Managers' financial practices and financial sustainability of Nigerian manufacturing companies: Which ratios matter most?

Japhet Osazefua Imhanzenobe, David McMillan
2020 Cogent Economics & Finance  
The study aims to identify which aspects of financial practices of managers need to be given priority in achieving a turnaround in the financial sustainability of these manufacturing companies across long-term returns, sustainable growth and financial distress. Currently, the Nigerian manufacturing sector experiences a decline in financial sustainability, thus forcing financially unsustainable companies out of business. Financial practices that improve the long-term financial position and
more » ... position and performance need to be implemented. These financial practices can be measured across short-term profitability, efficiency, liquidity and solvency. Some studies have considered sustainability from a financial perspective using one or two measures but very few focus on the Nigerian manufacturing sector. This study fills these gaps by investigating the impact of financial practices on financial sustainability across these measures. Panel dataset for 17 companies from 2008 to 2016 was collected and analysed using the correlation matrix and random effect model. All regressors were significant in explaining financial distress. However, only shortterm profitability and efficiency ratios were consistently significant across all three models, thus indicating the superiority of financial practices that affect short-term profits and efficiency. The study recommends that companies should implement Japhet Osazefua Imhanzenobe ABOUT THE AUTHOR Japhet Osazefua Imhanzenobe is an expert in accounting and finance. He is a member of faculty at the Pan-Atlantic University, where he lectures in the Accounting department of the School of Management and Social Sciences. He is a member of the Institute of Chartered Accountants of Nigeria and an alumnus of the Venture in Management Programme at the Lagos Business School. He teaches financial accounting, accounting laboratory, financial analytics and the use of the Infoware and Bloomberg market data terminals. His research areas include financial sustainability, financial market efficiency, management accounting and accounting information systems. He is currently carrying out research on factors and aspects of business practices that have a causal effect or at least predictive power on the financial sustainability and longevity of businesses. PUBLIC INTEREST STATEMENT Many investors want to know the key financial ratios to monitor so as to avoid investing in companies that are heading towards bankruptcy. The study aims to identify which aspects of financial practices of managers need to be given priority in achieving a turnaround in the financial sustainability of these manufacturing companies across long-term returns, sustainable growth and financial distress. Data were collected for 17 companies from 2008 to 2016 and analysed using the correlation matrix and random effect model. Short-term profit, efficiency, liquidity and solvency were all found to be significant in explaining financial distress. However, only shortterm profitability and efficiency ratios were consistently significant across all three models. This indicates that profitability and efficiency play a special role in distinguishing financially sustainable companies from unsustainable ones. The study advises managers to pay special attention to business activities that reduce periodic costs and increase productivity.
doi:10.1080/23322039.2020.1724241 fatcat:4quuvuzh5rck7bwtt463po4e3i