`TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
1.2 Statement
of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research
Hypothesis
1.6 Significant
& Justification Of the Study
1.7 Scope&
Limitation of the Study
1.8 Definition
of Terms
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1 About the Tourism and Hotel Industry
2.2 Conceptual Framework
2.3 Theoretical
Framework
2.4 Empirical Review and Studies
2.5 Components of working
capital management (WCM)
2.6 Analysis of Working Capital Position
2.7 Determinants of Financial Performance of
Hospitality Industries
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Population
of the Study
3.3 Research
Design
3.4 Sample
Techniques and Sample Size
3.5 Data
Collection Instrument and Validation
3.6 Validity and Reliability
3.7 Method
of Data Analysis
3.8 Operationalization of Variables
3.9 Limitation
of the Methodology
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND DISCUSSION OF
FINDINGS
4.1 Preliminary
Data Analysis
4.2 Test of
Hypotheses
CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary
5.2
Summary of Findings
5.3 Recommendations
5.4 Conclusion
Reference
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Every business needs investment to
procure fixed assets, which remain in use for a longer period. Money invested
in these assets is called ‘Long term Funds’ or ‘Fixed Capital’. Business also
needs funds for short-term purposes to finance current operations. Investment
in short term assets like cash, inventories, debtors etc., is called ‘Short-term
Funds’ or ‘Working Capital’. Working capital refers to that part of the firm's
capital which is required for financing short term or current assets such as
cash, marketable securities, debtors and inventories. Funds, thus, invested in
current assets keep revolving fast and are being constantly converted into cash
and this cash flow out in exchange for other current assets. Hence it is also
known as circulating capital or revolving capital or short term capital. The
‘Working Capital’ can be categorized, as funds needed for carrying out
day-to-day operations of the businesss moothly. The management of the working
capital is equally important as the management of long-term financial investment.
According to Genestenberg:-
"Circulating capital means current assets of a company that are changed in
the ordinary course of business from one form to another, as for example, from
cash to inventories, inventories to receivables into cash."
The working capital is needed for the
following purposes:-
1.
For the purchase of raw
materials, components and spares.
2.
To pay wages and salaries.
3.
To incur day-to-day
expenses and overhead costs such as fuel, power and office expenses etc.
4.
To meet the selling costs
as packing, advertising etc.
5.
To provide credit
facility to customers.
Working capital policy is an
important issue in any organization because without the proper management of
working capital components it will be difficult for the organizations to run
its operations smoothly. Working capital management is significant due to the
fact that it plays a vital role in keeping the wheels of the business running
(Lawrence and Charles, 1985). Its effective provision can ensure the success of
a business while its inefficient management can lead not only to losses but
also to the ultimate downfall of what might otherwise be a promising concern.
Business success heavily depends on the ability of financial executives to
effectively manage receivables, inventory, and payables (Filbeck and Krueger,
2005).
Furthermore working capital policy
has been major issue especially in developing countries. Adequate working
capital needs to be maintained in order to discharge day-to-day liabilities and
to protect the business from adverse effects (Sayaduzzaman, 2006; Siddiquee and
Khan, 2009). It aims at protecting the purchasing power of assets and maximise
the return on investment.
Working
capital is basically the portion of asset required by a business in current
operations. In its gross form, it is the investment in current assets. However,
it can also be described in its net form as the difference between current
assets and current liabilities. In most organizations, current assets occupy a
significant portion of the total asset structure. This invariably requires
efficient management of it. Working capital management is concerned with
managing the different components of current assets (inventories,
debtors/receivables, cash/bank, short-term investments, prepaid expenses) and
current liabilities (creditors/payables, provision for tax, other provisions
against the liabilities payable within a period of 1 year).
The
issues involved in managing working capital of any firm are concerned with the
management of the firm’s inventory, cash, marketable securities, receivables
and payables etc, In order to achieve a proper balance between risk and return.
A well-designed and implemented working capital management must contribute
positively to the creation of a firm's value (Zirayawati et al., 2009;
Afza and Nazir, 2007). For maximising profits or minimising of working capital
cost or to maintain a balance between liquidity and profitability, there is a
need to optimise working capital (Padachi et al., 2008). Too little
investment in working capital i.e. aggressive working capital policy can lead
to disruption in production, increases the risk of not being able to meet the
financial obligations and impairs profitability. At the same time a
conservative financing policy i.e. too much investment in working capital means
idle funds that can earn no profit but involves cost. So, a financial manager
has to be vigilant in maintaining appropriate levels of working capital.
1.2 Statement
of the Problem
The main problem of this study is poor
profitability of hospitality companies and this is attributed to ineffective
management of working capital.
Invariably a company must neither keep excess
inventory to avoid unnecessary tying down of fund as well as loss in fund due
to pilferage, spoilage and obsolescence nor maintain low inventories so as to
meet production and sales demand as at when due.
These pose a problem to managers. And can be
further discuss in the following ways.
1.
The cause of over and under
inventory in an organisation
2.
Decrease in company’s
profitability as a result of ineffective inventory management.
3.
The deviation between inventory
management and production.
1.3 Objectives of the Study
The main objective of this study is
to evaluate and determine the effect of working capital on the profitability of
hospitality industries. Specifically, this research work stands to achieve the
following objectives:
1.
To examine how working
capital can be effectively managed to enhance high profitability in Nigeria
hospitality companies.
2.
To examine the
relationship between working capital and the performance of Nigeria
manufacturing company.
3.
To determine the cause of
poor working capital management as it affect profitability.
4.
To establish the
relationship between working capital and profitability of hospitality
industries.
1.4 Research Questions
1.
How can working capital
be effectively managed to enhance high profitability in Nigeria hospitality
companies?
2.
What are the relationship
between working capital and the performance of Nigeria hospitality companies?
3.
How can poor working
capital management as it affect profitability of hospitality companies?
4.
What are the relationship
between working capital and profitability of hospitality industries?
1.5 Research
Hypothesis
Subject to the above stated
objectives, the hypotheses developed to be tested in this study was:
H0: Effective management of working capital does
not significantly enhance high profitability in Nigeria hospitality companies.
H0: There are no relationship between working
capital and the performance of Nigeria hospitality companies.
H0: Poor working capital management does not
affect profitability of hospitality companies.
1.6 Significant
& Justification Of the Study
The
study will increase awareness on the effect of working capital on the
profitability of hospitality industries and suggest measures in managing
working capital effectively. It will also reveal the problems caused by bad
management of working capital and be useful to researchers, scholars, and other
third parties as it shall open new area of further research work and at same
time advance challenges to up-coming researchers.
1.7 Scope&
Limitation of the Study
The effect of working
capital aids management effectiveness in an organization (Chukwu, 2008). The
study will focus on the effect of working capital
on the profitability of hospitality industries and
due to the logical point that not every hospitality companies can be studied as
a result of time and resources available, this research is therefore limited to
Radisson blu anchorage hotel.
1.8 Definition
of Terms
1.
WORKING CAPITAL: Working
capital refers to that part of the firm's capital which is required for
financing short term or current assets such as cash, marketable securities,
debtors and inventories.
2.
HOTEL: These are
companies that are engaged in hospitality business.
3.
LIQUIDITY: Ability of a company to meet his financial
need as at when due.
4.
PROFITABILITY: Ability of
a business entity to make profit. It means excess of revenue over expenses for
a certain period usually a year period.
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