ABSTRACT
Previously debt
can be talked of when group of societies economic position suffer efficiency.
It was the only time measure of the organization or individual economic
position. At the dawn of the modern economic life, it has been observed that
one can be debtor and get stands to meet his current liabilities provided it is
well manager.
This research
work delves into the business meaning of debt, analyzing its management in
business organization. The fruit of its efficient management in an
organization. The research did not relent in their effort to point out where
and why the impact of debt is felt mostly in business life. It has found that the debt exist through the life of the
time of a business organization from the initial capital outlay, in the time of
further expansion in daily transaction of either with the supplier or the cessation
or liquidation.
A close look at
the Nigerian Bottling company plc Enugu, Coca-cola the research has employed
both primary and secondary sources of data. Primary surces involves oral
interview, the use of practical or personal observation from sources documents.
While secondary
sources on the other hand are the data sources from published textbooks,
journals, national dailies. Observation also reveals that one can be a debtor
as well as a creditor.
A good financial
manager can source fund by debt invest it and to make a profit before the
maturity of debt. To do this, some speculative factor can be considered and
handled so that balance or breakeven of
the risk and return can be sought for and a fairly equilibrium is met.
TABLE OF CONTENT
Title page
Approval page
Dedication
Acknowledgment
Abstract
Table of content
List of table
List of figures
CHAPTER ONE
INTRODUCTION
Background of the study
Statement of the problems.
Purpose of the study.
Scope of the study.
Research questions.
Research hypothesis
Significance of the study
Limitation of the study
Definition of terms
References
CHAPTER TWO.
Review of related literature.
2.1 Meaning of debt management
Classification of debt-management
Analyzing debt management in
relation to organization working capital.
Cost of capital in relation
to debt management technique.
Different school of thought
in debt management
Different types debt –
management
Debt – management in
financing organization capital structure
Cost of debt capital in
business organization
References
CHAPTER THREE
3.0 Research
design and methodology
Research design
Area of the study
Population of the study
Samples and sampling
procedure / technique
Instrument for data
collection
Validation of the instrument
Reliability of the
instrument
Method of data collection
Method of data analysis
References
CHAPTER FOUR
Presentation and analysis of data
Testing of hypothesis
Summary of result
References
CHAPTER FIVE
5.0 Discussion,
recommendation and conclusion
Discussion of result / finding:
Conclusion
Implications at the research funds
5.4 Recommendation
Suggestions for further research
Bibliography
Appendix i
Appendix ii
CHAPTER ONE
1.0
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
In contemporary business setting,
debt is seemingly inevitable. Sometimes it emanates from short fund convenience
with the prevailing trade terms. Debt does not occur only when money is
borrowed. It equally occurs when there is exchange of goods or services with a
deserved payment. So each time goods or services are exchanged with a deferent
of its financial obligation, there is incidence of debt.
A good
business may not always write to finances the commencement of his business from
his personal savings. If he does, so many things may happen. Either that the
business is under financed or the business is foregone, likewise a business
firm for one version or the other may not finance through equity aware only.
The management may wish to source the fund through debt. Even after the
commencement, the firm may further need extra funds for expansion or for
speculative purposes. Hence, this project work looks into the analysis of debt
in a dual perspective:
i.
In the accumulative of fund, either for the
commencement or expansion and
ii.
In trading relationship (trade debt).
(i) At the
commencement of a consciences organization, the owners try to maintain
a favourable capital structure. Ordinarily, it is normal for the business
owners (equity holder) to finance the business. But more often, the funding of
a business goes beyond that. The choice of the capital structure and the
funding technique is left at the mercy of the financial managers. On doing so
however, he doesn’t overlook or neglect the major organizational objective;
maximization of the owners wealth.
Business
organizations usually strive to achieve a number of objectives. These corporate
objectives provide a set of criteria upon which financial decisions can be
based. In general terms of business organization seek to achieve by obtaining
funds from various sources and investing some reasonably. It is important to recognize
that the various types of funds raised has its own cost and each has certain
risks. For example, loans (secured and unsecured), debentures, preference and
ordinary shares. Loans raised ob the security organizations assets tend to have
fairly low rates of interest although they imply certain risks. Failure to meet
the terms of the loan on the due date would empower the tender to confiscate
the said assets with potentially catastrophic consequence for the borrower.
In
contrast, an unsecured loan on which no assets is pledged, though escaped the
last cited risk cost higher. It has higher cost than the former. Preference
share on the other hand may have a relatively annual rate but its payment is
binding irrespective of whether profits were made or not.
Ordinary share however has no fixed charge as such. Its dividend depends
on the periodic business profits yet excessive use of equity shares is
determine to the organizational control, if it is not technically handled. When
the equity share is used in marginal funding of the firm, it is only advisable
when the return from the issue is such that share prices would increase. One
would not expect an issue of share to be made with an expectation that share
prices would fall since that would reduce shareholders wealth. So it can be
said that the minimum return required from a new issue is that which would
leave the share price at its present level.
Since it is one of the organizational objectives to
maximize the equity holders, wealth and random use of ordinary shares
tantamount this. The management would have no option than to resort to debt
financing to complement equity. This is one of the reasons why debt financing
is almost inevitable in the capital structure of a business organization of
today. Then with the attendant risk and return relationship, the financial
manager always seeks for a fair equilibrium to the best interest of the firm
for its survival and for attainment of its set objectives.
(ii) Trade Debt: - with
the exception of most types of retaining commercial sales are usually made on
credit. This means that cash settlement legs sometimes behind the delivery of
the goods or the consumption of the service to which the payment relates. The
main reason for these practices are attributed to the present commercial
tradition for convenience aid to the buyers and even to the sellers. This
trading terms leads to debt but it is encouraged for the following reasons
a) The
recipient will need to assure himself that the goods are satisfactory prior to
payment.
b) Additional
safeguard will need to be introduced with regards to the cash collected.
Even when and where it would be reasonable practicable to
pay on delivery, customers are reluctant to forgo the traditional credit
period. Since they do so, it would increase their own financing costs.
The practice of allowing credit has thus come to be widely
accepted as normal. The use of credit however has certain costs associated with
it and the analyzing debt management requires a clear identification and
balancing of these various costs. To achieve this however, the financial
manager and the management had to consider the costs under two categories:
a)
Cost of allowing credit.
b)
Cost of refusing credit.
1.2
STATEMENT OF
THE PROBLEMS.
Debt has implication in the
life of every business organization. Poor analysis of debt management affects a
firm adversely. It could be recalled that the effective capital structure of a
firm emaciate from the ability of the financial manager and the management to blend
debt with equity. It is pertinent to note that many businesses have gone into
compulsory liquidation due to poor analysis, which leads to poor debt
management. The cost of capital therefore shall be bargained with critical
consideration of the organizational Internal Rate of Return (IRR).
On the sale relationship, the credit term shall be
determined with an absolute review of the overall business environmental
factor. While resisting debt for its risks, the goodwill of the customer shall
not be overlooked entirely.
This work tends to deal debt in its relation with a
business organization. It brings about a number of problems which includes
among others:
i.
The cost of capital in financing market is an extra
charge to the business organization. Such a cost eats deep into the owners
fund.
ii.
Secured debts do not only affect the liquid assets of
the firm but also dare to extend its effects into the fixed assets of the firm.
iii.
Preference share has a fixed periodic charge, which
accumulates inconsiderate of whether a profit is made or loss suffered. This
gives a firm an adverse concern especially during an unfavorable business
atmosphere.
iv.
Inability to melt the financial obligation of a
business organization eventually lead to the organizational liquidation, which
is an economic death of the firm as an entity.
In the business tending
policy, a firm tries as much as possible to minimize credit for the following
reasons:
a.
It brings about bad debt, which is a deadly disease to
a business.
b.
Later settlement of debt in beating the stipulated
credit return destabilizes the liquid stability on the firm and eventually
leads to bad debt.
c.
Protracted debt denies the business organization the
chance of using their business opportunities as they fall due.
This project is not pessimistic
to debt at all neither does it intend to criticize debt and anything about it,
rather it delves into the problems and consequences of debt and analyzing its
management situation.
Despite the above-cited
deaneries, debt has a number of merits. In the optical structure, some
financial mangers commend debt financing for the following reasons:
i.
Difficulties in raising ordinary share capital.
ii.
Peoples reluctance to spearhead risks
iii.
For expansion and speculative purpose, that debt
funding is preferable since further use of equity may dilute the control of the
firm.
iv.
It may even affect the price of the stock properly
handled.
On the transactional
terms, absolute refusal of credit for debt aversion has its own adverse
effects:
a)
It reduces the sales volume and hence the profit
prospects
b)
It affects the goodwill of the business hence firms in
the fac3e of its customer and degrades its inedibility in market scene.
c)
The firm can only stand in an absolutely monopolistic
market and this is verily obtainable.
1.3
PURPOSE OF
THE STUDY.
From the look of
things, it is self evident that modern business can hardly survive and meet the
objectives and expectations of the interested parties without debt. Debt on the
other hand cannot be purged on its attendant merits and demerits. Since the
impact of debt is being felt from the inception of a business (from
commencement) to the cessation date (the day it is wound up). The financial
manager starts his decisions on debt from the setting of the capital structure.
Sometimes the business
may need additional fund either for improvement, innovation and expansion or
for speculative purpose. These came as an opportunity to the firm, which the
management may not like to miss. But very often, the retained earnings may not
be enough to cater for this. as such,
the fund is sourced externally.
In the trading
activities of the firm, credit cannot be eliminated completely. The firm can
either be a recipient, a giver or both. This is possible in its relation with
its suppliers and customers. And wherever there is a creditor, there must be a
debtor. So credit and debt are just like two sides of a coin. So in an economic
system, “what cannot be avoided must be managed”.
So this research will
take a closer look into the strategies of analyzing debt management situation,
relate same to the contemporary business environment in Nigeria with a
particular overview or reference to Nigeria Bottling Company PLC: Coca- cola,
Enugu, their trading terms, collection period, the incidence of bad debt and
capital tied down as a result of delay in debt collection.
1.4 SCOPE OF THE STUDY.
The scope of the study
covered was on analyzing debt management technique in Nigeria business
organization with much concerned to Nigeria bottling company plc. However, for
further reference and clarity, emphasis are made from other reasons and these
are consider vital, thus such emphasis are an profitability, solvency,
flexibility, conservation and control.
1.5 RESEARCH QUESTIONS.
(a)
How does debt financing bring about an optimal capital
structure in a business organization?
(b)
Will good analysis of trade debt management help
measure an effective working capital management in every business organization?
(c)
What effort will be made to reach every latent problem,
inherent in analyzing debt management in areas of organizational capital
structure?
(d)
How does the important element in decision about
resource helps to finance the ambiguity- surrounding concept of the cost
capital.
1.6 RESEARCH HYPOTHESIS
In a continued effort to reach
an appreciable equilibrium in the problems and consequences of debt and its
effective management, we (researcher) employed a selected statistical to enable
us reach a fair conclusion.
In the light of the above,
therefore the following major hypothesis have been formulated. Hypothesis mean
a tentative statement made by a researcher, subject to tests) with a view to
forming basic to study a phenomenon.
These hypothesis when tested,
can confirm or repute the extent at which these advanced statement can be
upheld.It can equally place the researcher on the solid ground of drawing his
conclusion and a subsequent recommendation.
HYPOTHESIS
1. Ho: Effective debt
financing does not brings about an optional capital structure in a business
organization. (NULL)
Hi: Effective
debt financing brings about an optional capital structure in a business
organization. (ALTERNATIVE)
2. Ho: Good analysis of
trade debt management is not good measure of an effective working capital
management in a business organization. (NULL)
Hi: Good analysis of trade debt management is a
good measure of an effective working capital management in a business
organization. (ALTERNATIVE)
1.7
SIGNIFICANCE
OF THE STUDY
The significance of analyzing
debt management situation is a broad as the scope of the business in question
and its economic environment and as length as the life of business poor or
financial management in a business organization is first evidenced in its
inefficient debt management and epitomized in its liquidation. This is the
reason why the researcher endeavours to look into a firm and consequences of
debts.
In
the capital structure of a firm, the debts prospect of the organization project
is to be considered and a careful decision made to avoid setting off with a
long toot. These are the areas this work look into, in a trading business firm,
the role of the marketing manager and the financial manager of deciding on the
organizational credit policies is brought to light with dare recommendation.
This
work tends to strike a fair balance in their turn and risks of debt. This will be of great importance to
the interest groups and prospective scholars in the field. This is done by
through review of the post, which is related to the present and employed in the
recommendation for a better future.
1.8
LIMITATION
OF THE STUDY
Analyzing debt management
situation is not a shallow topic to be handled haphazardly; it is not only
technical but also sensitive and broad.
For the purpose of this project,
it is restricted to the business organizations. It excluded every non-business
concern. Also for want to time resources, Nigeria Bottling Company-coca-cola,
Enugu, is sampled out as a base for the research work.
So many factors are deemed to
militate against quicker and easier completion of this work. These include
among others:
(a) COST: Inadequate fund
may stunt this work beyond our taste. Lack of fund (money) may also affect not
only the period of the research but also its quality. To exults everything
about analyzing debt management situation and come out of legacy for the
posterity, one needs to travel far and near. At least one ought to touch
various industries in the four basic geographical area of the country.
(b) TIME: Time is as
costly as money, it is ever easier facing financial problems than time. Time
lost as hardly regained. Financial markets do exist but time existed for time.
With the school academic leader, the period for the research work is too short,
putting other courses into the budget.
(c) SOURCES OF FACTS: This
research has convince me that so many authors share almost the same view on
this topic as such, are going to a library having about ten textbooks of
different authors, at last you find out that they are saying the same thing in
different tongue, invariably you are having a book or more.
(d) RELUCTANT TO CO-OPERATE:
The management of some business organizations are two reluctant to disclose the
required information and more so, when it comes to disclosing or exposure of
the organizational books record. The idea equally affected the quality of facts
given in the research. Some do piths pact to suit their firm.
1.9
DEFINITION
OF TERMS
(i)
Debt: Money
or something owned by or someone
-
a liability or an obligation.
(ii)
Debtor: One
who owes the liability or obligation
(iii)
Management:
The process of planning, organizing, leading, and controlling the work of
organization members and of using all available organization resources to reach
stated organizational goals.
(iv)
Credit:
Trust or confidence in a buyer’s ability intention to pay at the same future
time, exhibited by out rushing him with goods and services without present
payment.
(v)
Capital
structure: Debt or equity relationship, it is configuration of equity
capital and loan capital in the long term financing of an organization.
(vi)
Equity: The
risk bearing portion of the long term capital of a business organization.
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