CHAPTER ONE

INTRODUCTION

1.1    Background of the Study

The major policy indulged in by management to see to amusement of this am is working capital management the day to day operation of a firm activates sustained fund available for such operations, such funds are referred to as working capital.

Working capital has a very wide range of definition it has been viewed by different writers in different perspectives Weston (1988) sees working capita as current assets less current liabilities which represent the firm’s investment in each makeable securable, inventory account receivable.

According to Akpala (2006) working capital or circulating capital can been sees as the capital of the firm which has not permanent native but constantly changing form one form to another having a short life span of one year o less.

Hampton (1975) posits working capital as well short term assets used in daily operation. Brigham (1990) trace the origin of working capital to the old Yankee peddlers who would lead up his wagon with goods then peddle his wares. The merchandise was his turnover used in production of profit. Hence they were called working capital which had to be repaid. From the view o the above definition, it states that working capital shows the investment of a company medium and short-term funds which re-expected to be raise within a trading year (Cosazerbaru, 2003).

Therefore, working capital management refers to the administration within policy guidelines to current assets and current liabilities, an adequate surplus of which is considered as a reliable indication that a company is solvent t most times, it is believed that the profits to be earned from investing I long term assets are greater than the profits to be earned investing in current assets. As such times, a business would want to minimize it investment in working capital and to concentrate its resources on investment with a life than current assets as much as it as safe of the current assets is financed by current liabilities.

However, in some economic conditions the wisdom of the day suggest that it is better for a business to keep it resources liquid by investing I current asset including placing any surplus cash in short term financial investments, being liquid also enables a firm to take immediate advantages of any opportunity that may rise.

In Nigeria most firm do not have a standardized policy for the management of working capital management. The majority do so by role of thumb, hat is, making it a common practice to increase or reduce their holding f working capital arbitrarily.

A proper approach to working capital management in our firm is necessary to do this proper cash management principles are to be applied to determine the target cash balances as suggested by Ross et al (2002) in the Bayomi, Miller air and Barenek models standardized.

Inventory management practices should be properly done in a way that should favour both parties.

In the firm to be analyzed some do not have laid down working capital management policy some have in certain areas but if only banks that have a fairy established rule regarding the management of a

1.1       Statement of Research Problem

This serves to express the information implied in the subject Matter the importance of working capital management in an organization.

But the efficiency and underutilization as well as inadequate financing result, not only to poor performances of a business operations but also to the ultimate down all of the business concern thus, it there is no working capital to keep fixed asset working, but business with all operate.

1.2       Objectives of the Study

The objectives of the research will include the following inter alia;

1.           To examine the importance of working capital management on performance of organization.

2.           To determine the optional level of working capital.

3.            To know how they require working capital by financed.

4.           To ascertain firm level of investment in working capital.

5.           To know the combination of the components of working capital that will maximize the value of the organization.

6.           To know the general effect of working capital management on an organization profit.

1.3       Research Question

1.           Does carrying of appropriate working capital after the profit level?

2.           Should there be a limit to the level of working capital carried at a point in time?

3.           What is the appropriate level of current assets both in total and by specified accounts?

4.           How should the required level of current assets to finance.

5.           Is there a relationship between working capital management and the performance of a firm?

1.4       Significance of the Study

Working capital accounts for over 30% of a firm total asset and its management cannot be over emphasized this study significant in the following ways.

1.           It highlights the importance of working capital management of an organization

2.           The research work will prove to be relevant to the firm who wish to adopt new working capital policy.

3.           It brings the consciousness of management the impact working capital in general performances of the organization.

4.           Using a simply of selected firm the research work described the level of working capital management among Nigeria manager.

5.           To ensure solvency of firm through their knowledge of proper working capital management.

6.           Recommendation would be ready tool for policy formulator.

7.           The study would be useful for those invested on the subject matter.

8.           This study provides a basic for further research on the subject matter.

1.5       The Scope of the Study

The research work will cover a number of selected firms and management of working capital in Eternit Ltd Sapele.

In the analysis of the firm, working capital will be restricted to only three components which are stock, account receivables or debtors and cash since marketable securities are scarcely invested upon by those firms.

1.6       Limitation of the Study

It is human to known that the cause of carryout this research work, a number of constrains will militate against it. The first was uncooperative attitude of state of same of the visits firm in the area of revealing management policies, as same work considered stop management sector which they feel could not be reveal. Another limitation time available to the research and being that the research work is an academic research where students are not paid for the research and they are dependents will face financial constraint this factor will be responsible for the number of firm studies the tie also hindered the expensive consultation of data for the study of this nature. Be that as if may despite these obstruent’s the data of my disposal will be sufficient to achieve the stated objective.

1.7       Structure of the Study

This entails arrangement pattern of the research work.  Chapter one which covers the introduction statement of research problem, research questions, purpose of the study, and definition of terms. Chapter two elaborates on review of related literature, chapter three constraints the discussion methodologies chapter four covers the data analysis presentation of results and discussion, and the last chapter covers the summary, findings, conclusion and recommendations.

1.8       Definition of Terms

Net working capital: It refers to current assets and its firm investment in short term asset-cash inventory and account receivables.

Short term: A limited period of times not exceeding a financial year.

Long term: A period of time not exceeds one financial year.

Management: It is the process of planning, organization supervising coordinating, reporting budgeting and discoing activities.

Cash: It is the physical money available for use.

Inventory: It refers to stock of materials partly finished goods work-in-progress and finished goods.

Account receivables (debtors) Debts due within one financial year.

Marketable securities: It is a saleable security i.e. securities that can be sold within a short period of time.

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