ASSESSING THE INFLUENCE OF ASSETS AND LIABILITIES ON THE OPERATIONAL PERFORMANCES OF NIGERIAN BREWERIES COMPANIES
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ABSTRACT
This study examines the impact of assets and liabilities on the operating performance of listed Nigerian brewers. Proper research was conducted to determine the effect of assets or liabilities on the financial performance of listed brewery companies in Nigeria, to evaluate the effect of credit turnover ratio (CTR) on operating performances of listed breweries companies in Nigeria, to assess the influence of Inventory turnover ratio (ITR) on operating performances of listed breweries companies in Nigeria, and to examine the effect of cash ratio (CR) on operating performances of listed breweries companies in Nigeria.
This study uses secondary data as its source of information acquisition. This study’s preparatory phase consisted primarily of data collection from relevant sources, such as journals, publicans, libraries, the internet, and the annual reports of the Nigerian and Guinness Brewing Companies. In addition, the account for the Ten-year financial report would be utilized extensively. Assets and liabilities impact the operation of the Nigerian breweries and Guinness breweries Company, according to one of the findings of a study of prior research.
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INTRODUCTION
Aside from the telecommunications industry and the oil and gas sector, the major source of Foreign Direct Investment (FDI) in the country has been the brewing industry. This includes Heineken’s largest stake outside of Europe, Nigeria Breweries Plc. It also acquired a majority stake in consolidated breweries Plc (50.2%). (Omolara, 2006). The Nigerian beer market is currently 15 million hectoliters and is a classic example of a duopoly (Ahmed, 2010). Despite the presence of a small number of competitors, Nigerian Breweries Plc. and Guinness Nigeria Plc. hold a combined market share of 80%. NB Plc is majority-owned by Heineken, while Guinness Nigeria Plc is majority-owned by the Diageo Group; hence, this concentration level is even more obvious when viewed from a global perspective.
In the previous 5 to 10 years, the global market for breweries has been more consolidated as a result of a wave of mergers and acquisitions among brewery giants, as well as a diversification of their investments outside of their geographic region. All of these actions are undertaken to achieve market dominance and maximize shareholder profit. Increasing market dominance in order to maximize shareholder value is mostly dependent on firm-specific characteristics such as sustained profitability. Any company’s ability to maximize profits is contingent upon effective cost and manufacturing process management, as well as sales growth coming from market dominance. Working capital is a factor that is deduced to have a substantial impact on the firm’s profitability.
In manufacturing companies, current assets constitute more than fifty percent of total assets. Excessive levels of current assets can easily result in a bad return on investment for a company; nevertheless, when the amount of current assets is low, the company may experience shortages, which will impact its operations. The authors Horne and Wachowiz (2005). The company is responsible for paying off its present liabilities when they become due. Effective working capital management regulates current assets and liabilities so as to eliminate the danger of being unable to satisfy short-term obligations and prevent excessive investment in current assets.
This management of short-term assets is equally as significant as the management of long-term financial assets since it directly contributes to the maximization of a company’s profitability, liquidity, and overall success. By understanding the function and drivers of working capital, firms may hence reduce risk and enhance overall performance (Lamberson, 2006). A company must have sufficient liquidity to satisfy its short-term obligations as they become due. Increasing earnings at the expense of liquidity exposes a business to grave issues such as insolvency and bankruptcy. On the other hand, excessive working capital leads to cash waste and ultimately a decline in profitability (Chakraborty, 2008). Thus, liquidity is equally crucial for a business. Obtaining a trade-off between these two firm aims is necessary to ensure that one objective is not achieved at the expense of the other, despite the fact that both objectives are equally significant. A company cannot endure for a lengthy period of time if it disregards earnings. Alternatively, if it disregards cash, it will confront the dilemma of insolvency or bankruptcy. Due to these factors, working capital management should be given due care, as it will eventually impact the firm’s profitability.
As vital as the management of long-term financial assets, the management of short-term assets directly contributes to the maximization of a company’s profitability, liquidity, and value.
Business organizations are seen as a vital component of a robust and thriving economy. They greatly contribute to global economic growth and sustainable development by creating jobs and alleviating poverty. Due to poor management of working capital, Nigerian manufacturing firms have been experiencing a troubled condition. In accordance with this notion, studies indicate that a large number of businesses have failed, with some leaving the country for survival in other African nations, while surviving businesses in the country are contemplating mergers and acquisitions due to liquidity difficulty syndrome (Salawu & Alao, 2014; Lawal, Abiola & Oyewole, 2015).
Scholars, academics, and accountants have recognized working capital management as the panacea for organizational survival in a worldwide competitive context. Eya (2016) contends that working capital management is a crucial component of company investment, which is necessary for the continuity of corporate operations. Furthermore, Angahar and Alematu (2014) assert that efficient working capital management is essential to the financial success of businesses of all sizes and is a key sign of a company’s strong financial health. Similarly, Padachi (2006) believes that the management of working capital is crucial to the financial health of businesses of all sizes. Working capital is the lifeblood of corporate organizations, according to Sanusi (2006), because it serves as a pool of liquid assets that offers a safety net for creditors. It provides a liquid reserve to address contingencies and the ever-present uncertainty over a company’s capacity to balance its cash expenditures with adequate cash inflows. Poor or inefficient working capital management, according to Akinlo (2011), ties up funds in idle assets and reduces a company’s liquidity and profitability.
Working capital is defined by Eya (2016) as the monies locked up in raw materials, work in progress, completed commodities, receivables, cash and cash equivalents. Working capital is defined by Falope and Ajilore (2009) as the surplus of current assets supplied by long-term creditors.
ASSESSING THE INFLUENCE OF ASSETS AND LIABILITIES ON THE OPERATIONAL PERFORMANCES OF NIGERIAN BREWERIES COMPANIES
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