisted of 20 companies out of the 30 quoted firms in the Food and Beverage industry. Purposive sampling technique was used to select the firms that had been in existence before 2007 and were still in operation at the end of 2012 financial year. Data on variables such as account receivables, inventories, sales, account payables, tangible assets, intangible assets, operational expenses, total assets, financial expenses, shareholder’s equity, debts (both short term and long term) and cash flow received from the companies’ main activities were collected for the purpose of the study. Data were analysed using tables, graphs, correlation matrix, unit root test, Hausman test, correlation analysis and multiple regression models. The results revealed that working capital showed an increase of 35% from 2007 to 2009 and a decrease of 60% from 2010 to 2011. The pattern for net liquidity balance dropped downward more than the working capital requirement. The results also revealed that capital expenditure showed an increase of 50% from 2008 to 2010 and kept increasing and decreasing as the values differ. The capital expenditure did not follow the same pattern with the working capital management as the line formed a zigzag shape. Furthermore, the result showed that the factors influencing the effective management of working capital negatively but not significantly were: capital expenditure (t=-1.857916; p > 0.05), financial expenditure (t=-0.743399; p > 0.05) and growth rate of sales (t=-0.199305; p > 0.05). Debt rate (t=0.332684; p > 0.05) and operational expenses (t=0.976233; p > 0.05) had positive and insignificant effect on working capital management. Finally, Net Liquidity Balance had a positive and insignificant effect on capital expenditure (t=0.333748; p > 0.05) while Working Capital Requirement had a negative and insignificant effect on capital expenditure (t=-1.303097; p > 0.05). The study concluded that capital expenditure had effect on working capital management of the selected Food and Beverage companies in Nigeria.