CHAPTER ONE

INTRODUCTION

1.1            Background tothe Study

The introduction of stringent economic measures or programmes aimed at revamping the economic malaise of this country has affected the day to day business operations of most large companies such as Nigerian Bottling Company (NBC) Plc. For instance, the structural adjustment programme measures introduced in the 1990s was aimed at the deregulation of the economy and moving it towards a free market economy where optimum resources allocation will be achieved through market force.

The privatization programme which has poised Nigerian entrepreneurs to new areas of competition has affected business operations, under this situation, it is a survival of the fittest and the winner takes all. Hence, the iimportance of effective and efficient management of scarce resources cannot be over emphasized.

Furthermore, investigations show that most of the failures can be attributed to liquidity problem which is often caused by poor management of working capital. Working capital management serves as a driving force of a business organization and financial managers. It is one of the biggest functions of financial accountants or managers.

Hence, Anyaogu (2009) observed that “working capital has been seen as the life blood of a business, it is effective while its inefficient management can lead not only to loss of profits but also to ultimate downfall of what otherwise might be considered as a promising concern”, Working capital management determines to a large extent the success or failure of a business. Working capital is an abstract term as a look in a typical financial statement will reveal that there is no single accounting or classification called working capital.

 According to CIMA (2002), “Working capital is that capital available for conducting the day to day operation of a business, normally the excess of current assets over current liabilities”. Current assets are cash and other assets that can be easily converted to cash within one accounting year such as debtors stock and short term investments. Current liabilities are short term obligations, which normally fall due for payment within one accounting year such as creditors, bank overdrafts, current taxation and dividend payable.

Business organization’s management of each of the components of working capital in isolation creates problems rather than solving them. There is need for goal congruence in the management of all the components of working capital. This can only be achieved by an integrated approach to the management of working capital.           
According to Leslie (1971), “working capital is the life wire of any enterprise” the need for its effective and efficient management in a manufacturing set up cannot be over emphasized.  The management of working capital in an organization is one of the most essential aspects of the industry’s overall financial management. If the enterprises cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current asset of any organization should be large enough to cover its current liabilities in order to maintain a reasonable margin of safety.

According to Pandey (2008) stated that the excess of current assets over current liabilities is known as working capital. Basically the four conventional classes of current assets are: cash inventories, marketable securities and current receivable. On the other hand, a current liability entails account payable, accruals and taxes, working capital is used to finance production, to invest in stock and to provide credit to customers like “small scale industrial scheme.”

However, management in this context is defined as the effective utilization of human and material resources to achieve the enterprise objectives. It is the act of getting things done through people. In every organizational sectional set-up material, manpower, money, machine and method (5m’s) are involved and the optimum combination of those resources produces maximum profit

However, this study examined the impact of working capital management in enhancing organizational performance in Nigeria Bottling Company, Kaduna.         

1.2            Statement of the Problem

Poor financial management affect smooth business operation and also contribute to most business failure. Most companies operate amidst problem of poor working capital management which in turn affects maximization of profit and the reduction in losses over the years.

In most cases, decisions affecting components of working capital are taken based on subjective rather than objective(s) judgment. Thus, the management of the component of working capital in isolation often causes confusion rather than solving problem. Emphasis is placed on the management of some components at the expense of other components of working capital.  

Lack of proper credit and debt control system is also a major hiderrance in many Nigerian Companies. Since business success depends on constant turnover of capital, if a business pays its own bills regularly, then it must in turn receive prompt payment for the goods it sells or services it renders.

Furthermore, excessive overload and operating cost is another bottleneck in the company. The company tie up too much money in acquiring fixed assets (i.e. over investment in fixed asset like building, equipment etc) at the expense of turnover over time. It is in the light of the above that this study assessed the impact of working capital management in enhancing organisational performance of Nigeria Bottling Company, Kaduna.

1.3            Objectives of the Study

The main objective of this study is to examine the impact of working capital management on the performance of Nigeria Bottling Company Plc. Other specific objectives include:

a.     To find out of how Nigeria Bottling Company Plc manage its working capital.

b.     To examine the problems associated with the management of working capital

in Nigeria Bottling Company Plc, and

c.      To make recommendations on how to effectively and efficiently manage working capital and enhance organisational performance in Nigeria Bottling Company, Plc. which is feasible to the management of NBC Plc.

1.4            Statement of Hypotheses

In other to achieve the above objectives, the following hypotheses are formulated and tested:

H01:   Working capital management has no significant impact on profitability in NBC PLC, Kaduna.

Ha1:    Working capital management has a significant impact on profitability in NBC PLC, Kaduna.     

H02:   Working capital management has no significant impact on business performance in NBC PLC, Kaduna.

Hb2:   Working capital management has a significant impact on business performance in NBC PLC, Kaduna.

1.5     Significance of the Study

This study will be of tremendous benefits to the following:

                               i.            Students - especially those in the related field of study. It may interest them to know the importance or relevance of working capital management in a bottling/manufacturing organization.

                             ii.            Management of NBC Plc – It is important to them in the sense that, it equips them with the needed knowledge about proper management of working capital towards actualization of their stated objective, and also tells or shows them the dangers of improper management of its working capital.

                          iii.            Government – The government will benefit in the area of policy formulation concerning bottling/manufacturing companies in terms of encouraging the establishment of industries and in tunr increase revenue generation through the provision of basic infrstructures.

1.6     Scope of the Study

This study is centered on the impact of working capital management in enhancing performance in NBC Plc.

1.7     Definition of Key Terms

*        Current Liabilities: Debts that is due within a short period of time such as taxes, rates and rents.

*        Customer: This is a person or an organisation that buy goods or services.

*        Insolvency: The inability to meet debt payment and other financial obligations on due date.

*        Management: Effective utilization of human and physical resources to achieve a business or organizational objectives.

*        Marketable Securities: Treasury bills, commercial bills and money call.

 

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