International Journal of African and Asian Studies www.iiste.

org
ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

Current Assets Management and Financial Performance:

Evidence from Listed Deposit Money Banks in Nigeria
Onipe A. Yahaya1 Umar M. Kutigi2 Abiola A. Solanke2 Joseph M. Onyabe3 Safiya O. Usman4
1.Department of Accounting, Nigerian Defence Academy, Kaduna, Nigeria
2.Department of Accountancy, Federal Polytechnic, Bida, Nigeria
3.Federal Mortgage Bank of Nigeria, Abuja, Nigeria
4.Niger State Debt Management Office, Minna, Nigeria

Abstract
The concepts of current assets management and financial performance have been adopted in many research
fields but they are scarcely attempted on in developing countries. The structure and size of current assets and its
impact on the financial performance of the firm cannot be over-emphasised. A literature gap exists, thus
motivating the author to come up with a multiple correlation and regression model that uses current assets
management to forecast changes in financial performance of deposit money banks in Nigeria. These varying
parameters include the cash and bank balances, financial assets held for trading, derivative assets, loans and
advances to banks and loans and advances to customers. An OLS model was formulated to compute the effect of
CAM on financial performance. For model validation purpose, five year data analysis was conducted. The
study’s sample utilizes data from 2010-2014 belonging to 15 deposit money banks operating in financial services
sector as listed by the Nigerian Stock Exchange (NSE). In empirical analyses, robust estimator was used. The
results of the conducted analyses suggest a positive relation between the cash and bank balances, financial assets
held for trading, loans and advances to customers and Return on Asset. Another result of the study, on the other
hand, suggests that derivative assets, loans and advances to banks have negative impact on return on asset.
Keywords: Current assets management, deposit money banks, financial performance, Nigeria

1. Introduction
Performance is the bottom-line for every organization, business and non-business alike. It is essential because
non-performance can spell failure. This study, however, focuses on financial performance of firms. The question
this study attempts to answer is whether the management of current assets could affect financial performance of
a firm? Financial performance is a subjective measure of how well a firm can use assets from its primary and
non-primary modes of business and generate revenues (Investopedia, 2015). The term, financial performance, is
also used as a general measure of a firm's overall financial health over a given period of time, and can be used to
compare similar firms across the same industry or to compare industries or sectors in aggregation. Financial
performance refers to the act of performing financial activity. In broader sense, financial performance refers to
the degree to which financial objectives being or has been accomplished. It is the process of measuring the
results of a firm's policies and operations in monetary terms.
There are many different ways to measure financial performance, but all measures should be taken in
aggregation. All organizations have financial performance measures as part of their performance management,
although there is debate as to the relative importance of financial and non-financial indicators. Proponents of
financial performance measures argue that they are necessary because of the primary objectives of firms (Kaplan
Financial, 2015). Line items such as gross revenue from operations, operating income or cash flow from
operations can be used, as well as return on total assets. Financial performance exists at different levels of the
organization. This study is mostly concerned with measuring the financial performance of the organization as a
whole. Traditionally, financial performance measures are split into the following categories: profitability,
liquidity/working capital, gearing and investor ratios. This study uses return on total assets (ROTA) as measure
of financial performance. This is because return on total assets takes care of return on equity (ROE) and return
on capital employed (ROCE/ROI). Total assets comprise of equity capital, non-current liabilities and current
liabilities. While ROE measures return on equity capital, ROCE (ROI) measures return on equity capital plus
non-current liabilities. ROTA measures return on equity capital, non-current liabilities and current liabilities.
The corporate financial management literature conventionally focuses on the study of long-term
financial resources where a number of studies have analyzed the topics related to capital structure, investments,
dividends and firm valuation (Smith, 1980; Grablowsky, 1984; McMahon & Holmes, 1991; Weston & Copeland,
1992; Ganesan, 2007; Kavita, 2009 & Dong & Su, 2010). However, the short-term investments of a firm with
maturity less than a year in the form of current assets also represent a major share of total assets on the statement
of financial position of the firms. The management of these short terms assets falls in the area of current asset
management (CAM). Current assets could represent a significant component of firm’s total assets. For a number
of organizations, current assets management can make or mar the organization’s financial performance.
Current asset was described as the life blood of every firm by Flanagan (2005), who also emphasized

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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

that the primary task of every manager is to keep current assets flowing and use the cash flows to generate
profits. Current asset management is the handling of the current assets of a firm (Wisegeek, 2015). Any asset that
a firm has that is the equivalent of cash or can be liquidated into cash in the period of a year is considered a
current asset. Typically, current assets are the inventory a company has, as well as the accounts receivables and
any current investments it has in place. The main principle in current asset management is to keep the proper
flow of income in balance. Managing current assets also takes into account the non-current investments of a firm,
but current asset is important in determining the liquidity of a firm. The measure of liquidity is really the
measure of how well and how fast a firm can raise enough cash to pay off its debts.
Current assets management is considered to be the primary goals of working capital management (Jain,
Singh, & Yadav, 2013). Current asset management refers to all the actions and decisions of the management
which affects the size and effectiveness of current asset. Current asset management requires special attention in
present days when cost of capital is rising and funds are scarce. It has been generally established that the
performance/profitability of a firm largely depends upon the manner of its current asset management. If a firm is
inefficient in managing current asset, it will not only reduce profitability but may also lead to financial crisis.
Both inadequate and excessive current asset is detrimental for a firm. The excessive current asset can result in
idle funds which could be used for earning profit while the inadequate current asset will interrupt the operations
and will also impairs profitability (Chowdhary & Amin, 2007).
It is within this context that this study explores the relationship between current assets management and
firm’s financial performance. International financial reporting standards adoption requires that current assets are
classified by deposit money banks into five major categories: cash and bank balances, financial assets held for
trading, derivative assets, loans and advances to banks and loans and advances to customers. Cash and bank
balances constitute the amount of cash available to the bank for daily operations. It comprises of cash in hand
and demand deposits. Cash equivalents are short term liquid investments that are readily convertible to known
amounts of cash and that are subject to an insignificant risk of changes in value. Cash equivalents comprise
deposits held at call with banks and other short-term highly liquid investments with original maturities of three
months or less. For the purposes of the cash flow statement, cash and cash equivalents include cash and non-
restricted balances with central banks. Cash and balances with central banks include cash and restricted and non
- restricted deposits with the central bank. The carrying amount of balances with other banks is a reasonable
approximation of fair value which is the amount receivable on demand. The amount and quality of cash and bank
balances can improve the income of a bank and thus increase the bank’s financial performance. This leads to a
hypothesis that:
H1: Cash and bank balances have a positive impact on the financial performance of deposit money
banks.
Financial assets held for trading comprise of treasury bills and government bonds. A financial asset is
classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it
in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as
held for trading unless they are designated and effective as hedging instruments. Financial instruments included
in this category are subsequently measured at fair value with gains and losses arising from changes in fair value
recognized in net gains (losses) from financial instruments at fair value in the statement of profit or loss. Interest
income and dividend income on financial assets held for trading are included in interest income and other
operating income respectively. The amount and quality of financial assets held for trading can improve the
income of a bank and thus increase the bank’s financial performance. This leads to a hypothesis that:
H2: Financial assets held for trading have a positive impact on the financial performance of deposit
money banks.
Derivative assets are investments in foreign exchange transactions. The amount and quality of
investments in foreign exchange if well managed can improve the income of a bank and thus increase the bank’s
financial performance. However, it must be noted that banks do not have control over the variability in foreign
exchange rate, which occurs from time to time. This variability is managed by the central bank of the country.
This leads to a hypothesis that:
H3: Derivative assets have a positive impact on the financial performance of deposit money banks.
Loans and advances to banks consist of placements with banks and discount houses, including balances
with other banks within and outside Nigeria and short term placements. The carrying amount of balances with
other banks is a reasonable approximation of fair value which is the amount receivable on demand. The
estimated fair value of fixed interest bearing placement is based on discounted cash flows using prevailing
money-market interest rates for the debts. The carrying amount represents the fair value which is receivable on
maturity. The amount and quality of loans and advances to banks can improve the interest income of a bank and
thus increase the bank’s financial performance. This leads to a hypothesis that:
H4: Loans and advances to banks have a positive impact on the financial performance of deposit money

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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

banks.
Loans and advances to customers consist of overdraft, term loans, staff loans and commercial papers.
The general creditworthiness of a corporate customer tends to be the most relevant indicator of credit quality of a
loan extended to it. However, collateral provides additional security and banks generally request that corporate
borrowers provide it. The bank may take collateral in the form of a first charge over real estate, floating charges
over all corporate assets and other liens and guarantees. Loans and advances to customers are net of charges for
impairment. The estimated fair value of loans and advances represents the market value of the loans, arrived at
by recalculating the carrying amount of the loans using the estimated market rate for the various loan types. The
amount and quality of loans and advances to customers can improve the interest income of a bank and thus
increase the bank’s financial performance. This leads to a hypothesis that:
H5: Loans and advances to customers have a positive impact on the financial performance of deposit
money banks.
It is apt to conduct this study in Nigeria because it is a growing economy and there are a lot of
differences in the situation faced by deposit money banks in developed and developing countries. Prior research
focuses on the effect of working capital (current assets less current liabilities) management on financial
performance. Very few prior research works consider current assets management as a merit on its own. For
deposit money banks, the quality of management of current assets can make or mar them and a study, therefore,
on the association between current assets management and financial performance is apt and relevant. Bank
managers would benefit from the study findings, conclusions and recommendations because current assets are
the fulcrum of assets earning income. Non-current assets do not generate income as fast as current assets. This
study will contribute to the limited literature on the effect of current assets management on financial
performance of deposit money banks in Nigeria. The rest of the study is organized as follows. First, the literature
review and second the data and methodology, and data were discussed. Also, empirical findings of the study are
discussed under results and discussions and finally, conclusions and recommendations are made.

2. Literature Review
Most of the empirical studies regarding the relationship between current asset management and financial
performance support the traditional belief that reducing current assets proportion in total assets in order to reduce
current asset investment, would positively affect the profitability of the firm. Also, efficient current asset
management is very important to create the value for shareholders. However, divergent to traditional belief,
more investment in current asset (conservative policy) might also increase profitability. When high inventory is
maintained, it reduces the cost of interruptions in the production process, decrease in supply cost, protection
against price fluctuation and loss of business due to scarcity of products (Blinder & Maccini, 1991). Czyzewski
and Hicks (1992) conclude that firms with the highest return on assets hold higher cash balances but they did not
consider liquidity management beyond static cash and assets ratio. Soenen (1993) employs return on total assets
as an index of financial profitability. Although return on equity might be of greater interest to investors, return
on total assets was not influenced by the financial leverage of the firm. The Net Trade Cycle and the return on
total assets were calculated for all firms in each industry for every single year from 1970 to 1989 to find out the
inverse relationship between Net Trade Cycle and return on total assets. The results showed that although there
was some influence of the Net Trade Cycle on corporate profitability, the trade cycle did not influence
profitability very much. The right associations of a short Net Trade Cycle with high profitability and the
combination of a long Net Trade Cycle with low profitability was found in 18 of the 20 industries. However,
using the Chi-square test, the negative relationship between the Net Trade Cycle and corporate profitability was
statistically significant for eight industries. The results demonstrated that shorter Net Trade Cycles were most
commonly associated with higher profitability while the reverse was also true. Analysis at the specific industry
level indicated that the inverse association between the Net Trade Cycle and the firm's profitability was very
different, depending on the type of industry. The results showed that, in most firms in these industries, managing
the corporate cash cycle efficiently has a direct impact on corporate profitability.
The relationship between liquidity measure in terms of Cash Conversion Cycle and corporate returns
was examined by Jose, Lancaster and Stevens (1996). They perform an industry wise analysis and measured
liquidity by Cash Conversion Cycle for 2,718 firms for twenty years time period from 1974 to 1993. Controlling
industry and size differences they conclude that more aggressive liquidity management is associated with higher
profitability for several industries. The negative relationship between CCC and profitability was found to be
significant when size differences were controlled. They also find that aggressive policies of current asset
management tend to enhance performance and the industries where aggressive policies were adopted, they were
more profitable. The benefits appear in terms of both assets management return measured by return on
investment and leveraged return measured by return on equity. The comparison between association of
traditional current asset ratios and alternative current asset ratios to the return on investment in order to found the
improvement in the later was carried out by Smith and Begemann (1997) specifically on industrial firms listed

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Vol.13, 2015

on the Johannesburg Stock Exchange (JSE). They emphasized that those who promote current asset theory share
that profitability and liquidity comprised the salient goals of current asset management. The problem arises
because the maximization of the firm's returns can seriously threaten liquidity and the pursuit of liquidity had a
tendency to dilute returns. Analysis was based on data set of 135 firms, representing all industrial firms listed on
the JSE for the years from 1984 to 1993. The results of the stepwise regression corroborated that total current
liabilities divided by funds flow accounted for most of the variability in Return on Investment (ROI). The results
also showed that a traditional current asset leverage ratio, current liabilities divided by funds flow, displayed the
greatest associations with return on investment. Well-known liquidity concepts such as the current and quick
ratios have insignificant associations whilst only one of the newer current asset concepts, the comprehensive
liquidity index, indicated significant associations with return on investment.
The implication of efficient current asset management for value creation of shareholders was
highlighted by Shin and Soenen (1998). It actually resulted from time lag between expense on raw material
purchase and collection of cash against sale of finished goods. The way current asset is managed has a
significant impact on profitability and liquidity. They empirically investigated whether short Net Trading Cycle
(NTC) is beneficial for the company’s profitability. The relationship between the length of Net Trade Cycle,
firm’s profitability and risk adjusted stock return was examined using correlation and regression analysis. The
analysis was carried out using a sample of 58,985 firms during period 1975-1994. The results of study found a
strong negative relationship between firm’s net-trade cycle and profitability. Furthermore, shorter NTCs are
associated with higher risk adjusted stock returns. Another important study on the relationship between liquidity
management and operating performance was conducted by Wang (2002). The study examines the relationship
between liquidity management and corporate value for firms in Taiwan and Japan. The study found negative
relationship between Cash Conversion Cycle, return on assets and return on equity which was also sensitive to
industry factors. The results of the study indicated that although there were differences in financial system and
structural characteristics of both countries, still aggressive liquidity management increased the performance
which also leads to increase in the corporate value for Japanese and Taiwanese firms.
Another important contribution with reference to current asset management was by Deloof (2003), who
emphasized that most firms had a large amount of cash invested in current asset. It can therefore, be expected
that the way current asset was managed, had a significant impact on the profitability of firms. He investigated the
relationship between current asset management and corporate profitability for a balanced panel set of 1,009
Belgian firms over the 1991–1996 periods. According to him, a longer Cash Conversion Cycle lead to larger
investment in current asset and longer Cash Conversion Cycle might increase profitability because it leads to
higher sales. However, corporate profitability might also decrease with the Cash Conversion Cycle, if the costs
of higher investment in current asset rose faster than the benefits of holding more inventories and/or granting
more trade credit to customers. Number of days’ accounts receivable, accounts payable and inventories were
used as trade credit policy and inventory policy while the CCC was used as a comprehensive measure of current
asset management. He found a significant negative relation between gross operating income and the number of
days’ accounts receivable, inventories and accounts payable by Belgian firms. On the basis of these results, he
suggested that managers could create value for their shareholders by reducing the number of days’ accounts
receivable and inventories to a reasonable minimum. The negative relation between accounts payable and
profitability was consistent with the view that less profitable firms wait longer to pay their bills.
Current asset management efficiency in Indian Cement Industry for the period 1992-93 to 2001-02 was
examined by Ghosh and Maji (2003). For measuring the efficiency of current asset management, the
performance, utilization, and overall efficiency indices were calculated instead of using some common current
asset management ratios. Setting industry norms as target-efficiency levels of the individual firms, they also
tested the speed of achieving that target level of efficiency by an individual firm during the period of study.
Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well
during this period. One of the important studies on the liquidity and profitability trade-off was conducted by
Eljelly (2004). According to him, current assets and liabilities must be properly planned and controlled in such a
way that the risk of inability in meeting short term obligations should be eliminated and avoid excessive
investment in current assets under efficient liquidity management. The relationship between liquidity and
profitability was examined using a sample of 29 Saudi joint stock companies. This relationship was analyzed by
cash gap (CCC) and Current Ratio using correlation and regression analysis. The results of the study found
significant negative association between liquidity and profitability of firm. Furthermore, this relationship was
more apparent in firms with high Current Ratios and longer CCC at the industry level, however, the study also
found that the CCC was of greater importance than current ratio as a liquidity measure which affects firm
profitability. Moreover, the size of the firm was found to have significant effect on profitability at the industry
level.
The relationship of corporate profitability and current asset management was also investigated by
Lazaridis and Tryfonidis (2006) for 131 firms listed in Athens Stock Exchange during period 2001 to 2004. They

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Vol.13, 2015

reported that there was statistical significant negative relationship between profitability measured through gross
operating profit and the Cash Conversion Cycle. Furthermore, managers can create profit by properly handling
the individual components of current asset which include accounts receivable, inventory and accounts payable to
an optimal level. The trend in current asset management and its impact on firm’s performance was examined by
Padachi (2006). He explained that a properly implemented current asset management was expected to contribute
in creating value for the firm. The relationship between current asset management and profitability was
investigated for 58 small Mauritian manufacturing firms for a period 1998 to 2003. Results indicated that high
investment in inventories and receivables is associated with low profitability and also showed an increasing trend
in the short term component of current asset financing. Also, Afza and Nasir (2007) find no significant
relationship between working capital management policy and financial performance among the 208 public
limited companies listed in the Karachi Stock Exchange. They measured aggressive working capital investment
policy in terms of low level of investment in current assets as percentage of total assets. On the other side of the
spectrum are companies with high investments in current assets vis-à-vis total assets, which they classified as
advocating conservative working capital management policy.
The impact of overall current asset policies on the profitability of Pharmaceutical firms listed at Dhaka
Stock Exchange was investigated by Chowdhary and Amin (2007). Primary and secondary data were used for
the period 2000 to 2004 to analyze the current asset management policies. The results indicated that for the
overall performance of the Pharmaceutical industry, current asset management played a vital role and there
existed a positive relationship between current assets management and performance of firms. On the other side,
the questionnaire data used for the study highlighted that firms in this industry have been efficient in managing
their cash, accounts receivables and accounts payable. Furthermore, the industry maintained large volume of
inventories but maintaining large inventories did not reflect inefficient management for this industry. With
reference to small and medium sized Spanish firms, the impact of current asset management on the profitability
was empirically tested by Gracia-Teruel and Martinez-Solano (2007). They used panel data methodology and
collected the data for 8,872 small and medium sized firms covering period 1996 to 2002. The robust test was
also used for any possible presence of endogeneity problem. The results suggested that current asset
management was very important in case of small and medium sized firms and managers can create value for the
shareholders by reducing the inventories level and receivable outstanding days. Further short Cash Conversion
Cycle is also associated with improvement in profitability. However, their results did not confirm the impact of
accounts payable days on profitability because this relation loosed its significance when controlled for
endogeneity problem. The role of current asset management policies on firm performance and the importance of
a trade-off between liquidity and profitability were investigated by Vishnani and Bhupesh (2007). They provided
two basic reasons behind the trade-off between profitability and liquidity. On the one hand, if a firm wanted to
take higher risk for higher profits, than it reduced the level of its current asset. On other hand, if firm wanted to
improve liquidity, it increased the amount of current asset which puts a negative impact on the profitability of
firm.
Another study on the impact analysis of current asset management on profitability of firms with
reference to Turkey was presented by Samiloglu and Demirgunes (2008). The quarterly data was collected for a
sample of manufacturing firms listed at Istanbul Stock Exchange for the period 1998 to 2007. The results
suggested that receivable and inventory period with liquidity has a negative impact on the profitability of the
firm while growth was positively associated with profitability. However, CCC, size and financial assets did not
have significant effect on the profitability of the firms. The relationship of one of the comprehensive measure of
current asset management called as Cash Conversion Cycle with firm size and profitability was examined by
Uyar (2009) for firms listed at Istanbul Stock Exchange. The results showed retail/wholesale industry has shorter
CCC than manufacturing industries because retail/wholesale industry do not manufacture goods and sell them on
cash basis or for very short credit period. Furthermore, they find significant negative correlation between CCC
and profitability as well as between CCC and firm size. The impact of current asset management on firm
profitability was also examined by Falope and Ajilore (2009) using data for 50 Nigerian non-financial listed
firms on Nigerian Stock Exchange during period 1996 to 2005. They used combined time series and cross
sectional observations in a pooled regression to estimate the relationship between current asset measures and
firm’s profitability. They found significant negative relationship between profitability and current asset measures
such as average collection period, inventory turnover in days, average payment period and cash conversion cycle.
They also compared this impact between large and small firms but did not find significant variations among
these firms.
The relationship between efficiency in current asset management and profitability was also analyzed in
another study by Sen and Oruc (2009). Using quarterly data for 49 production listed firms during 1993 to 2007
on Istanbul Stock Exchange, they explained the relationship between different indicators of current asset
management efficiency and return by two models. The results of their study indicated a significant negative
relationship between return on total assets and different current asset measures such as, account receivable

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Vol.13, 2015

period, inventory period, cash conversion cycle, net current asset level and current ratio. In this study, although
the sample was small but sector wise results were also compared where, the results were similar to the one for
the overall sample firms. Similarly, Wajahat and Hassan (2010) study 37 listed companies in the OMX
Stockholm Stock Exchange show no significant relationship between profitability and working capital
management policy when grouped as aggressive, defensive or conservative based on cash conversion cycle. The
ratio of current asset to total assets of the observations in this study was another proxy variable for working
capital management, but the data failed the tests of normality. Because of this limitation, dummy variables were
used instead to capture the effect of working capital management policy on profitability. Charitou, Elfani and
Lois (2010) empirically investigate the effect of working capital management on firm’s financial performance in
an emerging market. They hypothesized that working capital management leads to improved profitability. Their
data set consists of firms listed in the Cyprus Stock Exchange for the period 1998-2007. Using multivariate
regression analysis, their results support their hypothesis. Specifically, their results indicate that the cash
conversion cycle and all its major components; namely, days in inventory, days sales outstanding and creditors
payment period - are associated with the firm’s profitability. The results of this study should be of great
importance to managers and major stakeholders, such as investors, creditors and financial analysts.
One of the studies on the relationship between current asset management and profitability was
conducted by Gill, Biger and Mathur (2010) for American firms listed on New York Stock Exchange. They used
the data for a sample of 88 American firms for a period of three years from 2005 to 2007. They found
statistically significant relationship between current asset management and firm’s profitability. Furthermore, it
was observed that there was a negative relationship between average days of accounts receivable and firm
profitability while positive relationship between cash conversion cycle and profitability. As per their finding, the
managers can enhance profitability of their respective firms by properly handling cash conversion cycle and also
by keeping the accounts receivable at an optimal level. Moreover, negative relationship between firm’s accounts
receivable and profitability suggested that less profitable firms pursue a decrease in their accounts receivables to
reduce the cash gap in CCC. Niresh (2012) investigates the relationship between working capital management
and financial performance of listed manufacturing firms in Sri Lanka. A sample of 30 manufacturing firms listed
on the Colombo Stock Exchange was used for this study. Data were collected from annual reports of sampled
firms for the period of 2008 to 2011. Performance was measured in terms of return on assets and return on equity
while cash conversion cycle, current assets to total assets and current liabilities to total assets were used as
measures of working capital management. Correlation and regression analysis were used for the analysis. The
findings reveal that, there is no significant relationship between cash conversion cycle and performance
measures. The study also concludes that manufacturing firms in Sri Lanka follow conservative working capital
management policy. Taani (2012) examines the impact of working capital management policy and financial
leverage on financial performance of Jordanian companies measured in terms of net income, return on equity
(ROE) and return on asset (ROA). Pearson's rank correlation test, ANOVA F-test, and multiple regression
analysis were used on 45 companies included in the industrial sector in Jordan ranked in terms of gross revenues.
Results of the study indicated that firm's working capital management policy, financial leverage, and firm size
have significant relation to net income. However working capital management policy has no significant impact
on return on equity (ROE) and return on assets (ROA).
Arbidane and Zelgalve (2012) explore and analyse the structure of current assets, the effectiveness of
the indicators characterizing the Latvian business changing economic conditions. The research was based on the
data obtained by the Central Statistics Bureau. The research covers the period of 1995–2010. The study involves
the use of conventional logic analysis and synthesis methods, content analysis and analysis of monographic. The
current assets of companies in Latvia, their structure and indicators to a large extent are influenced by the
economic situation in Latvia. Under conditions of a stable and flourishing economic situation companies have
stable development indicating balanced increase of financial indicators. Upon increase of net turnover the
amount of current assets also increases. When the national economy and business indicators improve, the
proportion of assets flexibly reacts by increasing the proportion of current assets in the total structure of assets.
However, when business activity decreases, the proportion of assets in the total structure of assets reduces. As a
result of analysis there can be observed a correlation that the amount of stock and debts of debtors are
interrelated with the net turnover of companies. The dynamics of cash and short-term securities shows that in the
economic recession period it even increases. The economic situation in the state does not change very
significantly the indicators of the current assets structure. Slight changes in the proportion of stock and cash
prove that under condition of recession the managerial staff of Latvian companies pays attention to introduction
of effective current assets management. The changes of current assets and their decrease in the recession period
indicate that economic processes influence this indicator. The analysis of liquidity indicators did not reflect
significant correlation between economy and changes of these indicators; however, the companies of Latvia
typically do not have high liquidity indicators which shows some problems, but which cannot be identified not
knowing certain conditions. The analysis of the structure and indicators of current assets using a maximally

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Vol.13, 2015

longer period of time enables to make timely and effective managerial decisions.
Bratland and Hornbrinck (2013) investigate what impact working capital policies have on the stock
performance on the Swedish stock market during the years 2009-2012. The study explores if the firm size or
industry of the firms have any impact on the working capital policy and if the theory of risk/return tradeoff
indicating that an aggressive policy should generate a higher risk premium holds. A quantitative research method
was used and data collected from companies listed on the Swedish stock exchanges annual reports and stock
prices from the Thomson Reuters Datastream. The Pearson’s correlation was used to find correlation between
working capital and stock return, beta and standard deviation. The results of this study show no clear relationship
between Swedish firm’s working capital policy and the stock return. Regarding the relation with risk and return,
the result indicates that working capital has a significant correlation with risk and that the aggressive policy of
managing working capital is more risky. Moreover the size of firms does neither affect the relationship between
working capital policies and stock return nor the risk/ return tradeoff. Makori and Jagongo (2013) analyze the
effect of working capital management on firm’s profitability in Kenya for the period 2003 to 2012. For this
purpose, balanced panel data of five manufacturing and construction firms each which are listed on the Nairobi
Securities Exchange (NSE) is used. Pearson’s correlation and Ordinary Least Squares regression models were
used to establish the relationship between working capital management and firm’s profitability. The study finds a
negative relationship between profitability and number of day’s accounts receivable and cash conversion cycle,
but a positive relationship between profitability and number of days of inventory and number of day’s payable.
Moreover, the financial leverage, sales growth, current ratio and firm size also have significant effects on the
firm’s profitability. Based on the key findings from this study it has been concluded that the management of a
firm can create value for their shareholders by reducing the number of day’s accounts receivable.
Korankye and Adarquah (2013) empirically analyses working capital management and its impact on
firm profitability. Panel data was obtained from the financial statements of listed manufacturing firms in Ghana
from 2004 to 2011 inclusive. In all, six (6) out of seven (7) manufacturing firms quoted on the Ghana Stock
Exchange with complete financial data constituted the research sample. This paper uses working capital cycle
and gross operating profit margin as proxies for working capital management and profitability respectively.
Whiles leverage, interest cover and the ratio of current assets to total assets are used as control variables. The
study employs descriptive statistics, Pearson correlation and ordinary least squares regression analyses. The
results reveal that working capital cycle significantly affects firm profitability negatively. This means that less
profitable listed manufacturing firms in Ghana have longer working capital cycle. From the correlation analysis,
the study also finds that inventory turnover period, account receivables collection period and account payables
payment period each negatively correlates with profitability. Finally while leverage negatively but significantly
relates to profitability, interest cover and the ratio of current to total assets have significantly positive relation
with profitability. Panigrahi (2013) examines the relationship between inventory conversion period and firms’
profitability. The dependent variable, gross operating profit is used as a measure of profitability and the relation
between inventory management and profitability is investigated for a sample of five top Indian cement
companies over a period of ten years from 2001-2010. This study employs Regression analysis to determine the
impact of inventory conversion period over gross operating profit taking current ratio, size of the firm, financial
debt ratio as control variables. The results indicate that there is a significant negative linear relationship between
inventory conversion period and profitability. The results of this research are in line with the previous findings.
The findings indicate that Inventory conversion period has an inverse relationship with firms’ profitability. It
was found that, the firms’ profitability as measured by GOP has a negative relationship with financial debt ratio.
This implied that profitability increases with decrease in financial debt ratio. Furthermore in this study the
relationship between the firm size and GOP was positive which indicates that profitability increases with an
increase in firm size. The relationship between current ratio and the GOP was negative.
Mwangi, Makau and Kosimbei (2014) investigate the effect of working capital management on the
performance of non-financial companies listed in the Nairobi Securities Exchange (NSE), Kenya. The study
employed an explanatory non-experimental research design. A census of 42 non-financial companies listed in the
Nairobi Securities Exchange, Kenya was taken. The study used secondary panel data contained in the annual
reports and financial statements of listed non-financial companies. The data were extracted from the Nairobi
Securities Exchange hand books for the period 2006-2012.The study applied panel data models (random effects).
Feasible Generalised Least Square (FGLS) regression results revealed that an aggressive financing policy had a
significant positive effect on return on assets and return on equity while a conservative investing policy was
found to affect performance positively. The study recommended that managers of listed non-financial companies
should adopt an aggressive financing policy and a conservative investing policy should be employed to enhance
the performance of non-financial companies listed in the NSE, Kenya. Ikpefan and Owolabi (2014) investigate
the relationship between working capital management and profitability using Nestle Nigeria Plc and Cadbury
Nigeria Plc as case studies. The study used correlation and regression analysis to analyse data. Quick ratio was
used to measure liquidity, current ratio, trade receivable collection and trade payables payment periods were

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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

used as efficiency variables to capture the working capital management policy adopted by these companies while
return on equity was used as the profitability variable. Liquidity and efficiency variables were correlated against
return on equity. The study found a negative relationship between the liquidity, two of the efficiency ratios and
return on equity for Nestle Nigeria Plc while it found a positive relationship between the liquidity, efficiency
ratios and return on equity of Cadbury Nigeria Plc.
Gamayuni (2015) tests empirically the relationship between intangible assets, financial policies, and
financial performance on the firm value at going-public company in Indonesia. Path analysis was used to
ascertain the relationship between intangible assets, financial policies, financial performance, and firm value at
going-public company in Indonesia in the year 2007 to 2009. This study also provides empirical evidence that
Intangible assets, financial policies, financial performance have significant influence to the firm value
simultaneously. Intangible assets have no significant influence to financial policies, but has positive and
significant influenced to financial performance (ROA) and firm value. Debt policies and financial performance
(ROA) influenced firm value positive and significant. Financial statements limitation in measuring and
disclosing intangible assets is the cause of significant difference between book value equity and market value
equity. Measurement and disclosure of intangible assets (intellectual capital) precisely and accurately is very
important, because intangible assets have a positive and significant effect on the firm value.
Yahaya, Kutigi and Mohammed (2015) investigate whether or not financial performance can be
explained by the elements of the country specific characteristics. Fourteen country specific characteristics were
tested over a period of ten years (2004-2013) using panel data collected from 15 listed deposit money banks in
the Nigerian Stock Exchange against two dependent variables used to measure financial performance (gross
earnings to total assets and changes in gross earnings). The explanatory variables include foreign direct
investment as a percentage of gross domestic product, inflation rate, exchange rate, interest rate, per capita
income, GDP growth rate, gross domestic product constant price, unemployment rate and age as a control
variable. It is found that financial performance is significantly affected by interest rate, change in foreign direct
investment, inflation rate and GDP growth rate. However, financial performance is negatively related to per
capita income, age, exchange rate and GDP. The study provides some evidence to support the theory of the firm
and the general systems theory. The results consistently support the link between bank financial performance and
some country specific characteristics. The study finds no evidence to establish any relationship between bank
financial performance and unemployment rate, GDP by constant prices, FDI nominal value, change in PCI,
change in inflation rate, and change in GDP growth rate.

3. Data and Methodology

This section discusses the data collection and research methodology. Sample of 15 was selected from the
population of 21 deposit money banks listed in Central Bank of Nigeria website. The sample is made up of the
15 listed deposit money banks on the floor of the Nigerian Stock Exchange. Data was collected from Nigerian
Stock Exchange factbook and individual bank’s annual reports for 2010 to 2014 financial periods. Empirical
analysis is done on panel data, according to scholars, it controls for individual heterogeneity and multi-
collinearity (Kyereboah-Coleman, 2007). An ordinary linear regression model (OLS) was estimated and tested as
follows:
ROTAi,t = α + β1CBBi,t + β2FAHTi,t + β3DASSi,t + β4LABi,t + β5LACi,t + ε
Whereas:
ROTA = Return on Total Assets
α and β1 to β5 are beta coefficients respectively
CBB = Cash and bank balances
FAHT = Financial assets held for trading
DASS = Derivative assets are set of explanatory variables
LAB = Loans and advances to banks
LAC = Loans and advances to customers and
ε is the error term, i, t are bank and time scripts

4. Results and Discussions

The section presents the empirical findings and analysis of the data. First are the descriptive statistics, followed
by correlation results and regression results. The descriptive statistics of dependent variables and explanatory
variables are reported in Table I using IBM SPSS Statistics 22. It shows the average indicators of variable
computed from the annual reports of listed deposit money banks in Nigeria.

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International Journal of African and Asian Studies www.iiste.org
ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

Table I Descriptive Statistics

N Range Minimum Maximum Mean Std. Deviation Variance
Statistic Statistic Statistic Statistic Statistic Std. Error Statistic Statistic
ROTA 75 .07 .00 .07 .0199 .00164 .01419 .000
CCB 75 2.09 3.82 5.91 5.0523 .06180 .53519 .286
FAHT 75 5.83 .00 5.83 4.1488 .15798 1.36818 1.872
DASS 75 4.80 .00 4.80 2.1693 .21515 1.86321 3.472
LAB 75 5.76 .00 5.76 4.5258 .13522 1.17108 1.371
LAC 75 1.71 4.65 6.36 5.6289 .04343 .37611 .141
Valid N
75
(listwise)
Source: IBM SPSS Statistics 22 Output
From table I, the average statistic value of return on total assets is 2% with a standard error of 0.16%. It
has a standard deviation statistic value of 1.42% and a variance statistic value of 0.0%. It has a range statistic
value of 7% with a minimum statistic value of 0.0% and maximum statistic value of 7%. The mean statistic
value of cash and bank balances is 5.05 with a standard error of 0.06. It has a standard deviation statistic value of
0.535 and a variance statistic value of 0.286. It has a range statistic value of 2.09 and a minimum statistic value
of 3.82 and a maximum statistic value of 5.91. Also, the average statistic value of financial assets held for
trading is 4.15 with a standard error of 0.157. It has a standard deviation statistic value of 1.37 and a variance
statistic value of 1.87. It has a range statistic value of 5.83 with a minimum statistic value of 0.0 and maximum
statistic value of 5.83. The mean statistic value of derivative assets is 2.17 with a standard error of 0.215. It has a
standard deviation statistic value of 1.86 and a variance statistic value of 3.47. It has a range statistic value of 4.8
with a minimum statistic value of 0.0 and maximum statistic value of 4.8. The average statistic value of loans
and advances to other banks is 4.53 with a standard error of 0.135. It has a standard deviation statistic value of
1.17 and a variance statistic value of 1.37. It has a range statistic value of 5.76 and a minimum statistic value of
0.0 and a maximum statistic value of 5.76. Finally, the mean statistic value of loans and advances to customers is
5.63 with a standard error of 0.04. It has a standard deviation statistic value of 0.376 and a variance statistic
value of 0.141. It has a range statistic value of 1.71 and a minimum statistic value of 4.65 and a maximum
statistic value of 6.36.
The multiple correlation analysis calculates the correlation between variables and is used to measure the
strength of linear association between two or more variables. Two types of multiple correlation analyses are
easily available: Pearson product moment correlation and Spearman correlation analysis. For the purpose of this
study, the Pearson product moment correlation analysis was used to analyze the relationship between current
assets management and financial performance of deposit money banks in Nigeria. The results of the correlation
coefficients are reported in table II.
Table II Correlation Matrix
VARIABLE ROA CCB FAHT DASS LAB LAC
Pearson ROTA Correlation Coefficient 1.000 .292* .307** -.111 -.083 .347**
Sig. (2-tailed) . .011 .007 .344 .479 .002
N 75 75 75 75 75 75
CCB Correlation Coefficient .292* 1.000 -.066 -.004 .165 .838**
Sig. (2-tailed) .011 . .571 .975 .158 .000
N 75 75 75 75 75 75
FAHT Correlation Coefficient .307** -.066 1.000 .080 -.020 .008
Sig. (2-tailed) .007 .571 . .497 .864 .947
N 75 75 75 75 75 75
DASS Correlation Coefficient -.111 -.004 .080 1.000 .275* .123
Sig. (2-tailed) .344 .975 .497 . .017 .295
N 75 75 75 75 75 75
LAB Correlation Coefficient -.083 .165 -.020 .275* 1.000 .392**
Sig. (2-tailed) .479 .158 .864 .017 . .001
N 75 75 75 75 75 75
LAC Correlation Coefficient .347** .838** .008 .123 .392** 1.000
Sig. (2-tailed) .002 .000 .947 .295 .001 .
N 75 75 75 75 75 75
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Source: IBM SPSS Statistics 22 Output

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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

Table II shows that the relationship between cash and bank balances and return on total assets is
positive and significant (t = 0.292, p = 0.011). This leads to the acceptance of the alternate hypothesis which
states that cash and bank balances have a positive impact on the financial performance of deposit money banks.
This is not surprising since we expect that the cash and bank balances with the bank are available to the bank to
take on investment opportunities available. Also, table 2 shows that the relationship between financial assets held
for trading and return on total assets is positive and significant (t = 0.307, p = 0.007). This leads to the
acceptance of the alternate hypothesis which states that financial assets held for trading have a positive impact on
the financial performance of deposit money banks. Similarly, the relationship between derivative assets and
return on total assets is negative and not significant (t = -0.111, p = 0.344). This leads to the acceptance of the
null hypothesis which states that derivative assets have negative impact on the financial performance of deposit
money banks. Also, the relationship between loans and advances to banks and return on total assets is negative
and not significant (t = -0.083, p = 0.479). This leads to the acceptance of the null hypothesis which states that
loans and advances to banks have negative impact on the financial performance of deposit money banks. This
result is expected since the money with other banks does not earn sufficient interest income when compared with
loans and advances to customers. Finally, the relationship between loans and advances with customers and return
on total assets is positive and significant (t = 0.347, p = 0.002). This leads to the acceptance of the alternate
hypothesis which states that cash and bank balances have a positive impact on the financial performance of
deposit money banks. This result is expected since deposit money banks actually make money by way of
granting loans and advances to customers to earn interest income.
The results of regression analysis are reported in tables III and IV. The adjusted R2 which is 95.1% measures the
extent to which variability in return on total assets is explained by the explanatory variables.
Table III Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .981a .963 .951 143.61 1.145
a. Predictors: (Constant), LAC, FAHT, DASS, LAB, CCB
b. Dependent Variable: ROA
Source: IBM SPSS Statistics 22 Output

Table IV Regression Coefficientsa

Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -.043 .025 -1.717 .090
CCB .001 .005 .038 .197 .844
FAHT .003 .001 .248 2.177 .033
DASS -.001 .001 -.157 -1.332 .187
LAB -.004 .002 -.294 -2.179 .033
LAC .012 .008 .309 1.450 .152
a. Dependent Variable: ROA
Source: IBM SPSS Statistics 22 Output
From table III, the Durbin-Watson statistic is 1.145, which is slightly higher than 1.0, suggesting that
there is no autocorrelation problem in the study data (Durbin & Watson, 1951). A further analysis by multiple
regression as shown in table IV shows that the relationship between financial assets held for trading and return
on total assets are positive and significant (β = 0.248, p = 0.033) and the relationship between loans and
advances to other banks and return on total assets are negative and significant (β = -0.294, p = 0.033).

5. Conclusions and Recommendations

Many scholars have conducted studies on the association between current assets management and financial
performance of firms and have proposed various theories to explain the association. But the issue is still under
debate. This study attempts the following question: to what extent does current assets management influences the
financial performance of deposit money banks in Nigeria? A multiple correlation and regression model is applied
on 15 deposit money banks listed in Nigerian stock exchange. Results show that the management of cash and
bank balances, financial assets held for trading and loans and advances to customers have positive and
significant impact in determination of the financial performance of deposit money banks in Nigeria. Similarly,
results show that the management of derivative assets and loans and advances to other banks has negative impact
on the financial performance of listed deposit money banks in Nigeria. From the findings of this study, it is
evident that deposit money banks that manage their cash and bank balances, financial assets held for trading and
loans and advances to customers properly will be more profitable for shareholders. The results are in line with
the previous studies. Overall, the study concludes on the basis of the empirical findings that listed deposit money
banks having well managed current assets tend to have a better financial performance. This study contributes to

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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.13, 2015

the literature of current asset management and firm financial performance, since we find significant effect of
current assets on profitability of listed deposit money banks in Nigeria. There is a need to further analyze with
respect to effects and factors that can determine the influence of current asset management on financial
performance of listed deposit money banks in Nigeria. Further study may extend the present study by the use of
generalized model to examine the behaviour of current assets components.

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