Working Capital Efficiency and Financial Performance of Listed Pharmaceutical Companies in Nigeria

Abstract

This study investigates the relationship between working capital efficiency and financial performance among listed pharmaceutical companies in Nigeria. The analysis uses Data Envelopment Analysis (DEA) to assess the efficiency of these companies, considering both their operational scale and financial performance. The study distinguishes between technical efficiency and scale efficiency, providing a nuanced understanding of how working capital management impacts overall financial performance. The study also reveals varying returns to scale among the entities: PZC, FHP, and GSK show constant returns to scale (CRS) in one measure but face decreasing returns to scale (DRS) in another, suggesting potential inefficiencies when scaling up. In contrast, MBP, MIP, and NIP exhibit increasing returns to scale (IRS), indicating opportunities for efficiency gains through expansion. Recommendations, including the need for PZC and FHP to manage growth carefully to sustain efficiency, while entities like MBP, MIP, and NIP should consider scaling operations to leverage IRS. PDK, with its low efficiency and DRS, requires immediate process optimization and cautious scaling strategies to ultimately improve financial performance.