The Impact Of Cash Management On The Profitability Of Manufacturing Companies In Nigeria

The Impact Of Cash Management On The Profitability Of Manufacturing Companies In Nigeria

1.0 Overview

1.1 Study Background

Every organization that wants to meet its short-term financial responsibilities must practice good cash management. According to Akinsulire (2003), a company’s ability to succeed depends on how well its management has planned and managed its cash flows. Olowe (2008) defines cash management as the effective management of cash to reach the ideal level of cash in the company’s working capital. The primary resource required to launch and maintain a firm is cash.

Industry-specific variations exist in the cash and operating cycle pattern, but generally speaking, the pattern entails the provision of cash as capital for a firm’s initial outlay, the acquisition of raw materials in manufacturing companies and finished goods in marketing companies, distribution of the finished goods obtain immediate cash or create debtors when goods are sold on credit terms (Akinbuli, 2009). Additionally, due to its enormous impact on a company’s results, managing cash has become a serious difficulty for the majority of businesses (Ekwere, 1993).

Any business venture’s likelihood of success depends on how its management has budgeted for and managed its cash flows (Akinsulire, 2003). The key to ensuring that the company’s finances are in good shape is effective cash management. Additionally, for production companies whose assets are primarily made up of current assets, cash management is crucial (Hornead Wachowity, 1998). Liquidity is directly impacted by cash management, claim Raheman and Nasir (2007). Effective cash management benefits business performance and long-term viability. Cash management, according to Deloof (2003), is a significant source of a company’s competitive advantage.

A company has to retain enough cash on hand to keep things running properly. A lack of cash will cause the company’s operations to be disrupted and may possibly result in bankruptcy. A large amount of cash will unnecessarily lock up long-term capital, which will lower the return on capital utilized. Thus, a company needs to keep a healthy cash position. In this study, Dangote Cement will be used as a case study to explore how cash management affects manufacturing enterprises’ profitability.

1.2 Dangote Cement’s Historical Context

The Group was founded in May 1981 as a trading company with a primary concentration on cement. Over time, it evolved into a conglomerate trading fish, sugar, flour, salt, and cement. The Group had become one of the biggest trading conglomerates operating in the nation by the early 1990s.

The Group made the strategic choice to transform from a trading-based company into a fully fledged manufacturing operation in 1999, following the change to civilian authority and following an inspiring trip to Brazil to examine the expanding manufacturing sector. A manufacturing operation that could satisfy the “basic needs” of a huge and rapidly expanding population was clearly needed in a nation where imports make up the great majority of consumer goods.

The Group started an extensive construction project with the intended goal of building wheat mills, a sugar refinery, and a pasta factory. The Group purchased the Benue Cement Company Plc from the Nigerian government in 2000, and in 2003 it opened the largest cement facility in sub-Saharan Africa, the Obajana Cement facility.

The Group, which is currently among the biggest conglomerates in sub-Saharan Africa’s manufacturing industry, is pursuing more backward integration in addition to an expansion program in both current and emerging areas.

1.3 Statement of the problem:

Working capital management includes cash management as a key strategy (Akinyomi & Tasie, 2011; Malik, Waseem & Kifayat, 2011). According to the literature, both advanced market countries and developing economies have done a number of research on working capital management (Wongthatsanekorn, 2010; Abbasi & Bosra, 2012). Working capital management and financial performance have been linked in these research (Hutchison, Farris II, and Anders, 2007; Akinyomi & Tasie, 2011). The relationship between cash management and financial performance has, however, only been the subject of a small number of research to far, particularly when it comes to emerging economies (Raheman & Nasr, 2007). Peavler (2009) found that up to 60% of unsuccessful businesses believed that cash flow issues were the primary cause of all or most of their troubles. Therefore, further research is necessary to determine the relationship between cash management and profitability in Nigeria.

1.4 Study’s Aim And Objectives

Examining how cash management affects the profitability of manufacturing enterprises in Nigeria is the major goal of the research project. The study’s particular goals include the following:

Analyze how Nigerian manufacturing companies handle their cash and their return on assets.

Look into how cash management and return on equity are related in Nigerian manufacturing enterprises.

to research the elements influencing the manufacturing companies’ profitability

1.5 RESEARCH PROBLEM

The following research question has been put forth in order to fulfill the study’s goal:

What connection exists between the Nigerian manufacturing enterprises’ cash management and return on assets?

What connection exists between the management of cash flow and return on equity in Nigerian manufacturing firms?

What aspects of Nigerian manufacturing enterprises’ profitability are influencing?

1.6 RESEARCH HYPOTHESIS STATEMENT

Hypothesis

H0: The profitability of manufacturing enterprises in Nigeria is unaffected by cash management.

H1: Cash management affects Nigerian manufacturing enterprises’ profitability

1.7 Importance Of The Study

More focus has been placed on cash management recently as a result of developments in business generally. This study is significant because it will show the effects of commercial organizations not having and using an effective cash management system. The study will also show manufacturing company executives how to handle cash effectively so as to accomplish organizational objectives and increase profitability.

1.8 Aim Of The Study

Only the Dangote Cement Plc. in Gboko, Benue state, Nigeria (2000–2016) would be included in the study on the effect of cash management on profitability.

1.9 Study Limitations

Financial restraint: Lack of funding generally makes it more difficult for researchers to collect data effectively (through the internet or statistics bulletin) and to locate the necessary resources, literature, or information.

Time restraint: The researcher will do this investigation together with other academic activities at the same time. Consequently, less time will be spent on the research job.

1.10 Term Definition

CASH MANAGEMENT: is the procedure used by businesses to accumulate and control cash as well as to use it for (short-term) investing.

The extent to which a firm or activity generates profit or financial advantage is known as PROFITABILITY.