ABSTRACT
The most important resource needed to established and
effectively run a business certain cash. A company’s cash requirement are
planted out in the form of cash flow statement cash flow statement provides
information about cash receipt and cash payments of an enterprise over a given
period of time. It indicates the pattern of cash generation and utilization. It
reveals how cash is generated from
operation and how payment are made such as taxes, dividends and debts. The
knowledge go a way in determine the financial strength of that enterprise.
The work of others had done research textbooks, journals,
hand-outs, seminar, workshops and conference were reviewed in course of this
project.
The research instrument used in respect of this study is
questionnaire and interview question are design on close ended format to enable
the respondent provides answers to questionnaire easily and to make it very
easy for the researcher to control and analyze responses.
It was also observed that with cash management strategies
such as cash planning managing cash flow, investing surplus cash of idle cash
and keeping optimal cash balance etc contributes effectively in cash flow
management.
TABLE OF CONTENT
COVER
PAGE…………………………………………………………………………i
TITLE
…………………………………………………………………………………ii
APPROVAL…………………………………………………………………………..iii
DEDICATION…………………………………………………………………………IV
ACKNOWLEDGEMENT……………………………………………………………V
TABLE OF
CONTENT…………………………………………………………………VII
ABSTRACT
…………………………………………………………………………..VIII
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE
STUDY…………………………………………………….3
1.2 STATEMENT OF THE PROBLEM…………………………………………………7
1.3 PURPOSE OF THE
STUDY………………………………………………………….10
1.4 SIGNIFICANT OF THE
STUDY……………………………………………………12
1.5 RESEARCH HYPOTHESIS………………………………………………………….14
1.6 RESEARCH QUESTION…………………………………………………………….15
1.7 SCOPE OF THE STUDY………………………………………………………………16
1.8 DEFINITION OF
TERMS…………………………………………………………….16
CHAPTER TWO
LITERATURE REVIEW
2.1
RESEARCH QUESTION/HYPOTHESIS MODELS/THEORIES……………………20
2.2
CURRENT LITERATURE ON THEORY/MODELS…………………………………23
2.3
SUMMARY OF LITERATURE REVIEW……………………………………….35
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 DESIGN OF THE
STUDY……………………………………………………………..36
3.2
AREA OF THE STUDY………………………………………………………………….36
3.3 POPULATION
OF THE STUDY………………………………………………………..37
3.4
SAMPLE OF THE STUDY………………………………………………………………37
3,5
INSTRUMENT FOR DATA COLLECTION…………………………………………..38
3.6
VALIDATION OF THE
INSTRUMENT………………………………………………39
3.7
DISTRIBUTION AND RETRIEVAL OF THE INSTRUMENT……………………...39
3.8
METHOD OF DATA ANALYSIS……………………………………………………40
CHAPTER
FOUR
DATA PRESENTATION AND ANALYSIS
4.1
DATA PRESENTATION AND INTERPRETATION…………………………………….41
4.2
FINDINGS………………………………………………………………………………42
4.3
DISCUSSION OF THE FINDINGS………………………………………………………….43
CHAPTER
FIVE
SUMMARY,
CONCLUSION AN RECOMMENDATIONS
5.1
SUMMARY OF FINDINGS…………………………………………………………….43
5.2
CONCLUSIONS………………………………………………………………………..43
5.3
RECOMMENDATIONS………………………………………………………………….43
5.4
LIMITATION OF STUDY……………………………………………………………..44
CHAPTER ONE
1.0 INTRODUCTION
Cash
is the most liquid asset of any super market store. All supper market store whether
large or small receive and pay out certain amount of cash in the process of
business transactions.
Consequently
for a company to have enough liquidity to meet its current obligation it
requires good and efficient management for the fact the cash inflows and out
flows are differently timed.
Cash is the basic input and the
ultimate output and is made up of currency and demand deposit, the latter being
more important for many super market stores.
Cash requirement tend to rise in
proportion to the volume of transactions to ensure that the current liabilities
are settled at the appropriate time, sufficient liquid assets should be
maintained. Furthermore, there are other demands upon which the stores demand
for cash such as cash payment of interest, dividend, and creditors for good
supplied, repayment of the bank loans etc.
The importance of cash management
cannot be over emphasized as the determination and maintenance of adequate cash
or near – cash items (marketable securities) cannot be treated with indifference
of those demand upon the industry for cash are to be met as when due. How much
of the cash or marketable securities is to be held at any point in time involve
fundamental decisions to be considered in relation to the firm’s liquidity and
its cash payment. Such decision can be influenced by the availability of
profitable investment opportunity. The opportunity cost of keeping a high level
of cash balance is the interest that could have accrued to the firm if the cash
has been invested. Conversely, to maintain a low level of cash can force a firm
to accept quite consideration constraints upon its freedom of action.
What
amount of cash balance should a firm keep? How can this amount of cash balance
be arrived at? These are more similar questions, which can only be resolved by
carefully examining the following issues.
1. Why
do companies or industries hold cash and marketable securities?
2. What
are the objectives of industries, which require cash management policy?
3. What
are the factors that can influence industry’s level of cash balance? The study
shall provide answers to the above questions and identify the benefits of
operating a good cash management.
1.1
BACKGROUND
OF THE STUDY
This
study helps the reader to understand the pertinence of the of the study and to
appreciate its importance to education. The researcher having observed that
cash flow as its name suggest it is movement of money into and out of a
business as goods are bought and sold. Therefore cash flow management was
developed in early part of the century, it was considered primarily as part of
economics.
Cash
flow management system involves the system of cash flow statements, which on
January 1st 1998; the Nigeria Accounting Standard Board (NASB)
issued Statement of Accounting Standard (SAS NO 18). A statement of cash flow
presents cash flows according to the activities, which gave use to them. This
statement of cash flow includes all cash inflows and outflows of the firm. It
should however exclude cash flows arising from the purchase and liquidation of
cash equivalents. However the following are the need for cash flow information.
Financial statements usually provide information to help present and potential
investors, creditors and other assets to access the profitability, liquidity,
financial flexibility and risk of an industry.
a. A
statement of cash flows on its own will not provide all the information
required by investors to access the profitability, liquidity, financial
flexibility and risk of a particular firm. Much of this information will be
provided by a combination of the balance sheet, profit and loss account and the
statement of cash flows when taken together with related disclosure.
b. The
profit and loss account will provide information on profitability. Cash flow
information adjusted to eliminate the leads and lags created by the allocations
associated with accrual accounting, gives an indication of the relationships
between earnings and cash flows and therefore of the quality of earnings.
c. The
balance sheet provides information on the structure of the assets, liabilities
and equity of a firm at a point in time.
d. Investors
and creditors are interested in the ability of a firm to generate sufficient
cash flow to pay dividends and interest on its equity and dept respectively on
a sustainable basis.
The
management is responsible for the inadequate cash flow in an industry. The most
important resources needed to establish and effectively run a business concern
is cash but there are some obstacles towards it. Therefore the problem of cash
flow management lies on the following points:
a. Inadequate cash needed in a firm to meet its obligations
or payment
b. Idle
cash not invested to yield interest or income, which will increase profit of
the firms.
c. Delay
in the provision of cash would disrupt other activities that follow it.
d. Improper
marketing of funds and activities would lead to a high cost of a loan is
retired and a new one is raised for the same project.
e. Improper
evaluation of projects would lead to losses that should be registered.
However,
the following are the source of cash inflow in an industry.
i.
Profit before tax
ii.
Profit on sake of fixed assets
iii.
An adjustment not involving the movement
of funds or cash
iv.
Other sources of cash like proceed from
fixed assets, issue of new shares etc.
v.
Profit on sake of fixed assets
vi.
An adjustment not involving the movement
of funds or cash
vii.
Other sources of cash like proceed from
fixed assets, issue of new shares.
1.2
STATEMENT
OF PROBLEM
The
problem associated with the cash management in an industry, which motivate the
researcher to embark on is that without cash or where it is short supply the
normal flow of operation of the cooperation erasure of being disrupted.
However, cash is not directly productive, it is sterile. It neither produces
goods for sales nor induces customers to
buy as it is in the case of other assets like fixed assets, inventories and
account receivable. As a result of this, the good cash flow management should
maintain the right amount of cash. Without paying directly or indirectly for
holing it and to invest excess cash in profitable ventures. Does the
determination of these goods required accurate timing of cash flow and the
amount of cash balance to be closely monitored.
The
problem that is also facing the finance manager is the difficult in.
Does
the determination of these goods requires accurate timing of cash flow and the
amount of cash balance to be closely monitored. The problem that is also facing
the finance manager is the difficulty in timing of payment and receipts. The
required cash flows do not coincide with cash outflows at other times more cash
flows than in it receipts and payment period could ne matched perfectly and
forecast with certainty, then a firm would need no cash balance. Does shortage
of cash contract prevent operations of the company, which usually manifest in
the inability of the industry or time to pay bill when due, and the dissipation
of assets? Persistence of cash shortage can lead to financial insolvency, which
may subsequently lead to liquidation of industry. Does too much cash that are
not invested lead the industry in paying directly or indirectly for the money
that is not used? And does the industry lose the opportunity of earning
interest and runs and runs the risk of keeping the liquid asset (cash) due to
mismanagement of cash flow. Does the determination of these goods requires
accurate timing of cash flow and the amount of cash balance to be closely
monitored.
The
problem that is also facing the finance manager is the difficulty in. Does
improper evaluation of project lead to looses that would be registered in the
industry, which will be difficult to settle? Does the management face problem
on how to maintain and control optimum cash balance sufficient to meet all
payment despite the difficulties in cash flows throughout the financial period.
1.3
OBJECTIVE
OF THE STUDY
Cash
flow management is principally concerned like any other management process of
planning and control. Although cash is the most vulnerable assets to theft in a
firm, it is a surprising that there is completed lack of formalized cash
management in many industries today, while some industries prepares cash budget
at the beginning of their financial year without any following control
mechanism and more over actual performance are not corresponding with the
budget at the close of the period.
Others rely on monthly bank reconciliation statement, which are often prepared
late for management and management hardly see the weakness or breakdown in cash
management system until cash problem arise.
i.
Therefore the purpose or the intention of
the researcher is to a To find out how short supply of cash is disrupted the
normal flow of operation of the industry.
ii.
To ascertain the extend to which cash
manager find it very difficult in timing
of receipts and payment.
iii.
To find out whether if the idle cash not
invested will have any effect in the industry.
iv.
To determine how loss on the opportunity
of earning interest and the risk of keeping the liquid assets affect the
effectiveness of the industry.
Answer or suggest rise by
the problem of the study.
v.
To find out how short supply of cash is
disrupted the normal. The find out how short supply of cash is disrupted the
normal flow of operation of the industry.
vi.
To ascertain the extend to which cash
manager find it very difficult in timing of receipts and payment.
vii.
To find out whether if the idle cash not
invested will have any effect in the industry.
viii.
To determine how loss on the opportunity
of earning interest and the risk of keeping the liquid assets affect the
effectiveness of the industry.
ix.
Flow of operation of the industry.
x.
To ascertain the extend to which cash
managers find it very difficult in timing of receipts and payment.
xi.
To find out whether if the idle cash not
invested will have any effect in the industry.
xii.
To determine how loss on the opportunity
of earning interest and the risk of keeping the liquid assets affect the
effectiveness of the industry.
xiii.
To find out how short supply of cash is
disrupted the normal flow of operation of the industry.
xiv.
To ascertain the extend to which cash
manager find it very difficult in timing of receipts and payment.
xv.
To determine how loss on the opportunity
of earning interest and the risk of keeping the liquid assets affect the
effectiveness of the industry.
xvi.
To determine how loss on the opportunity
of earning interest and the risk of keeping the liquid assets affect the
effectiveness of the industry.
xvii.
To find out how improper marching of fund
and activities lead to high cost as loan is retired and new one is raised for
the same project.
xviii.
To ascertain the extent of the improper
evaluation of projects lead to losses that registered in the industry.
1. To
determine the extent how management facing problems of how to maintain and
control an optimum cash balance enough to meet all payment.
1.4
RESEARCH
QUESTIONS
Research
questions are those questions researcher asked in order to locate answers to
the research problems. This study seeks to answer the following research
questions.
a) Do
adequate cash needed to meet the firm’s payment or bill provided by the
industry?
b) How
do amount of idle cash held by the firm should be minimized and should be
invested in order to yield interest?
c) What
are the strategies that management map out concern the managing of cash inflow
and cash outflow of industries?
d) How
do management monitor over cash outflows such as purchases, salaries and wages
etc. so that the cash posture of the company will not adversely affected?
e) In
what ways does a firm utilized its cash?
f) How
do management guard over it most liquid and importance resources (cash)?
1.5
RESEARCH HYPOTHESIS
A
hypothesis is a tentative statement, which could be proved right or wrong
through statistical testing.
A
hypothesis therefore is that which is formed so as to guide one in the finding
out whether a situation is really exist and to find a possible solution to such
problem for the purpose of this research work, the following hypothesis were
put forward.
2. Hi: Adequate cash flow management
is needed to put and to continue a
company on a sound business path.
Ho: Adequate cash flow management is not
needed to put and continue a company on a sound path.
3.
HI: A
positive cash flow avails a business of investment opportunities.
1.6
SIGNIFICANCE OF THE STUDY
Cash
inflows and outflows do not always smoothly over a period of time in a seasonal
business cash inflows be high over period of the year than others while some
cash outflow are fairly constant (monthly salaries) while other (dividend
taxation etc.) are usually paid in the year.
This
presents problem as the thing of the inflows and outflows do normally coincide
this problem of how a firm can ensure that inflows are available in right
amount and at the right time to meet obligatory cash outflows brings us to the
significant management.
The
study is there aimed at improving the efficiency and effectiveness of cash
management strategies in industries with a reference to the Pal Breweries Ltd
Oko as case study.
Cash
is the life hold of any business. Without it, the firm dies as a result of this
many businesses both small and large are not doing well.
Therefore,
it is risks to be ignorant of the immense benefit of such a study if a firm
must survive grows, and attain its objects. Also the need for adequate cash for
the firm is to enable the firm to maintain credit rating, take trade discount,
and meet emergencies and take advantage of business opportunities. It is hoped
that the findings and recommendations will assist industries and the business
sector to appreciate the implementation and importance of efficient and
effective cash management. Moreover, this study would help to indicate problems
in cash management and suggest solutions so that such problem can be easily
assessed and checked.
Pal
Breweries Ltd in particular would be in position to review its cash flow
management strategy and improve its machinery for a more effective cash flow
management.
1.7 SCOPE/DELIMITATION OF THE STUDY
The
study covers or concentrate on the information concerning the movement of cash
or cash flows in an industry’s reference to Pal Breweries Ltd Oko Orumba North
Local Government Area Anambra state. The main focus of he study is proper
management of cash inflow and outflow over a particular period of time. The
study can be generalized to other related companies for investment in their
cash flow management.
1.8 LIMITATION
OF THE STUDY.
In human endeavor, there
must be some elements of which would deter him from accomplishing his or her
set goals the accomplishment of the research is what GOD has ordained in spite
of opposing problems from various
angles. Effort was made in this study to carry out through research on the
management of cash flows of industries especially pal breweries industries
limited Oko in Orumba North Anambra State. But the company official were
reluctant to respond to interviews and questionnaire, therefore it is regarded
as one of the constraint.
Another constraint is time the research work was carried
out alongside with the normal academic work, hence there was no enough time to
make the research.
1.9 DEFINITION OF TERMS
For
the purpose of clarity and understanding it is demanded to improve and to
define some technical terms used in this project work.
i.
CASH:
This comprises of cash in hand and demand deposits dominated in Naira and
foreign currencies.
ii.
CASH
FLOW: this includes inflows and outflows of cash and cash
equivalent.
iii.
CASH
EQUIVALENT: are short term, highly liquid investments
that are readily convertible to know amount of cash and, which are subject to
an insignificant risk of changes on value. Generally, they are within three
months for maturity (SAS 18).
iv.
MANAGEMENT:
according to afford dictionary is the control and making of decisions in a
business or similar organization.
v.
CASH
FLOWS STATEMENT: a statement that summarized the effect on
cash of the operating, investing and financing activities of a company for a
period” (Hermanson, Edward, and Rayburn, 1991 page 723).
vi.
BUDGETING:
this is the process of using budget for planning and control A budget for
planning and control. A budget, according to Hornigem et al (1987 page 39). Is
a quantitative expression of plan of action and an aid to coordination and
implementation
vii.
CASH
BUDGET: according to (Abohi, 2001, page 29), is the
quantization of a plan of expected receipts and payments of cash a period of
time.
viii.
CONTROL:
this is management action to ensure conformity wit plan or budget.
ix.
LIQUIDITY:
this is the state of owing things of value that can easily be converted in to
cash.
x.
MARKETABLE
SECURITIES: these are short – term debts instruments
such as treasure bills, commercial certificate of deposit etc. which are easily
convertible to cash.
xi.
MONEY
MARKET: this is the completive market for securities with
maturity of one yes or less.
xii.
OPPORTUNITY COST: rate of returns that
would have been obtained from an alternative investment if it been accepted.
xiii.
WORKING
CAPITAL: this is different
between current assets and current liability of a firm sometime it’s
called net working capital.
xiv.
INSOLVENCY:
technically, insolvency occurs when a firm is unable to pay its bills as they
fall due, legally insolvency occur when.
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