Abstract

AN ANALYSIS OF RANDOM EFFECTS RESULTS OF THE NET PROFIT MARGIN (NPM) MODEL IN EXPLAINING THE RELATIONSHIP BETWEEN PROFITABILITY AND CORE COMPONENTS OF WORKING CAPITAL MANAGEMENT (A STUDY OF SELECTED MANUFACTURING COMPANIES IN NIGERIA)

Dr. Aminu Yusuf

Volume: 9 Issue: 3 2019

Abstract:

The random effect model is also called random intercepts or partial pooling model. The rationale behind random effects model is that, unlike the fixed effects model, the variation across entities is assumed to be random and uncorrelated with the predictor or independent variables included in the model This paper analyzed a total no. of 55 manufacturing companies in Nigeria. Findings from the random effects model of the Net Profit Margin (NPM)model revealed that the average collection period (ACP) and inventory conversion period (ICP) were negatively and significantly related to the net profit margin (NPM) with coefficient values of -0.6466 and -0.7807 respectively. The negative relationship connotes that, as either of these variables is low, then the NPM increases. The result also signifies that the average payment period (APP) was positively and significantly related to the net profit margin (NPM) with coefficient values of 0.6204. The result depicts that when the variable is low, then the NPM will also be low, and vice-versa. On that note, it is recommended that manufacturing companies should hasten up their accounts receivables and delay accounts payables.

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