Most healthy Nigeria Exchange (NGX) listed companies trade at a share price well above their net working capital per share (NWCPS) as investors are optimistic about their ability to manage their short-term assets and liabilities.
Data gathered by MoneyCentral shows twenty-six out of thirty-seven listed firms’ share price exceeds net working capital because investors pay extra for their future earnings power.
Price to net working capital is a financial metric that compares a company’s closing stock price to its net working capital per share. Net working capital is calculated as the difference between total current assets and total current liabilities, representing the short-term liquidity available to a company to meet its operational needs. This ratio provides insight into how much investors are willing to pay for each unit of net working capital, reflecting the company’s operational efficiency and liquidity position.
A higher ratio gives investors the confidence that the company has sufficient liquidity to meet obligations to suppliers and run its operation on a daily basis without relying on capital injection or borrowing.
Seplat Energy Plc share price closed at N11, 363.90 on August 14 in Lagos, which compares with net working capital per share of N148.37, according to MoneyCentral calculations.
Transnational Corporation of Nigeria (Transcorp) Plc, (Share price: N37 vs. NWCPS: N15.13). Julius Berger Plc, (Share price: N310.80 vs. NWCPS: N233.58); BUA Foods, (Share price: N310.80 vs. NWCPS: N233.58); International Breweries, (Share price: N10.50 vs. NWCPS: N0.89); Nascon Allied Industries, (Share price: N195 vs. NWCPS: N17.75); Unilever Nigeria, (Share price: N118.30 vs. NWCPS: N13.67); Fidson Healthcare, (Share price: N93.55 vs. NWCPS: N9.78), and BUA Cement, (Share price: N316 vs. NWCPS: N1.77).
Others are: Transnational Corporation, (Share price: N316 vs. NWCPS: N1.77); Okomu Oil, (Share price: N1418 vs. NWCPS: N20); Presco Nigeria, (Share price: N1418 vs. NWCPS: N20), and Beta Glass, (Share price: N562.80 vs. NWCPS: N140.05).
On the other hand, investors expect some companies with negative net working capital to lose money as they may not be able to clear unpaid customer bills or reduce inventories. Also, investors are not optimistic that these firms are going to meet short-term obligations, which is a recipe for financial distress.
Oando Plc has a negative net working capital of (-N6.90); TotalEnergies Marketing, (-N35.92); Aradel Holdings, (-N242); Cadbury Plc, (-N2.59); Champion Breweries, (N1.18); Dangote Sugar Refinery (-N380); Guinness Nigeria, (N28.11); Nestle Nigeria, (-N45.69), and Dangote Cement –(N15.56).
The pause on hiking of the monetary policy rate by the central bank is boon for companies whose debts have reduced and profit risen. Of course, the relative stability in the foreign exchange market has led to a sharp reduction in foreign exchange revaluation losses.
It is important to note that the aforementioned gradual macroeconomic stability is strengthening investors’ appetite towards the country’s equity market.
The NGXASI index has returned 56.01 percent year to date (YTD), one of the best performers among its Africa peers.
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