Management of Working Capital

ABSTRACT

 

Management of working capital which aims at maintaining an optimal balance between each of the working capital components, that is, cash, receivables, inventory and payables is a fundamental part of the overall corporate strategy to create value and is an important source of competitive advantage in businesses (Deloof, 2003). The main objective of the study was to establish the impact of working capital on business performance of First Bank Nig. PLC.

The research used both descriptive and quantitative research design. The quantitative research approach was employed to arrive at the findings of the study. From the regression models, the study found out that inventory turnover in days has negative relationship with Return on Equity which means that companies‘ business performance can be increased by reducing inventory in days. Cash Conversion period and Net payment period shows significant negative relation with Return on Equities showing that firms‘ business performance can be increased with short size of both of them. The study recommends that there should be proper inventory management system in firms to avoid over stocking of inventory resulting to efficient outcome of investment. Management of business firms should also make sure certain standards and levels which will stop piling up of inventory. The study further recommends that companies should engage in relationship with those suppliers who allow for long credit period and those customers who accepts short payment period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

DECLARATION..................................................................................................... ii

ACKNOWLEDGEMENTS....................................................................................... ii

DEDICATION.......................................................................................................iiv

ABSTRACT............................................................................................................ v

TABLE OF CONTENTS...........................................................................................vi

CHAPTER ONE INTRODUCTION........................................................................... 1

1.1 Background of the Study............................................................................... 1

1.2 Statement of the problem............................................................................ 3

1.3 Objectives of the study................................................................................. 4

1.4 Research hypothesis......................................................................................4

1.5 Research questions........................................................................................5

1.6 Significance of the Study................................................................................5

1.7 Scope of the Study.........................................................................................6

1.8 Limitations of the Study.................................................................................6

CHAPTER TWO LITERATURE REVIEW  ................................................................ 7

2.1 Overview of Financial Management............................................................. 7

2.2 Objectives of Working Capital Management.............................................          ...8

2.3 Significance of Working Capital Components Management..........................8

2.4 Inventory Management...............................................................................11

2.5 Account Receivables Management..............................................................13

2.6 Cash Management.......................................................................................14

2.7 Account Payable Management....................................................................15

2.8 Measurement of Working Capital Management.........................................16

2.9 Working Capital Management.....................................................................18

2.10 Financial Performance...............................................................................20           

2.11 Relationship between Working Capital and Financial Performance..........22

2.12 Cash Conversion Cycle...............................................................................24

2.13 Working Capital Policy...............................................................................25

2.14 Investing in Working Capital......................................................................28

2.15 Short Term Financing.................................................................................29

2.16 Profitability and Liquidity Measures..........................................................30

2.17 Conclusion..................................................................................................32

References.........................................................................................................34

CHAPTER THREE.................................................................................................35

RESEARCH METHODOLOGY...............................................................................35

3.1 Introduction ................................................................................................35

3.2 Research Design...........................................................................................35

3.3 Population ...................................................................................................35

3.4 Sample Design..............................................................................................36

3.5 Data Collection.............................................................................................36

3.6 Data Analysis................................................................................................36

3.7 Research Model...........................................................................................37

References.........................................................................................................39

CHAPTER FOUR..................................................................................................40

DATA ANALYSIS, RESULTS AND DISCUSSION.....................................................40

4.1 Introduction.................................................................................................40

4.2 Data Analysis and Findings...........................................................................40

4.3 Descriptive Statistics....................................................................................40

4.4 Correlation Analysis.....................................................................................42

4.5 Regression Analysis......................................................................................44

CHAPTER FIVE ...................................................................................................48

SUMMARY, CONCLUSION AND RECOMMENDATIONS......................................48

5.1 Summary......................................................................................................48

5.2 Conclusions..................................................................................................48

5.3 Recommendations.......................................................................................48

5.4 Suggestions for Further Research................................................................49

REFERENCES.......................................................................................................50