The Effect Of Working Capital On The Operational Efficiency Of An Organization
Table Of Contents
Chapter One
Preface
Background to the Study
Statement of the Problem
Objects of the Study
Exploration Questions
Exploration Hypotheses
Significance of the Study
Compass of the Study
Chapter Two
Literature Review And Theoretical Frame
Concept of Working Capital
Working Capital Management
Factors of Working Capital
Working Capital Ratios
Troubles of redundant Working Capital
Determinants of Working Capital
Relationship between Working Capital and Profitability
The Nigerian Frugality and Working Capital Management of Quoted enterprises in Nigeria.
Literal Background of Cadbury Nigeria Plc
Theoretical Framework
Conclusion
Chapter Three
Methodology
Description of the Study Area
System of Investigation
Styles of Data Collection
Research Instrument
Confirmation of Research Instrument and Testing
System of Data Analysis
Chapter Four
Donation, Analysis And Interpretation Of Data
Factors Of Working Capital In Cadbury Nigeria Plc
Data Analysis( Secondary Data)
Data Analysis( Primary Data)
Suppositions Testing
Discussion of Findings
Chapter Five
Summary, Conclusion And Recommendations
Summary
Conclusion
Recommendations
Reference
Excursus
Chapter One
Preface
Background to the Study
The current failure of cash and credit is hanging the survival of numerous businesses in all over the world primarily in Nigeria as its considered the sources of company’s working means and arrears appertained to as working capital. it’s a fact that pots couldn’t live without working capital and this is inarguable. ultimately, the operation of working capital( WCM) necessitates short term opinions in working capital( WC) and backing of all aspects of both enterprises short term means and arrears.
This explains the fact that enterprises with shy working capital are in fiscal strait jacket. As the name implies, working capital refers to the finances that are needed for the day to day handling of the conditioning of a establishment. it’s the excess of current means over current arrears. Working capital operation involves the relationship between a enterprises short term means and its short term arrears. The thing of working capital operation is to insure that a establishment is suitable to continue its operations and that it has sufficient capability to satisfy both growing short term debt and forthcoming functional charges. In view of that, working capital operation has come one of the most important issues in the associations where numerous fiscal directors strive to identify the introductory working capital motorists and the applicable position of working capital( Lamberson 1995).
The operation of working capital involves managing supplies, regard payables, regard receivables and cash. Large figures of business failure has been attributed to the incapability of fiscal directors to plan and control the current means and current arrears of their separate associations. This explains why working capital operation is vital to enterprises with limited access to the long term capital request. The working capital measures both a company’s edge and its short term fiscal health. It also gives investors an idea of the companies underpinning functional effectiveness. The working capital shows a company’s effectiveness, fiscal strength and cash inflow health which also helps in determining the profitability and threat as well as its value( Smith 1980).
The significant of working capital had been stressed in utmost of the literature of WCM i.e. Eljelly( 2004) described that the effective WCM are engaged with planning and controlling current means and arrears in such a way that eliminates the threat of incapability to meet short term scores in hands with the avoidance of inordinate investments in these means. Siddiquee and khan( 2009) indicate that the hamstrung operation of WC not only reduces profitability but eventually may also lead a concern to fiscal extremity therefore every association irrespective of its profit exposure, size and nature of business needs needful quantum of WC. Accordingly, the effective WCM is the most pivotal factor in maintaining survival, liquidity, solvency and profitability of the concerned business association. therefore, we could say that approach in managing working capital has enormous influence to the establishment’s performance.
The significance of working capital in the day to day handling of the business conditioning of a establishment are stated in the books. Having said that working capital is the live line of a business, it’s anticipated that effective provision of it’ll insure lesser success of a company while in — effective operation of it’ll lead to ultimate downfall of what else might be considered as a prosperous concern. Working capital is important to the operations of a establishment but the conservation of a working capital is more pivotal. This is because inordinate working capital means holding costs and idle finances which earns no gains for the enterprises is dangerous while shy working capital which means not having sufficient finances only limits the establishment’s profitability but also results in product interruptions and inefficiencies and deals dislocations.
Statement of the Problem
Working capital operation is a directorial account strategy fastening on maintaining effective situations of both factors of working capital, current means and current arrears in respect to each other. Generally speaking, the immediate problem facing most fiscal directors always centers on the stylish way to insure suitable survival of the business as well as its expansion in terms of working capital operation.
A establishment or company should be in a sound working capital position. It should have acceptable working capital to run its business operations. One should note that both inordinate as well as shy working capital position are dangerous to any business, thus a company is needed to maintain a balance between liquidity and profitability which are occasionally clashing objects while conducting its day to day conditioning.
still, fiscal directors are faced with the major problem of carrying an optimum position of working capital which is a situation whereby working capital directors are suitable to avoid the problem of holding idle finances which earns no profit for the establishment and shy working capital which reduces the establishment’s profitability as well as product interruptions and inefficiencies. The credit policy of a establishment is another tailback defying working capital operation. A flexible credit policy espoused by the operation in utmost cases results in writing off a high proportion of bad debts while a rigid credit policy reduces the position of deals and also scares down guests. thus, fiscal directors are faced with the problem of determining an effective and effective credit policy which should be in line with their company’s pretensions and objects.
Fraud is nearly in every association and this is also a big problem to working capital directors since working capital operation requires a substantial part of the capital held in liquid cash so as to run the day to day conditioning of a establishment. fiscal directors are faced with the task of furnishing acceptable security in order to help embezzle of plutocrat meant for the association. Working capital operation is substantially important to enterprises in developing economics because they’re faced with numerous problems similar as; low investment, low deals, lack of coffers, low position of product and process technology, small request, lack of access to capital, lack of physical structure, product capacity to satisfy demand( because they’re small), thereby, making force operation more pivotal. utmost of the Nigerian enterprises don’t have access to capital and warrant the occasion of getting the benefit of fiscal request.
Working capital policy is one of the minimizing married finance whereas working capital operation is an optimizing process aimed at filling the minimization policy to functional demand. This implies that hamstrung and ineffective operation of working capital will hamper the growth and survival of the association.
A check of empirical literature on the determinants of working capital and its effect on profitability showed that many studies have been conducted on these issues in both developed and developing countries. numerous of these studies linked similar factors as size, influence, operating cash inflow among others as major determinants of working capital while many set up negative effect of working capital operation on profitability. still, it was observed that utmost of the being studies concentrated only on developed husbandry. Not numerous studies have concentrated on enterprises ’ in developing countries. In addition, none of the being studies has addressed the issue of long run relationship between working capital and profitability and the direction of occasion between the two marvels. These are the main gaps that this study intends to fill. originally, this study is concentrated on enterprises ’ in Nigeria. Secondly, it doesn’t only examine the determinants of working capital and its effect on profitability but also investigates the relationship between working capital operation and profitability.
Objects of the Study
The broad ideal of this study is to examine the effect of working capital operation on the profitability of manufacturing establishment. The specific ideal is to
i) probe the colorful factors of working capital in Cadbury Nigeria PLC.
ii) Examine the position of working capital operation in Cadbury Nigeria PLC and
iii) estimate the impact of working capital operation on the profitability of Cadbury Nigeria PLC.
Exploration Questions
This study intends to give answers to the following questions;
i) What are the factors of working capital operation in Cadbury Nigeria PLC?
ii) How effective does the working capital operation of Cadbury Nigeria PLC enhances its profitability?
iii) Has Cadbury Nigeria PLC been suitable to manage its trade debtors, stock and trade creditors effectively?
Exploration Hypotheses
The main purpose of this study is to examine the effect of working capital operation on profitability, This will form the base for formulating the suppositions which will be tested and validated with a view to making some recommendations.
Ho Working Capital Management of Cadbury Nigeria PLC doesn’t enhance its profitability
Hi Working Capital Management of Cadbury Nigeria PLC enhances its profitability
Ho Cadbury Nigeria PLC doesn’t have an optimum position of working capital operation
Hi Cadbury Nigeria PLC has an optimum position of working capital operation.
Significance of the Study
This study is generally designed for the benefits of all investors and possessors of manufacturing companies who haven’t espoused any policy on working capital operation. To investors and possessors of enterprises, a good working capital operation indicates sound liquidity position of the company meaning that the company is well managed, financed and sound. From the exploration, the establishment capability to finance long and short term arrears is determined. Since investors wish to invest thus, proper study of the establishment’s working capital position mustn’t be overlooked.
piecemeal from the below, the study will also punctuate certain problems associated with the operation of working capital and inversely give useful information on the possible means of advancements in the university’s library and for other scholars who may wish to embark on the exploration of working capital operation in future.
Eventually, the general public may find this work useful in areas where they wish to broaden their knowledge on working capital operation in business association.
Compass of the Study
This design is meant to cover the working capital operation in manufacturing companies with particular reference to Cadbury Nigeria PLC. still, it’s confined to the general operation of current means and current arrears. The study shall cover a period of 5 times from 2009- 2014. Because of the significance of working capital operation as a tool for cost reduction and enhancement in profitability, the study is been conducted in other to estimate the effect of working capital operation on establishment’s profitability.
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