1.0 Introduction
1.1 Background of the Study
Over the years, people had the zeal to start on business or firm profitably and effectively and some of them ended up effectively and great due to fact that they undertake adequate evaluation of these propose investments. They take into consideration some vital issues that lead to the successful running of the business or firm. Among the crucial factors to be considered is the management of working capital.
The working capital is the capital available for conducting the day to day operations of an organization. It is normally the excess of current assets over current liabilities.
The efficient allocation of working capital leads to normal working capital. a firm should always try to maintain an optimal working capital position. The firm also has adequate working capital to run its business. Enough working capital will enlarge the firm's profitability and also results to production efficiencies.
The benefits that accrue to firms that have sufficient and adequate working capital cannot be over emphasized while some firms that has adequate working capital have benefits attached to them such as discounts being allowed or its prompt payment of goods. Added to these are increase in the firm's ability to tackle emergency problem is foreseen, easy reach of goods required to carry accounts receivable obtain inventory and meet payroll obligations payment of long term debts (debentures, bonds, loans etc), payment of cash dividends, redemption of redeemable preference shares, acquisition of non current assets etc.
Working capital management is the relationship term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that I has sufficient ability to satisfy both maturing short term debt and up coming operational expenses. It involves managing inventories, accounts receivable and payable and cash. The overview was developed by “Soyodu”.
Working capital management is effective by measuring the liquidity and managerial efficiency related to company's current position. The tools employed to accomplish this task will be a company's cash conversion cycle hedged.
Also, investors or companies has to look at their company as a going concern and also spotting liquidity enhancing in a company's financial information, or example, for a company that has non-current investment securities, there is typically a secondary market for the relatively quick conversion of all or high position to these item to cash. By working more closely with a variety of business units and developing sound processes and system so help them manage for cash. When a business owner is instantly evaluating the performance of his or her company comparing it with a company historical figures with its industry competitors, and even with its industries competitors and when company display an above average rate of earnings on investment capital for an extended period of time probably years.
1.2 Brief History of the Case Under Study
The Calabar Cement Company was established as a commercial venture for the purpose of profit maximization and returns on investment. The performance of the company has been effective due to the huge amount of human and material resources involved. Many methods were used in the measurement or effectiveness of the company and all to the desired outcomes. The working capital injected manifest in output. This study tends to find out theses effects of working capital and a company's performance which is the thrust of this study.
Calabar Cement Company has long been the envy of other companies given their strong balance sheet. High operating margins and access to cash. As a result of these competitions advantages members of the industry have historically paid little attention to release cash which forms their working capital which is commonly defined as the difference between a company's current assets and its current liabilities.
1.3 Organisation of the Study
The introduction chapter gives and overview of the whole research study. The statement of the problems, the likely research question, the hypothesis, objectives of the study and the significance of the study are all found in the chapter.
The second chapter is interested in the review of the literature. This entails what the other researchers that have handled this topic have presented as their opinion in the case of the effect of effectiveness capital on a company's operations. It would equally give an idea of the main knowledge the research wishes to impact by taking up the research. Chapter three has to do with the research design. It comprises of sub-sectors that would deal with the method of data collection the actual research design as well as the problems encountered in field work.
Consequently, the fourth chapter has as its main focus the help the reader to have an idea whether effectiveness working capital has a positive or negative effect on a company's operations.
Finally, the last chapter would reveal the findings from the study with the use of quantitative measures and statistical tools.
1.4 Statement of the Problem
Most business does not understand the effectiveness of working capital on the management of their business. They fail to realize the importance of working capital which serves as a veritable means for knowing the actual profit an organization makes at a particular point in time or the loss such fail to know their gross profit and net profit, the work of their assets over their liabilities through the preparation of balance sheet. This therefore gives them a false impression of the actual and true state of affairs of their company.
1.5 Objective of the Study
The objectives in which this study tends to achieve are as follows:
- To determine the effect of a working capital on a firms performance.
- To determine from he findings if the evaluation of the effectiveness of working capital is from the managers.
- To enlighten some financial managers on how their financial efficiency growth could be handled effectively in order to achieve organizational goals.
- To determine on how the financial managers obtain loan with low interest rate to boost the capital base for performance.
- Methods which are used to obtain debts owned by debts that is strong in measures.
- How they develop some strategies for effective cash flow in the organization.
- How they analyze their customers to determine how credit worthy the customer is.
- They develop and retain data base for easy collection of information so as to know the direction the company wants to flow.
1.6 Research Questions
- Does financial working capital reposes have any impact or effect on the management of a business?
- Does a company derive benefits from adequate working capital reports?
- Does adequate working capital repots aid an organization in the areas of decision making out advice the objectives of the firm?
- Does management use working capital reports in determining the profitability and liquidity of a business at any point in time?
- Does boost in capital injection have effect on output?
1.7 Research Hypotheses
For this research work, the hypotheses to be used are:
Ho: There is no relationship between the effectiveness of working capital and company's performance.
Hi: There is no relationship between injections of capital performance.
1.8 Significance of the Study
This study will help all those that are interested in the key effectiveness firms, when it has to do with working capital that is sufficient for the running of the firm by examining the effectiveness of working capital as an information system directing the business person to such effect Stanley.
Also examining and encouraging all to obey and heed the warning of working capital information.
It will aid the financial managers as well as those concerned with the running of the business to know how effectively. Financial statuses are from an angle that would not lead to a negative outcome, but increase the firm's profitability.
A positive outcome attracts investors and equally firms should know what problems to watch out for so as to act as a guide in their expectations. Its positions outcome in academics or its significance to the entire academic world in the sense that the research will add to the volume of researches so far undertaken and therefore will serve as basis for further researches thereby increasing the world knowledge on the issues upon which the research is based.
1.9 Limitations of the Study
Time involved and the cost of the research instrument i.e. structure questionnaires and oral interviews of those concerned the scope of this job is limited to Calabar where the factory is located.
With necessary beliefs and confidence that the respondents in their answer will be honest and correct in answers given.
Another main limitation is the ability of the respondent to give the required information as at when due. To gather information as it regards to companies mode of operation and management style taking into consideration source of funds, credit facilities and other financial institution that is directly or indirect to these companies.
Time is one of the other factors to use as to set respondents' answers some of the existing questionnaire as it affects the company. These limitations are peculiar to the study. To structure the information from the respondents and as it affects the effectiveness of working capital in a company's performance that is the thrust of this work.
1.10 Definition of Terms
1. WORKING CAPITAL:
This could be defined using two different concepts; that is the gross concept and net concept.
2. GROSS CONCEPT:
This simply termed working capital refers to the firm's investment in current assets.
3. NET CONCEPT:
The net working capital concept refers to the difference between current assets and current liabilities.
4. CURRENT ASSETS:
These are the assets which can be converted into cash within an accounting year or operational cycle.
5. CASH:
This is the measure of current assets since current liabilities are paid of in cash. However, earmarked cash held for specific purpose such as plan expansion should not be considered as current compensating balance under bank loan agreements cannot in most cases be regarded as “free cash”. Cash in excess of current requirement made for the purpose of earning a return on these funds.
6. STOCKS:
These are considered as current assets except in cases where there are excess of current requirement. Such excess inventories which should be shown as non-current must be distinguished from inventories such as tobacco which require a long ageing cycle.
7. PREPAYMENTS:
These are considered current, not because they can be converted into cash but rather they represent advance payments for services and supplies which would otherwise require the current outlay of cash.
8. EXCESS WORKING CAPITAL:
Effectiveness of working capital could be defined as the availability of sufficient funds to be used for all short term or current assets required for the daily operations by a affirm. It summed up to the excess of current assets over current liabilities.
