CHAPTER ONE
1.0 INTRODUCTION
Working capital is defined by ………… (…..) as in current asset less the totality of the firm’s current liabilities. The current assets of a firm include: Inventory, account receivable, short-term marketable securities and cash while the current liabilities include items such as account payable, notes payable, accounts, customers deposits (i.e. prepayments), differed taxes, and other short term debt obligations.Working capital management deals with the management of investment in current asset and in current liabilities that is, management of current asset level and arrangement of the short term credit to finance the current assets investments. The management of working capital involves the determination of optimum level of working capital to keep monitoring and controlling the level of individual component of working capital to ensure that the optimum level is not exceeding, and provision of fund to finance current assets.
Management of working capital is also all about the provision of sufficient current assets that will be able to sustain the normal process of acquisition of raw materials and supplies, turning out the finished product and collection of payment. In some organization the estimated provision of working capital or current asset are not adequate, in such a case, other measures must be opened to provide the short fund, or the business will fall. However, in practice, some organization separate working capital management from other aspects of financial management. I observed that it should not be so. Therefore I wrote this conceptually in such a way that it will give good understanding to various components of working capital, management from the more fundamental decisions of investment.
Observing the historical background of Modotel, On 27th April 1978 the Modotel Nigeria ltd was registered as a private liability company with the name Valid Hotel ltd. the Authorized share capital at the start was 10,000 ordinary share of N1each. Its operation started in 1986 September to be precise i.e. eight years after the registration.On commencement, the Hotel has been maintaining an average capital of seventy – five percent (75%) in its room occupancy. It is made up to twenty eight double room, thirty – two bed rooms and three suits contained in a five storey building. The sta capacity has the following:- Management sta – four personnel Senior – sta – eight personnel Intermediate sta – one hundred personnel Junior sta – seven personnel The accounting department is made up of six sta headed by the accountant. The six stas are: 1. Front oice cashier 2. Accounts controller 3. Restaurant cashier 4. Main cashier 5. Accounts oicer 6. The accountant ORGANIZATIONAL CHART OF MODOTELS NIG. LTD.
1.1 STATEMENT OF PROBLEM
Poor management of working capital results to liquidity problems which might lead to bankruptcy in very severe cases. When an organization has insufficient working capital it is said to be under – capitalized or over – trading symptoms of over – trading include rapid growth in sales, current and fixed assets, high stock turnover, low average collection period. Excessive working capital result in idle funds being unnecessary tied down resulting in a loss of profitability for the organization since the idle fund can be invested elsewhere to earn returns for the organization. When a firm has excessive working capital it is said to be under – trading or over capitalization. A lot of cases of firms collapse have been attributed to such firms neglecting close and careful monitoring of the working capital management. Some of the bases of the above problem are as follows: 1. CASH: Insufficient control of cash and detection of its position as to deficit or surplus. 2. DEBTORS: These are incurred as a result of credit sales and inability to manage it effectively as a natural consequence causes shortages of customers which automatically gives way to a decrease in cash inflow. 3. INVENTORIES STOCKS:- To maximize the organization’s profitability by determination of the optimum level necessary to minimize cost. This is done by adequate study of cost of holding stocks and cost of shortage in stocks.