Abstract
The study investigated the Effects of Working Capital Management on the profitability of manufacturing Company, A Case study of unliver, pz cusson ,indomie, viju, coca cola companies. The specific objectives of the study are to identify the various components of working capital in unliver, pz cusson ,indomine, viju, cocacola companies; identify the level of working capital management in unliver, pz cusson ,indomie, viju, cocacola companies; and to evaluate the impact of working capital management on the profitability of unliver, pz cusson ,indomie, viju, coca cola companies. Total of questionnaires was distributed to staff in unliver, pz cusson ,indomine, viju, coca cola companies drawn from the study population was used for the analysis. Four research questions and two hypotheses were formulated for the study, simple percentage and ratio analysis. Under the simple percentage and ratio analysis was analyzed by the use of tables which involved the use of simple percentages. Contrarily, the reason for using this method is to enable the researcher compare and group information and data accordingly.
CHAPTER ONE
INTRODUCTION
- Background of the study
The working capital of a company has a major role in making it profitable or non-profitable. Most of the potential investors and other analyze position statement to evaluate the management of working capital. Positive working capital explain that the corporation is in a fine condition to reimburse it’s short-term debt whereas negative working capital explain that the most liquid assets of the corporation are not sufficient to fulfill its current monetary commitments. Any finance manager must sustain a most favorable point of investment in the most liquid assets of the company. Working capital for any business is the amount of capital to carry out its daily basis operations. In manufacturing concerns, it is the investment required for the conversion of raw material into ready to sell products for the company. The most important items inside determination of working capital are inventories of the corporation, its accounts receivables and payables. The management of working capital frequently considered a tool to maintaining competence of the business inside their operations. Working capital is often assessed by lenders to judge the financial short term paying back ability in difficult financial periods. One of the key determinants of survival and sustainable business growth of modern organisations is the effectiveness of accounting and finance department or function (Eljielly, 2004). One area of accounting and finance that affects the efficient operations of business organisations in general is working capital management (WCM), among other things (Eljielly, 2004; Shin & Soenen, 1998; Tauringana & Afrifa, 2013). WCM has been described as the management of current assets and current liabilities (Agyei & Yeboah, 2011; Tauringana & Afrifa, 2013). The concept of WCM addresses companies’ management of their short-term capital, which is an important component of corporate financial management, directly affects the profitability and liquidity of both small and large firms (Agyei & Yeboah, 2011; Tauringana & Afrifa, 2013). It has been well noted that small scale industries contribute immensely to providing job opportunities, nurturing a society of entrepreneurs and opening up new business avenues for the development of a country.
The current scarcity of cash and credit is threatening the survival of many businesses in all over the world primarily in Nigeria as its considered the sources of company’s working assets and liabilities referred to as working capital, it is a fact that corporations could not exist without working capital and this is undeniable. Eventually, the management of working capital (WCM) necessitates short term decisions in working capital (WC) and financing of all aspects of both firms short term assets and liabilities.
This explains the fact that firms with inadequate working capital are in financial strait jacket. As the name implies, working capital refers to the funds that are required for the day to day running of the activities of a firm, it is the excess of current assets over current liabilities. Working capital management involves the relationship between a firms short term assets and its short term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short term debt and upcoming operational expenses. In view of that, working capital management has become one of the most important issues in the organizations where many financial executives strive to identify the basic working capital drivers and the appropriate level of working capital (Lamberson 1995). The management of working capital involves managing inventories, account payables, account receivables and cash. Large numbers of business failure has been attributed to the inability of financial managers to plan and control the current assets and current liabilities of their respective organizations. This explains why working capital management is vital to firms with limited access to the long term capital market. The working capital measures both a company’s efficiencies and its short term financial health. It also gives investors an idea of the companies underlying operational efficiency. The working capital shows a company’s efficiency, financial strength and cash flow health which also helps in determining the profitability and risk as well as its value (Smith 1980). The significant of working capital had been highlighted in most of the literature of WCM i.e. EljeUy (2004) described that the efficient WCM are engaged with planning and controlling current assets and liabilities in such a way that eliminates the risk of inability to meet short term obligations in hands with the avoidance of excessive investments in these assets. Siddiquee and khan (2009) indicate that the inefficient management of WC not only reduces profitability but ultimately may also lead a concern to financial crisis thus every organization irrespective of its profit orientation, size and nature of business needs requisite amount of WC. Consequently, the efficient WCM is the most crucial factor in maintaining survival, liquidity, solvency and profitability of the concerned business organization. Thus, we could say that approach in managing working capital has enormous influence to the firms performance.
