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ABSTRACT
The objective of this research work contains working capital management as a tool for minimization and profit maximization with particular reference to Anambra motor manufacturing company, Enugu. The research design used was the survey method and the sources of data were both primary and secondary. The primary sources were interviews granted to me while the secondary sources of data were obtained from related literatures viz text books, internet, journals by different authors. Primary sources were from interviews and questionnaires. The data, Hypotheses were tested using chi-square. From the researchers findings, it is seen that profitability of a firm depend on the level of its working capital management. Although working capital management is creating problems in today’s business environment due to global developments of science and applied in business but ANAMMCO tries here best and maintained her liquidity position. The researcher would recommend that seminars and workshops be organized for the staff and management of the company on the effect and merits of effective and efficient working capital management.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Capital can be classified into two broad categories based on tenure viz. long term and short term capital.
The long term capital of firms is committed to investment in fixed
assets. It includes shareholders’ funds and long term loans. On the
other hand, short term capital is applied for investment in current
assets such as cash, marketable securities and short- term credits.
Current assets are usually acquired very often in varying quantities
depending on the demand structure for the firm’s product. Each time a
decision to acquire current assets is taken, finance becomes inevitable.
However, it does not necessarily mean that cash has to be paid each time
an order for recurrent production input is placed, rather it implies
that just like in the case of fixed assets, every decision on current
assets has financial implications. For instance, a firm has to decide
how much of the material used for production of goods and services are
to be on credit or on cash and carry basis. it also has to determine
what proportion of its sale has to be on credit. Also both the optimum
and minimum stock levels for raw materials and work-in-progress (WIP)
have to be determined and maintained at a given point in time.
Orjih (2001:85) refers to working capital as a firm’s investment in
short –term assets cash, marketable securities, trade debtors and stock,
less current liabilities used to finance the current assets. He stated
that working capital management therefore means the planning and
controlling of both current asset and current liabilities. It involves
the administration of cash receivables, inventories, marketable
securities and the current liabilities.
He also discussed the two aspects of working capitals the “gross working
capital: This means that the firm’s investment in current assets.
Current assets are those which can be converted in to cash within an
accounting year and they
Include cash, short term securities, and debtor’s bills receivable and
stock. Net working capital- this refers to the difference between
current assets and current liabilities. Current liabilities are those of
outside is which are expected to mature for payment within an
accounting year.Net working capital can be positive or negative. It is
positive when current assets exceed current liabilities and negative
when current liabilities exceed current assets.
Davidson (1984:401) defined “working capital as “current assets less
current liability”. He also defined it as “circulating capital”.
Weston &Brigham (1977:142) defined working capital management as
“management decision on the amount of capital invested in various
current assets and how this investment is to be financed”. It is
fundamental and of great importance to a business as it enables the
organization conduct its activities from free financial embarrassment.
Working capital management also aids the management to avoid the losses
consequent upon incurring commitments below or above its capacity in
ordinary course of business.
Retrof (1982:249) said that a firm should always maintain a sound
working capital position for it to have enough to run its business
activities. Both excessive as well as inadequate working capital
position are dangerous from firm’s view point.
Excessive working capital means idle fund which means no profit for the
firm, while inadequate working capital renders the firm unable to avail
attractive credit opportunities and drastic reduction in the rate of
return on total investment. The firm losses its reputation and capital
base could be eroded, there by affecting the organizations credit
worthiness.
Just as blood is life wire of any human being, the working capital of
any company is the pivot around which its day-to-day operations revolve.
it cuts across all departments and functions of an organization to the
extent that all the organizational activities would ground to a halt of
the working capital were not properly managed.
Therefore, the need for a sound and realistic working capital policy for
a manufacturing from like Anambra Motor Manufacturing Company (ANAMMCO)
becomes imperative
1.2 Statement of The Problem
The present world economic hazard coupled with economic policies being
operated in the nation has led to a situation where many business
organizations have to fold up. Others barely survive by thriving on very
lean financial and material resources. This is due to the mere fact
that procurement of capital to finance their daily operations is
increasingly becoming difficult. However, the efficient management and
control of working capital can generate a considerable amount of
internal financing.
The project topic seeks to analyze the Anambra motor manufacturing
company’s (ANAMMCO) working capital and its segment. The study uses
ration analysis as a measure of efficiency of working capital
management. The topic will equally determine the extent to which the
profitability of the company is dependent on the level of its working
capital management, using the percentage ratio measurement.
1.3 Purpose of The Study
The objective of any study undertaken is to contribute to the
development and growth of its case study. The purpose of this study
includes:
a) To show how working capital management can affect the profitability of the company.
B) To examine the contribution made by the working capital management on
the activities of a manufacturing company, with particular reference to
ANAMMCO.
C) To illustrate the ways in which working capital management can be used as a tool for cost minimization.
D) To recommend where necessary and appropriate alternative working
capital management technique practical and procedure to ANAMMCOs top
officials.
1.4 Significance of The Study
This work, working capital management as a tool for cost, minimization
and profit maximization will assist biz organization on their operations
and enable them to formulate a working capital management that is
suitable for their business environment in order to optimize the profit
of their operations.
It is hoped that factors that defy the smooth operation of the company
in an area of working capital will be identified. This will go a long
way to aid the management in future planning of an ideal working capital
management. Finally, it is hoped that recommendations of this work
would be of great importance to the other manufacturing companies that
may adopt them to suit their goals. This research work also intended to
provide a base for further researches inthe area of working capital
management, the government will benefits as efficient and effective
working capital will bring about increase in profits which is taxable,
and can also be used for expansion and employment criteria.
1.5 Research Questions
1 How does working capital management contribute to the activities of a manufacturing organization?
2 Does working capital management affect the profitability of a manufacturing concern?
3 Does working capital management lead to cost minimization in an organization?
4 What are the alternative working capital management techniques?
These questions when answered will show how well working capital
management contribute s in serving as a tool for cost minimization and
profit maximization in ANAMCCO.
1.6 Statement of Hypothesis
In other to determine the contribution, efficient working capital
management had made towards the performance and growth of the company,
it is important to test the following hypothesis:
H0: The profitability of a company does not depend on the level of company’s working management capital.
H1: The profitability of a company is dependent of the company’s working capital management.
H0: Working capital management is not a tool for management control in a business concern.
H1: working capital management is a tool for management control in a business concern.
H0: Ineffective working capital management has no effect on production.
H1: Ineffective working capital management is the cause of inefficiency in production.
1.7 Scope of the Study And Its Limitation
In the process of conducting this research topic, the researcher’s
examination will only be concentrated on the case study of ANAMMCO. This
research work will cover working capital management. The researcher
intended as much as possible to conduct an adequate researcher but could
not be achieved due to some constraints. Based on the developing nature
of the nation’s economy and high demand of adequate working capital,
there is every indication that there are constraints to the validity of
the conclusion reached.
This study is limited by certain constraints required to write of, the
cost incurred in making this project a success. Such limitations are as
follows.
1) Lack of fund required to cover the cost of transportation, materials for working and typing the project and binding it.
2) Time factor: the time allotted for the completion of this study is
too short for more objective of the results. An extension of the time
given should be encouraged. The researcher is suggesting that project
topic should be approved for the writer starting from the first semester
of the academic session.
3) Co-operation from the staff of the company: The researcher, if not
for the help of friends and well the company and libraries could have
been so difficult. The management and staff thought that the researcher
was about to carry out espionage to other competitors. It took the
researcher some time to convince the management that the research is
strictly for academic purpose.
4) Lack of exeat to leave school for research materials and to make more enquires.
1.8 Definitions of Terms
The following terms are defined in the contexts which are used in this research work:
1 Working capital management: This refers to the administration of current assets and current liabilities.
2 Working capital: Excess of current asset over current liabilities. It
is also defined as capital available for day- to –day operations.
3 Current Assets: cash and other assets that are expected to turn into
cash if sold or exchanged within the normal operating cycle of the firm
usually one year.
4 Current liabilities: A debt or obligation that must be discharged within one year.
5 Gross working capital: This means that firms investment in current assets.
6 Net working capital: This refers to the difference between current assets and current liabilities.
7 Liquidity: Refer to the available of cash or near resources for meeting company’s obligations.
8 Profitability: Accounting for profit relation to asset used in business operation.
9 Cash flow: cash receipt less disbursement from a given assets or group of assets for a given period.
10 Effectiveness: This is the extent to which a predetermined goal or objective is achieved.
11 Efficiency: The extent to which inputs are used in relation to a given of output.
12 Re-order time: The time at which new stock is due for procurement.
13 Economic Order quantity: This is the optimum order quantity for an item of stock, which will minimize cost.
14 Spontaneous financing: Sources of financing that arises from ordinary business transaction.
15 Accounting: net liquid assets computed by deducting current liabilities from current assets.
16 Working capital is the cash available for day to day operations of an
organization. One borrows cash to be able to buy assets or to pay for
obligations.
REFERENCES
Davidson S.(1984) Management Accounting, Japan: Sauder’s international.
Orji, J (2001) financial management, Enugu: Splash media organization.
Retrof J V(1982) Small Business Management, New-York: MC Gram Hall.
Weston, J.E and Brigham. E. (1972) Management Finance, Usa: Wilhos Dryden
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