EFFECT OF BAD DEBT ON THE PROFITABILITY OF A MANUFACTURING COMPANY IN NIGERIA

Abstract

The study explores the effect of bad debt on the profitability of a manufacturing company in

Nigeria. The study employed an ex-post-facto research design. Data were obtained from the

annual financial statement of the company. Hypotheses formulated were tested using

correlational analysis to test the significant effect between the variables. The findings revealed a

significant positive effect between the debt ratio and the company's profitability. In contrast, bad

debt and credit sales have a negative significant on the profitability of the company. The study

concludes that the compliance of the manufacturing company to bad debt management, such as

timely response to cash conversion cycle and average collection period, enhances the

profitability of the manufacturing firms by increasing the return on assets and equity. Therefore,

the enquiry unit should be established to take responsibility for prospective creditors'

assessments. For control purposes, relevant financial ratios should be computed at the end of

each financial year for comparison purposes.