Working Capital Management as a Tool for Cost Minimization and Profit Maximization.
ABSTRACT
The objective of this research work contains working capital management as a tool for minimization and profit maximization with particular reference to Anambra motor manufacturing company, Enugu. The research design used was the survey method and the sources of data were both primary and secondary.
The primary sources were interviews granted to me while the secondary sources of data were obtained from related literatures viz text books, internet, journals by different authors. Primary sources were from interviews and questionnaires.
The data, Hypotheses were tested using chi-square. From the researchers findings, it is seen that profitability of a firm depend on the level of its working capital management. Although working capital management is creating problems in today’s business environment due to global developments of science and applied in business but ANAMMCO tries here best and maintained her liquidity position.
The researcher would recommend that seminars and workshops be organized for the staff and management of the company on the effect and merits of effective and efficient working capital management.
TABLE OF CONTENT
Cover page i
Certification ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the study 1
1.2 Statement of the problem 6
1.3 Purpose of the Study 7
1.4 Significance of the study 8
1.5 Research Questions 9
1.6 Statements of Hypotheses 10
1.7 Scope of the Study 11
1.8 Definition of Terms 12
References 15
CHAPTER TWO
2.0 Review of Related Literature 16
2.1 Working Capital management and its significance to the firm 16
2.2 Definition 16
2.3 Importance of working capital management 20
2.4 The need for working capital 22
2.5 Components of Working Capital 26
2.7 Financial Working capital 46
2.8 Profitability as a measure of the firms performance 48
References 50
CHAPTER THREE
3.0 Research Design and Methodology 52
3.1 Research Design 52
3.2 Sources of Data 52
3.3 Research Instrument 53
3.4 Reliability/validity of Research Instruments 54
3.5 Population 54
3.6 Sample and sampling Technique 55
3.7 Administration of Research Instruments 56
3.8 Method of Data Analysis 56
3.9 Decision Criterion for Validation of Hypotheses 57
CHAPTER FOUR
4.0 Data Presentation, Analysis 58
4.1 Data Presentation 58
4.2 Data Analysis 58
4.3 Testing of Hypotheses 73
CHAPTER FIVE
5.0 Summary of Findings, Conclusion and Recommendations 81
5.1 Summary of findings 81
5.2 Conclusion 83
5.3 Recommendations 84
Bibliography 86
Questionnaire 89
INTRODUCTION
Capital can be classified into two broad categories based on tenure viz. long term and short term capital. The long term capital of firms is committed to investment in fixed assets. It includes shareholders’ funds and long term loans.
On the other hand, short term capital is applied for investment in current assets such as cash, marketable securities and short- term credits. Current assets are usually acquired very often in varying quantities depending on the demand structure for the firm’s product.
Each time a decision to acquire current assets is taken, finance becomes inevitable. However, it does not necessarily mean that cash has to be paid each time an order for recurrent production input is placed, rather it implies that just like in the case of fixed assets, every decision on current assets has financial implications.
For instance, a firm has 12 to decide how much of the material used for production of goods and services are to be on credit or on cash and carry basis. it also has to determine what proportion of its sale has to be on credit.
Also both the optimum and minimum stock levels for raw materials and work-in-progress (WIP) have to be determined and maintained at a given point in time. Orjih (2001:85) refers to working capital as a firm’s investment in short –term assets cash, marketable securities, trade debtors and stock, less current liabilities used to finance the current assets.
He stated that working capital management therefore means the planning and controlling of both current asset and current liabilities. It involves the administration of cash receivables, inventories, marketable securities and the current liabilities.
BIBLIOGRAPHY
Breadley, R. And Myers S.C (1981), Principles of Corporate Finance, USA: McGrew-Hill Companies Inc.
Brookiutou, R.B. (1983), Financial Management, East Leigh: D.P. Publishers
Davidson, S. (1984), Management Accounting, Japan: Sonders International
Hougreen, C.T and Foster (1988) Lot Accounting; A Management Emphasis, New Delhi: Prentice Hall Publisher
Mbachu, A. (1990), A Typical X-ray of Working Capital Management The Nigeian Account 23 (2)
Orjih, J (2001), Financial Management, Enugu: Splash Media Organization.
Pondy, M.I. (2004), Financial Management, New Delhi: Vikes Publishing House.
Retort, J.V (1982), Small Business Management, New York: McGraw Hill.
Star, M.K. and Miller, D.W. (1982), Inventory Control, Theory and Practice, New Jersey: Prentice Hall Publishers
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