management of working capital project
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The competitiveness of global manufacturing industries has evolved to
the point where attractive returns are no longer guaranteed from their
operations. In fact, the staff reduction and technical advancement
reduction can easily be traceable to unattractive returns.
A way out of this phenomenon is the improvement of returns on capital
employed (ROCE) and cash flows by focusing on component of
capital employed that is tied up in working capital; inventory,
receivables and payables.
Organizations now pay more attention to the effect of returns and risks
on the assets: Current and Fixed assets. As well known, that the
decision to finance any of these assets rest on the management of the
organisation and in making decision on finance, the management
must balance the requirement for higher returns by using short-term
debt to finance current asset against risks of illiquidity that can result in
insolvency.
According to Olare (1997), it is essential that the investment in working
capital is effectively and efficiently managed to maintain control of
business cash flows, an investment in working capital must consider
the trade off between liquidity (risk) and profitability.
Business Capital is broadly divided into two groups: Fixed Capital and
Working Capital. Fixed Capital refers to the funds invested in fixed
assets of a firm in the form of land, building, machinery etc. Working
Capital refers to the funds invested in the current assets of a firm such
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as raw materials, work-in-progress, finished goods, receivables, cash
etc. From the viewpoint of manufacturing process, working capital
means that part of capital, which is required to keep the flow ofproduction smooth and continuous.
.
Working Capital, being the lifeblood of any enterprise, its management
becomes a crucial exercise for the Financial Managers of firms. The
need of working capital is directly linked to the growth of the firm. In
the past, only the problems of the management of fixed capital were
given importance in the exercise of financial management. But in the
present scenario, looking to the increasing importance of the working
capital in any business unit, the exercise of management of working
capital has become as much important for a financial manager as the
management of fixed capital.
Some authors go the extent of saying that financial management
means working capital management. Even if this extreme view is
regarded as unacceptable, there is no doubt that a large part of a
financial managers time and energy is used up in attending to the
problems of working capital management.
The exercise of working capital management covers the following
points to be considered:
1.Estimating the working capital requirements.
2.Financing of working capital.
3.Optimum untilisation of working capital
The aim of this research work is to determine the importance of the
management of working management to business. And also the
adverse effect which neglecting of working capital management could
have on the profitability and continual existence of businesses.
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1.2 STATEMENT OF THE PROBLEM
Every organisation whose working capital is effectively managed is
likely to meet its financial obligation as they fall due. On the other
hand, organisation whose working capital is poorly managed is
proves to financial crises when faced with unforeseen situations i.e.
unforeseen expenditure. Therefore, the problems identified with the
management of working capital which the study is giving solutions
to are:
i. The problem associated with how a company should optimize
its working capital
ii. The problem associated with how to determine the adequate
level of investment in working capital
iii. The problem of to balancing of liquidity with profitability
1.3 SIGNIFICANCE OF THE STUDYThe survival and growth of the manufacturing companies had been
of great concern to various people. Several methodologies had
been used to analyse the soundness of the working capital
management in the manufacturing industries.
1. This study is expected to be of great importance to determine
the rate at which the management of working capital in the
manufacturing industries affect the efficiency and performance in
organisation
2. Determine best possible strategies required to effectively
manage working capital
3. The result of this study will be used to create a balance between
liquidity and profitability in businesses.
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1.4 OBJECTIVE OF THE STUDY
The objective of the study is to examine the effect of efficient
working capital management system on the growth ofmanufacturing industries. More specifically, other objectives are:
i. To find out the effect of working capital on the short and long
term survival of a company.
ii. To assess the level of effective control of working capital
management
iii. To evaluate the impact of efficient working capital
management on the growth of manufacturing industries.
iv. To provide plausible recommendations and on how working
capital could be effectively managed for improved organisational
performance.
v. To find out methods of managing working capital in Lever Brothers
Plc
1.5 THE SCOPE OF STUDY
The research work examined the factors which influenced the
efficiency of working capital management using the UNILEVER
NIGERIA PLC as a case study. The work covered the relating
working capital in the period of study.
1.6 RESEARCH HYPOTHESIS
In the process of this research, the researcher intends to examine
the hypothesis stated below:
HYPOTHESIS 1
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1. NULL HYPOTHESIS (HI)
The profitability of a company does not depend on its liquidity
ALTERNATIVE HYPOTHESIS (HO)
The profitability of a company depends on its liquidity
2. HYPOTHESIS 2
NULLHYPOTHESIS (HI)
The company does not have working capital as at needs to
manage the available resources
ALTERNATIVE HYPOTHESIS (HO)
The company has working capital as at needs to manage the
available resources
3.
1.7 DEFINITION OF THE TERMS
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Fixed Assets: These are the assets acquired that are used for more
than one year which produce economic benefit
Current Assets: These are assets which are expected to beconverted to cash in one year to meet current obligation
Current Liability: These are liabilities that a firm must satisfy
(pay) within one year
Cash: This is the basic input needed to keep the business
running on a continuous basis
Capital: Money invested to carrying on a business for the
purpose of getting profit
Capital Employed: Total money tied up in a business to allow it
operate
Investment: Act of putting money on a business to make profit
Inventory: This is a general terminology referring to stocks of
different articles
Batch: A number of things dealt with at a time as a group.
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CHAPTER TWO
LITERATURE REVIEW
2.1 THE CONCEPT OF WORKING CAPITAL
Working Capital, in the simple words, means the capital
invested in the current assets of a business
However it has been variously defined as : The current assets of a
company that are changed in the ordinary course of business from
one form to another, as for example, from cash to inventories,
inventories to receivables, receivables into cash. So, Working
Capital is descriptive of that capital which is not fixed. But the more
common use of working capital is to consider it as the difference
between the book value of the current assets and current
liabilities.
Thus, there are two different opinions about the meaning of the
term Working Capital
(1) According to first school of thought, working capital represents
all current assets of the Company. They believe that working
capital represents those assets, which change their form during the
process of production.
Working Capital = Total Current Assets
(2) According to the second school of thought, working capital is
the excess
of current assets over current liabilities.
Working Capital = Current Assets Current Liabilities
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Current assets include cash, accounts receivable, notes receivable,
advances on contracts, inventories etc. Current liabilities include
accounts payable, notes payable, accrued expenses, temporary loansetc. Under this concept an attempt is made to measure net working
capital of the Company.
To avoid the confusion involved in the interpretation of working capital,
the total current assets are described as gross working capital, while
the excess of total current assets over total current liabilities are
described as net working capital.
2.2 FEATURES OF WORKING CAPITAL :
The features of the working capital distinguishing it from the fixed
capital are as follows:
i) Short Term needs
Working capital is used to acquire current assets, which get converted
into cash in a short period. The duration of working capital depends on
the length of production process, the time that elapses in the sale and
the waiting period of the cash receipt.
ii) Circular Movement
Working capital is constantly converted into cash, which again turns
into working capital. This process of conversion goes on continuously.
It moves in a circular way. That is why working capital is also
described as circulating capital
iii) An element of permanency
Though working capital is a short-term capital, it is required always
and forever. It is required to run the production activity of the firm
smoothly and uninterruptedly. So long as the production continues, the
firm will constantly remain in need of working capital.
iv) Fluctuating
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Though the requirement of working capital is felt permanently, its
requirement fluctuates more widely than the fixed capital. The
requirement working capital varies directly with the level of production.The portion of working capital that changes with production, sale, price
etc. is called variable working capital
v) Liquidity
Working capital is more liquid than fixed capital. It can be converted
into cash within a short period and without much loss. A firm in need of
cash can get it through the conversion of its working capital by
insisting
on quick recovery of its bills receivable and by expediting sales of its
products. It is due to this trait of working capital that the firms with a
larger amount of working capital feel more secure.
vi) Less Risk
Investment in the working capital is less risky as it is a short-term
investment. Working capital involves more of physical risk only and
that
also is limited. It involves financial or economic risk to a much less
extent because variations of the product prices are less severe
generally. It is also free from technological changes as it gets
converted into cash again and again.
2.3 WORKING CAPITAL OR CASH OPERATING CYCLE
A working capital or cash operating cycle is the total length of time
required to complete the following sequence of events.
- Conversion of cash into raw materials
- Conversion of raw materials into works in progress
- Conversion of working in progress into finished goods
- Conversion of finished goods into debtor through sales
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- Conversion of debtor into cash through debt collection
This working capital cycle is the total length of time betweeninvestment on raw materials at the start of the production process
(cash outflow) and time of recovery at the end with the collection of
cash from debtors (cash inflow). As an introduction to the working
capital cycle, here is a quick reminder of the main types of cash inflow
and outflow in a typical business:
Inflows Outflows
Cash sales to customers Purchasing finished goods for re-sale
Receipts from customers who were
allowed to buy on credit (trade
debtors)
Purchasing raw materials and other
components needed for the manufacturing
of the final product
Interest on bank and other balances Paying salaries and wages and other
operating expenses
Proceeds from sale of fixed assets Purchasing fixed assetsInvestment by shareholders Paying the interest on, or repayment of
loans
Paying taxes
Cash flow can be described as a cycle: The business uses cash to
acquire resources (assets such as stocks).The resources are put to
work and goods and services produced. These are then sold to
customers. Some customers pay in cash (great), but others ask for
time to pay. Eventually they pay and these funds are used to settle
any liabilities of the business (e.g. pay suppliers).And so the cycle
repeats
Hopefully, each time through the cash flow cycle, a little more money
is put back into the business than flows out. But not necessarily, and if
management dont carefully monitor cash flow and take corrective
action when necessary, a business may find itself sinking into trouble.
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2.4 DETERMINANTS OF WORKING CAPITALThere are no set rules or formulate to determine the working capital
requirements of a firm. There are n numbers of factors influencing the
working capital requirements of a firm, some of which are;
i) Nature of business
Working capital requirement of a firm is basically influenced by the
nature of its business. Trading and financial firms require large amount
of working capital. In contrast, the manufacturing firms require less
amount of working capital and large amount of fixed assets.
ii) Sales and Demand Conditions
The sales and demand conditions of a firm also affect its working
capital position. It is difficult to precisely determine the relationship
between volume of sales and working capital needs. Sales depend on
the demand conditions. Most of the firms experience seasonal and
cyclical fluctuations in the demand of their products and services.
These business variations affect the working capital requirement,
particularly the temporary working capital requirement of the firm.
When there is an upward swing in the economy, the sales will
increase and untimely the firms investment in inventories and debtors
will also increase. On the other hand, when there is a decline in the
economy, the sales will fall and ultimately, the level of inventories and
debtors will also fall. Under recessionary conditions firms try to reduce
their short-term borrowings.
iii) Technology and Manufacturing Policy
The manufacturing cycle of the firm also affects the requirement of the
working capital. The manufacturing cycle comprises the purchase and
use of raw material and production of finished goods. Longer the
manufacturing cycle, larger will be the firms working capital
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The price level changes also affect the level of working capital.
Generally, rising price levels will require a firm to maintain higher
amount of working capital. However, the effect of rising prices may bedifferent for different companies, as though the general price level
increases, the individual prices may move differently. Therefor some
firms may require more working capital, while other may require less
working capital in case of price rise.
viii) Growth and Expansion Plans :
The growth and expansion plans to be undertaken by a firm also affect
its requirements of working capital. Hence the planning of the working
capital requirements and its procurements must go hand in hand with
the planning of the growth and expansion of the firm. Even the
expansion of the sales also increases the requirements of working
capital.
2.5 FORECASTING WORKING CAPITAL REQUIREMENT
Occasionally, a company requires forecasting the amount of working
capital needed to finance an increase in output or introduction of new
products. The anticipated production level and production costs,
length of production cycle, planned stock level and credit term are all
factors to be considered in preparing a working capital forecast.
A firm has to maintain an adequate level of working capital to run its
operations smoothly and effectively. It should be adequate in the
sense that it shall not be more than the requirements nor it shall be
less than the requirements. Both the excessive as well as inadequate
working capital positions are dangerous from the firms point view.
We know that the current liabilities are met out of the current assets.
So the level of current assets shall be sufficient enough to meet the
current liabilities. Excessive working capital refers to the position
where when the level of current assets is much higher to meet current
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liabilities. The excessive capital has opportunity cost for the firm, as
this excessive capital remains idle in the firm, which earns no profit for
the firm. If these funds shall be invested in some profitable project, itadds the profitability of the Company.
On the other hand, inadequate working capital refers to the position
where the current assets are not sufficient enough to meet the current
liabilities. Such type of position may be harmful to the firm as it may
interrupt the production and sales of the Company, which ultimately
affects the profitability of the Company. Moreover if the liquidity
position of the firm is not adequate enough to meet its current
liabilities, it may affect its credibility in the market.
Therefore an enlightened management should maintain the right
amount of working capital on a continuous basis. Only then the proper
functioning of business operations can be ensured. The amount of the
working capital shall be maintained at such level, which is adequate
for it to run its business operations, neither excessive nor inadequate.
This level of working capital is called as the Optimum Working
Capital.
2.6 Risk Return Trade-off :Liquidity v/s Profitabilit
The level of working capital affects the degree of risk and profitability
both. Hence the level of working capital should be so fixed that, on the
one hand, its financial soundness is maintained and on the other
hand, its profitability is optimised.
At this point it is necessary to be clear about the meaning of solvency
or insolvency of the firm. Solvency means a situation in which a firm
can easily repay its debts as and when they mature. On the other
hand, insolvency is a situation in which a firm is not able to repay its
debts as and when they become due for payment.
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The term risk implies the profitability that a firm will become technically
insolvent, so that it will not be able to meet its obligations as and whenthey become due for payment.
2.6.1 Nature of trade-off:
If profitability is to be increased, the firm must increase its risk. If the
firm wants to decrease risk, its profitability will also decrease. If a firm
wants to maintain insolvency, it must maintain a higher level of
liquidity. That is, it must hold a larger amount of current assets such as
cash, receivables, stock of goods etc., so that there would be no
problem in repaying the debts as and when they due for payment.
However, if a firm holds more amount of current assets, the prospects
of profit decline due to the fact that most of its funds are locked up in
idle current assets, which earn no profit.
On the other hand, if a firm wants s to increase its profitability, it must
be prepared to increase its risk of insolvency, as it would have to
reduce its investment in current assets. However a smaller amount of
liquidity increases risk of insolvency and, at the same time, it
increases profitability also.
The firm should maintain the its current assets at such level that on
one hand its profitability increases and on the other hand its risk of
insolvency decreases. There should be a balance between profitability
and risk. The level, at which there is a trade-off between the risk and
return, is the optimum level of working capital for a firm
2.7 MANAGEMENT OF WORKING CAPITAL
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Working Capital management refers to the administration of all
aspects of current assets namely cash, marketable securities, debtors
and stock(inventories) and current liabilities.The financial manager should determine levels and composition of
current assets. He must see that right sources are tapped to finance
current assets and that current liabilities are paid in time.
Working capital management is critical for all firms, but particularly for
small firms. A small firm may not have much investment in fixed
assets, but it has to invest in current assets. Further, the role of
current liabilities in financing the current assets is far more significant
in case of small firms, as, unlike large firms they, face difficulties in
raising long-term finances. The main problems of the management of
working capital are as stated below:
a. to determine a proper amount of working capital to be held in the
Business i.e. estimating the working capital needs
b. to take decision on the sources of working capital i.e. procurement
of Working capital
c. to ensure that the working capital is efficiently utilised i.e. optimum
of utilisation of working capital
Before we consider these problems lets first understand some of the
Principles of working capital management:
2.7.1 Principles of Working Capital Management :
The financial manager must keep in mind the following principles of
Working capital management:
i) Principle of Optimisation
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The level of working capital must be so kept that the rate of return on
investment is optimised. In other words, the working capital should be
maintained at an optimum level. This is the point at which the increasein cost due to decline in working capital is equal to the increase in the
gain associated with it.
According to the principle of optimisation, the magnitude of working
capital should be such that each Naira invested adds to its net value.
In other words Capital should be invested in each component of
working capital as long as the equity position of firm increases
ii) Principle of Risk Variation
This principle is based on the assumption that the rate of return on
investment is linked with degree of risk in the business. The greater on
investment is linked with the degree of risk in the business assumes,
the greater is the opportunity for gain or loss.
iii) Principle of Cost of Capital
Each source of working capital has different cost of capital. The
degree of risk also differs from one source to another. The type of
capital used to finance working capital directly affects the amount of
risk that a firm assumes as well as the opportunity for gain or loss and
cost of capital. A firm should raise capital in such a manner thata
balance is maintained between risk and profit.
iv) Principle of Maturity of Payment :
This principle states that the working capital should be so raised from
different sources that the firm is able to repay them on maturity out of
its inflows of funds. Otherwise the firm would fail to repay on maturity
and ultimately, it would find itself into liquidation though it is earning
huge profits. This implies that the firms ability to repay its short-term
debts depends not on its earnings but on the flow ofcash into it.
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These are some of the principles of working capital, which a financial
manager should keep in mind while managing working capital.
Nowlets discuss how to manage working capital.v) Estimating Working Capital needs :
The first step in managing working capital is to estimate about the
working capital needs. The most appropriate method for calculating
working capital needs of a firm is the concept of operating cycle.
In estimating working capital needs, different people adopt different
approaches. Some authors suggest that the working capital should be
greater than the minimum requirements of the firm. The management
should feel safety. It would be able to meet its obligations even in
adverse circumstances. However, the excessive capital may lead to
waste and inefficiency. On the other hand, many authors suggest that
the working capital should be lower than the requirement so that no
idle funds shall be invested in the current assets and it ultimately leads
to increase unprofitability of the Company. However, in such case the
firm always have risk of technical insolvency as it may not meet its
obligations as and when they falls due for payment.
So the question is what the proper amount of working capital is. It is
not an absolute amount. It depends upon the needs and
circumstances available in the firm.
2.8 MANAGEMENT OF COMPENENTS OF WORKING CAPITALThe financial manager of a firm shall, while thinking about the
management of working capital, consider the management of the
following components of working capital individually:
1. Cash Management
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2.InventoryManagement
3. Receivable Management
The exercise of management of each component of Working Capitalleads to effective management of Working Capital of a firm.
Lets have a brief idea about the management of each component of
working capital.
2.9 CASH MANAGEMENT
Cash is the medium of exchange which allows management to carry
on the various activities of the business on day to day basis. It
includes coins, currency, cheques held by the firm and the balance in
its bank accounts. In a broader sense, it also includes Near Cash
Assets such as marketable securities and time deposits with the
bank.
A firm should have a sufficient balance of cash neither more nor less
than the requirements. A firm holds cash for the following motives:
a) Transaction Motive, This is the need of holding cash to satisfy
normal disbursement and collation activities associated with firms
operations. This motive of holding cash is to meet day to day
obligations of a company.
b) Precautionary Motive, The purpose of holding cash in this case to
meet unforeseen contingencies like fire, accident, sudden breakdown
of equipment or vehicles. If expected cash is not received as planned
for, cash held on precautionary basis could be used to satisfy any
obligation that comes up which ought to have been satisfied by
expected cash.
c) Speculative Motive and This motive of holding cash is to create the
ability for a firm to take advantage of special opportunities that if acted
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upon quickly will favour the firm. Examples of this would be purchasing
of stock of a greater discount or investing in profit making
opportunities.
2.9.1 CASH MANAGEMENT STRATEGIES
Cash balance is significantly influenced by the firms production and
sales techniques and by procedure for collection of sales and paying
for purchases.The cash management strategy of a firm involves the
consideration of the following four factors
-Ascertainment of the minimum cash balance and controlling the
Levels of cash
- Controlling Cash Inflows
- Controlling Cash outflows
- Optimum investment of surplus cash
i) Controlling the levels of cash
The financial manager of a firm shall have the following tools available
with him for controlling the levels of cash.
Cash Budget:
Cash budget is a statement showing the estimated cash inflows and
cash outflows over the next planning period. The surplus or shortfall of
cash is highlighted by the cash budget.
Providing for contingencies:
In addition to the level of cash determined by the cash budget, a
suitable minimum amount of cash must be kept for meeting the
unforeseen contingencies such as strikes, floods, fire etc.
Consideration of cost of shortage of cash:
The cost arises in terms of loss of firms reputation or additional cost of
borrowing at higher rate of interest shall be considered.
Availability of other sources of funds:
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In case of shortage of cash, which are the sources that can be trapped
for meeting the urgent cash requirements.
ii) Controlling of cash inflows
After having prepared the cash budget, a finance manager must
ensure that there is no significant deviation between the projected
cash inflows and the actual cash inflows.
Effective cash collection shall be made by adopting the following
techniques.
Concentration Banking :
The Concentration Banking is a system of decentralised collection of
accounts receivable in case of large firms having their business
spread over a large area, by opening a number of collection centers at
selected strategically located areas and making collections from that
centers from the customers residing in that area.
Local Box System
In this system, the firm hires a post-office box and asks its customers
to send the cheques to the box. The firms local bank is given authority
to open the box and credit the payment in the firms bank account.
iii) Controlling of cash outflows
The operating cash requirement can be reduced by controlling the
cash outflows. The financial manager can use the following techniques
for the purpose.
Centralised Disbursements:
All the payment can be made from only one account at the Head
Office. This will result in delay in presentation of cheques for payment
by parties who are working from distant places.
Playing Float
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Float means the amount tied up in cheques that have been drawn but
have not yet been presented for payment. There is always a time lag
between the issue of a cheque by the firm and its actual presentmentfor payment. As a result the firms actual balance at bank may be
more than the balance as shown by its books. This different is called
Payment in Float.
Optimum Investment of Surplus Cash
The financial manager shall use its the cash efficiently and for that
purpose, the following points shall be kept in mind.
Determining Surplus Cash
Surplus cash is the cash in excess of the firms normal cash
requirements. This requirement can be computed by the multiplication
of desired days of cash and average daily outflows. If the cash
balance is more than this normal requirement, then the surplus cash
can be invested somewhere to earn returns.
Determining Channels of Investment :
Surplus funds can be invested in marketable securities or somewhere
else. While exercising such discretion, a finance manager must take
care of security, liquidity, yield and maturity associated with
marketable securities
2.10 INVENTORY MANAGEMENT
Inventory constitutes the most significant part of current assets of
manufacturing companies. Because of large size of company a
considerable amount of fund is required on inventory. It is this
absolutely and effectively in order to avoid unnecessary investment.
The inventories are stock of the product a company is manufacturing
for sale i.e the components that make up the product. The various
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forms in which inventories exist in a manufacturing company are raw
materials, work in progress and finished goods.
Raw materials these are basic input that are available to meet
production requirement.
Work in progress these are semi manufactured product
Finished goods these are completely manufactured products which
are ready for sales.
The stock of raw materials facilitates production while the stock of
finished goods is required for smooth marketing operation.
A firm holds inventory mainly for the following motives:
a. Transaction Motive; to meet demand of stock items where the size
of the demand is known certainty
b. Precautionary Motive;This motive of holding inventories is to guard
against the risk of unpredictable changes in future demand and supply
c. Speculative Motive; This is to take advantages of special
opportunities that if acted upon quickly will favour the company. It also
helps to get discount on bulk purchasing.
As the inventory involves the investment of the funds, it should be
managed properly or rather controlled properly. Inventory
management is a planned method to determine which items is to be
purchased and how much to be kept in stock, so that the costs of
purchase and storage both are minimised without adversely affecting
either production or sales. It involves the decision of the firm as to the
extent to which inventories can be economically stored.
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The inventory hold by the firm involves the following cost to the firm:
a. Ordering Costs:
Every time an order is placed for stock replenishment; certain costs
are incurred called as ordering cost. It includes paper work costs,
follow up costs, staff costs etc.
b. Carrying Costs:
Carrying costs are the costs of holding inventory for a given period of
time. It includes storage cost, handling cost, insurance cost, obsolesce
cost etc.
It is possible to reduce its inventory without affecting the production
and sales. Though the use of simple inventory and planning control
techniques, excessive stock (inventory) can be reduced thus
enhancing the profitability of a firm.
2.10.1 Objectives of Inventory Management:
A fundamental objective of a good system of inventory management is
to be able to place an order at the right time from the right source to
acquire the right quantity at a right price and of right quantity.
Mainly there are the following objectives of the InventoryManagement:
1. to ensure adequate stock
2. to minimise inventories on hand
3. to maintain continuity in production
4. to minimise the cost of purchasing and storage
5. to minimise the wastage and loss
6. to reduce the risk of deterioration
7. o use the available capital effectively
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customers whose financial position is doubtful. A liberal policy results
into increase of sales and increase of profits. However, the risk of bad
debts and the opportunity cost of receivables are also increased. Thecollection costs are also increased.
On the other hand, a strict or stringent policy implies that the firm sells
in credit on a highly selective basis and only to those customers
whose financial position is sound. It results into reduction in sales and
reduction in profit also. However, the cost involved with the high
volume of receivables and risk of bad debts are also reduced. The firm
should determine its credit policy in such a manner that on one hand
its profitability is to be increased and on the other hand its liquidity
position is not hampered. That means the point at which the
profitability and liquidity is balanced is the optimum credit policy for the
firm.
2.12.1 Credit Policy Variables
While framing optimum credit policy, the financial manager shall
consider carefully the following variables of the credit policy:
a. Credit Standards
Credit Standards means the criteria on the basis of which, credit is
granted to a particular customer or particular group of customers. If
the standards are very strict in would reduce the volume of receivables
and vice versa.
Credit Standards of most of the firms include the creditworthiness of
the customer. That means the credit should be granted to a customer
after accessing his credit worthiness.
For accessing the creditworthiness of a customer two factors are
important
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i. Average collection period of a particular customer
ii. His default rate
While determining the creditworthiness of a customer five Cs are
taken into account:
i. Character
ii. Capacity
iii. Collateral
iv. Condition and
v. Capital
b. Credit Terms
Credit terms means both the credit period and the cash discount
offered, the credit period is the length of time for which credit is
extended to customers. It is stated by such terms as 3/15 Net45
meaning that if payment is made within 15 days, 3% cash discount will
be given. Even without discount, payments will be made within 45
days. Generally, the customers of the industry determine the credit
terms.
c. Collection Policy
The collection policy must be such as would help in collecting book-
debts in time and reduce the bad debts. A collection policy should
ensure prompt and regular collection. This would reduce the need for
more working capital and loss of bad debts. The firm must frame a
procedure to expedite collection from the customers.
e.g. First, a letter must be written to the customer to pay his dues. If he
does not respond, then a strong letter must be written. As a last step,
a letter must be sent informing the customer that legal action would be
taken is dues are not paid within certain days.
Thus, a financial manager of a firm shall, while managing its working
capital, consider carefully the management of the components of the
working capital, in the manner as stated above.
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2.13 Types of working capital
Working capital can be divided in two categories:
i) Fixed or permanent working capital
The volume of investment in current assets an change over a period of
time. But always there is minimum level of current assets that must be
kept in order to carry on the business. This is the irreducible minimum
amount needed for maintaining the operating cycle. It is the
investment incurrent assets. This is permanently locked up in the
business and therefore known as permanent working capital.
ii) Variable/temporary working capital
It is the volume of working capital that is needed over and above the
fixed working capital in order to meet the unforced market changes
and contingencies. In other words any amount over and above the
permanent level of working capital is variable or fluctuating working
capital. This type of working capital is generally financed from shorter
source of finance such as bank credit because this amount is not
permanently required and is usually paid back during off season or
after the contingency.
2.14 Sources of working capital
The company can choose to finance its current assets by
Long term sources
Short term sources
A combination of both
i) Long term sources of permanent working capital include equity and
preference shares, retained earnings, debentures and other long term
debts from public deposits and financial institution. The long term
working capital needs should meet through long term means of
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financing. Financing through long term means provides stability,
reduces risk or payment. And increases liquidity of the business
concern. Various types of long term sources of working capital aresummarized as follow
a) Issue of shares
It is the primary and most important sources of regular or permanent
working capital. Issuingequity shares as it does not create and burden
on the income of the concern. Nor the concern isobliged to refund
capital should preferably raise permanent working capital.
b) Retained earnings
Retained earnings accumulated profits are a permanent sources of
regular working capital. It is
regular and cheapest. It creates not charge on future profits of the
enterprises.
c) Issue of debentures
It creates a fixed charge on future earnings of the company. Company
is obliged to pay interest.
Management should make wise choice in procuring funds by issue of
debentures.
e) Long term debt
Company can raise fund from accepting public deposits, debts from
financial institutions like
banks, corporations etc. the cost is higher than the other financial
tools.
Other sources sale of idle fixed assets, securities received from
employees and customers are
examples of other sources of finance.
ii) Short term sources
Temporary working capital is required to meet the day to day business
expenditures. The variable working capital would finance from short
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term sources of funds. And only the period needed. it has the benefits
of ,low cost and establishes closer relationships with banker.
Some sources of temporary working capital are given below;a) Commercial bank
A commercial bank constitutes a significant sources for short term or
temporary working capital this will be in the form of short term loans,
cash credit, and overdraft and though discounting the bills of
exchanges.
b) Public deposits
Most of the companies in recent years depends on this sources to
meet their short term working capital requirements ranging fro six
month to three years.
c) Various credits
Trade credit, business credit papers and customer credit are other
sources of short term working capital. Credit from suppliers, advances
from customers, bills of exchanges, promissory notes, etc helps to
raise temporary working capital
d) Reserves and other funds
Various funds of the company like depreciation fund. Provision for tax
and other provisions kept with the company can be used as temporary
working capital.
The company should meet its working capital needs through both long
term and short term funds. It will be appropriate to meet at least 2/3 of
the permanent working capital equipments form long term sources,
whereas the variables working capital should be financed from short-
term sources. The working capital financing mix should be designed in
such a way that the overall cost of working capital is the lowest, and
the funds are available on time and for the period they are really
required.
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2.15 History of Unilever
Unilever Nigeria Plc, was incorporated as Lever Brothers (West Africa)
Ltd on 11th April, 1923 by Lord Leverhulme, but the companys
antecedents have to be traced back to his existing trading interests in
Nigeria and West Africa generally, and to the fact that he had since the
19th century been greatly involved with the soap business in Britain.
Unilever Nigeria Plc started as a soap manufacturing company, and istoday one of the oldest surviving manufacturing organizations in Nigeria.
After series of mergers/acquisitions, the company diversified into
manufacturing and marketing of foods, non-soapy detergents and
personal care products. These mergers/acquisitions brought in Lipton
Nigeria Ltd in 1985, Cheesebrough Ponds Industries Ltd in 1988. The
company changed its name to Unilever Nigeria Plc in 2001.
Unilever Nigeria Plc is a public liability company quoted on the Nigerian
Stock Exchange since 1973 with Nigerians currently having 49% of equity
holdings.
The long-term success of this business stems from the strong relationship
with the consumers based on the deep roots in the local cultures and
markets, creating products that help them to feel good, look good and get
more out of life and the total commitment to exceptional standards of
performance and productivity. In order to sustain this success, we
endeavor to maintain the highest standards of corporate behavior
towards our employees, consumers, customers, communities and
operating environment.
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3.4 TYPES AND SOURCES OF DATAPrimary data were used in the study. The source of the dark was
the staff of the concerned departments. The data was collected
through the administration of questionnaire.
3.5 INSTRUMENT OF DATA COLLECTION
The instrument used stated above was questionnaires. The
questions were simply set is such a manner that the respondents
will understand easily. The questionnaires were in two sections.
The sections A focused on bio-data information while section B
was based on questions pertaining to the research work.
3.6 METHODS OF DATA ANALYSIS
Data was analysed by inferential statistics and descriptive means.
The results of the research were presented with the use of tables
and percentage to facilitate simple representation classification and
interpretation of the data collected.
Inferential statistics, Chi- square method was used to test whether
the data collected would lead to the acceptance or rejection of
either the Null hypothesis (Ho) or the alternate hypotheses (Hi).
The Chi- square method was given as
X 2 = (fo fe) 2
fe
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Where
X2 = Chi- Squre
fo = frequency expectedfe = frequency observed
The significance level chosen for the purpose of testing this
hypothesis was 0.05, since this seems to be more acceptable and
realistic. Therefore, the criteria values were read on the table at the
point corresponding to the intersection of the significance level and
degree of freedom.
Degree of freedom (df) = (r-1)
Where
r = row
1 = constant
Decision Rule Reject Ho if X2 calculated is greater than
the tabulated value, accept if otherwise .
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CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
4.0 INTRODUCTION
This chapter contains analysis of data collected in the course of
this study. This analysis was based on the field research through
questionnaires administered to the staff of Unilever Nigeria.
A tabular format is used to present the data and chi-square methodis used to test and integrate the relevant findings of the research
work.
The data processing and analysis were manually done for each of
the research question contained in the questionnaire. The
responses are sorted out, categorized and later table to enhance
easy analysis and interpretation. Two hypotheses were posed by
the researcher. In this chapter each of the hypotheses was tested
vis--vis primary data.
The tables were used to summaries the responses of the
respondents collected based on their answers to them.
4.1 DATA ORGNISATION AND PRESENTATION
The questionnaires that were distributed to respondents were
seventy (70) copies out of which sixty there copies were well
answered and collected back by the researcher showing a
response rate of 90% which is considered adequate enough for an
accurate or very near accurate conclusion to be based on
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DISTRIBUTION OF RESPONDENTS ACCORDING TO
PERSONAL DATA
Table 1: GENDER DISTRIBUTION OF RESPONDENTSGender Frequency Percentage (%)
Male 38 60
Female 25 40
Total 63 100
Table 1 shows that 38 of the respondents represented by 60% are
male while 25 of the respondents represented by 40% are female.
Therefore male are more in the industry than female.
Table 2: AGE DISTRIBUTION OF RESPONDENTS
Gender Frequency Percentage (%)
21 30yrs 25 40
31 40yr 20 32
Above 41yrs 18 28
Total 63 100
It can be deduced from table 2 that 25 of the respondents
represented by 40% are between the ages of 21-30years, 32% of
them are between the ages of 31-40years while 28% of the
respondents are above 41 years.
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Table 3: MARITAL DISTRIBUTION OF RESPONDENTS
Status Frequency Percentage (%)
Single 33 52
Married 30 32Total 63 100
Table 3 shows that 52% of the respondents are single while 48%
are married. It shows that singles are more in the industry than
married.
Table 4: EDUCATIONAL QUALIFICATION OF RESPONDENTS
Qualification Frequency Percentage (%)
WASSCE/SSCE - -
OND/NCE 7 11
B.Sc/HND 32 51
MBA/MSc 16 25
PROFESSIONAL/OTHERS 8 13
Total 63 100
It is affirmed from table 4 that 11% of the respondents owns qualification
of OND/NCE, 51% of them owns BSc/HND, 25% of them owns MBA/MSc
while 13% of them owns PROFESSIONAL/OTHERS, qualification. Non of
the respondents has WASSSC/SSCE as the peak.
Table 5: DEPARTMENT DISTRIBUTION
Department Frequency Percentage (%)
Admin/Personnel 6 10
Purchasing 17 27
Purchasing 9 14
Sales 20 32
Raw Material 11 17
Total 63 100
Field Study: 2008
Table 5 shows that 10% of the respondents are in theAdmin/Personnel Dept, 27% are in accounting Dept, 14% are in
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purchasing Dept, 32% are in Sales Dept while 17% are in Raw
material Dept. It shows that majority of the respondents are from
Sales Dept.
Table 6: DISTRIBUTION BY LENGTH OF SERVICE
Length Frequency Percentage (%)
1 5yrs 8 13
5 10yrs 12 19
11 15yr 25 40
Above 15yrs 18 28
Total 63 100
Table 6 shows that 13% of the respondents have worked between
1-5years, 19% have worked between 5-10years, 40% have worked
between 11-15years, 28% have worked above 15 years.
SECTION B
PRESENTATION AND ANALYSIS OF DATA ACCORDING TO THE
QUESTION ITEMS
Table 7: Question 7
DOES YOU COMPANY HAVE ENOUGH WORKING CAPITAL?
Responses Frequency Percentage (%)
Yes 42 67No 8 13
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Total 63 100
Field Study: 2008
Table 7 shows that 67% of the respondents agreed to the question
by saying yes, 13% of them said No to the question while 20% of
them are not sure to the question.
Table 8: Question 8
WHICH OF THESE FACTORS MOSTLY AFFECT THE
MANAGEMENT OF WORKING CAPITAL?
Responses Frequency Percentage (%)Nature of business 23 36
Length of production, etc 32 51
All of the above 8 13
Total 63 100
Field Study: 2008
Table 8 shows that 36% of the respondents agreed that nature of
business affect the management of working capital, 51% of them
agreed that length of production, size of business etc affect themanagement of working capital while 13% chose all of the above.
Table 9: Question 9
WHAT THREAT DOES EXCESSIVE WORKING CAPITAL POSE
TO YOUR ORGANISATION?
Responses Frequency Percentage (%)
Unnecessary build up of inventory 18 29Higher incidence of bad debts 15 24
Affect the profit of the business 10 16
All of the above 20 31
Total 63 100
Table 9 shows that 29% of the respondents agreed that excessive
working capital will cause unnecessary build up of inventory, 24%
believe that it will cause higher incidence of bad debts, 16% believe
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that it will affect the profit of the business while 31% chose all of the
above.
Table 10: Question 10
WORKING CAPITAL SHOULD BE FINANCED BY?
Responses Frequency Percentage (%)
Long term debt 16 25
Short term debt 23 37
A mixture of two debts 18 29
None of the above 6 9
Total 63 100
Table 10 affirmed that 25% of the respondents believe that working
capital should be financed by long term debt, 37% believe that it
should be financed by short term debt, 29% of them believe that it
should be financed by mixture of two debts while 9% believe that
none of them will be used to financed working capital.
Table 11: Question 11
WHAT FACTORS GUIDE ORGANISATION INVENTORY BUILDS UP?
Responses Frequency Percentage (%)
Storage/holding costs 13 21
Set up/ordering costs 22 35
Stock out cost 10 16
Availability of discount from suppliers 10 16
All of the above 8 12
Total 63 100
Table 11 shows that 21% of the respondents believes that factors
that will guide organisation inventory builds up is storage/holding
cost, 35% believes that it is set up/ordering cost, 16% believe it is
stock out cost, 16% believes it is availability of discount from
suppliers while 12% believe all of the above.
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Table 12: Question 12
DOES YOUR BUSINESS ORGANISATION UNDERTAKEN
PHYSICAL STOCK TAKING IN ADDITION TO HAVING A GOODINVENTORY DOCUMENTATION?
Responses Frequency Percentage (%)
Yes 33 53
No 30 47
Total 63 100
Field Study: 2008
Table 12 shows that 53% of the respondents believes that the
organisation undertakes physical stock taking in addition to having
a good inventory documentation by saying Yes while 47% says No
to the question.
Table 13: Question 13
HOW IS AUTHORIZATION GIVEN FOR THE USAGE OF
INVENTORY IN YOUR ORGANISATION?
Responses Frequency Percentage (%)
Predetermined inventory
document
29 46
Verbal instruction 20 32
All of the above 14 22
Total 63 100
Table 13 affirmed that 46% of the respondent confirmed that
predetermined inventory document gives authorization for inventory
usage, 32% says that verbal instruction gives authorization for
inventory usage and remaining 22% of the respondents believe
that neither verbal instruction nor predetermined inventory
document gives authorization for inventory usage.
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Table 14: Question 14
Do you agree that the pace of growth of the company should notoutstrip the ability of the business to finance additional assets that
is needed to support any growth?
Responses Frequency Percentage (%)
Yes 25 40
No 38 60
Total 63 100
Table 14 says that 40% of the respondents agreed that pace of the
company should not outstrip the ability of the business to finance
additional asset that is needed to support any growth. But, 60% of
the respondent said No.
Table 15: Question 15
CASH SHORTAGE CAN BE CORRECTED BY NEGOTIATING A
REDUCTION IN CASH OUTFLOWS SO AS TO REDUCE
PAYMENT. DO YOU AGREE?
Responses Frequency Percentage (%)
Yes 41 65
No 22 35
Total 63 100
Table 15 affirmed that 65% of the respondent agreed that cash
shortage can be corrected by negotiating reduction in cash
outflows which will reduce payment. But 35% of the respondent
disagreed that cash shortage can be corrected by negotiating
reduction in cash outflows.
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Table 18: Question 18
A COMPANY CAN INCREASE IN SALES VOLUME BY
RELATING ITS CREDIT POLICY.Responses Frequency Percentage (%)
Yes 43 68
No 20 32
Total 63 100
Table 18 shows that 68% of the respondent said that company can
increase sales volume if credit policy is reduce. But 32% of them
no this statement.
Table 19: Question 19
WHY IS IT NECESSARY FOR A BUSINESS TO HAVE A CREDIT
POLICY?
Responses Frequency Percentage (%)
To control its investment in
account receivable.
24 38
To ensure that credit facilities
are given to those that worth it.
39 62
Total 63 100
In Table 19, 38% of the respondent said that it is necessary for a
business to have a credit policy in order to control its investment in
account receivable while 62% of them said it is necessary in order
to ensure that credit facilities are given to those that worth it.
Table 20: Question 20
WHAT DO YOU THINK IT DETERMINES CREDITORS PAYMENTPERIOD?
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Responses Frequency Percentage (%)
Debtor collection period 28 44
Availability of cash discount 16 25
Availability of cash surplus 9 14Al of the above 10 17
Total 63 100
According to table 20, 44% of the respondent said that debtors
collection period determines creditors payment period, 25% of
them said availability of cash discount determines creditors
payment period and 17% of them says that all the factors
mentioned determine creditors payment period.
Table 21: Question 21
DO YOU THINK ACCOUNTING RATIOS ARE GOOD MEANS OF
INTERPRETING FINANCIAL STATEMENT?
Responses Frequency Percentage (%)Yes 41 65
No 22 35
Total 63 100
65% of the respondent in table 21 said that accounting ratios are
good means of interpreting financial statement while 35% of the
respondent said No.
4.4 HYPOTHESIS TESTING
HYPOTHESIS 1
In testing null hypothesis 1 which states that the profitability of the
company does not depends on its liquidity level. The variables are
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the alternative hypothesis which states that the success or
otherwise of a company depends on effective management of
working capital.
HYPOTHESIS 2
Ho: The company does not have working capital as it needs to
manage the available resources variables are collected/ from table
7.
fo fe fo fe (fo fe)2 (fo fe)2
fe
42 21 21 441 21
8 21 13 169 8.05
13 21 8 64 3.05
Total 63 0 f = 32.1
The chi-square calculated is 32.1 from the table
at 0.05 level at significance at df (n 1) = (3 1) = 2
Chi square tabulated is 5.991
DECISION
Since the calculated chi-square is greater than the tabulated chi-
square at 0.05 level of significant, reject null hypothesis (Ho).
Therefore accept alternative hypothesis which states that the
company have working capital as it needs to manage the available
resources.
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CHAPTER FIVE
SUMMARY, CONCLUSION, RECOMMENDATION
5.1 SUMMARY
As it is explained from the beginning part of this discussion, the
management of working capital is a very important concept in every
organisation. This is why the study is channeled to how working
capital should be optimized and having adequate investment in
working capital in addressing this, the researcher examined the
effect of efficient working capital management on the growth ofmanufacturing industry.
In purchasing this objective, the researcher made use of both
descriptive and inferential statistical to analyse the data got through
the administration of questionnaires. The chi-square distribution
model was used to test the hypothesized questions.
The study revealed that management of the concerned
organisation reckons that effective and efficient management of
working capital is very important to the survival and growth of any
organisation. It is found that investment in working capital depends
on factors other than the nature of the business. It is also
discovered that the company invested adequately in their workingcapital.
5.2 CONCLUSION
Based on the findings of the study over twenty percent (20%) of the
capital employed is usually fixed up in working capital in Unilever
Nigeria Plc. This Phenomenon makes the management of working
capital important for the survival of firms and as such it shall be
adequately provided for and properly managed.
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Giving the attention paid to this study it is fund that returns and
cash flows can be improved through aggressive working capitalmanagement.
5.3 RECOMMENDATION
Recommendations were given on some factors in working capital
management based on the findings of this study thus:
i. Cash Management: The need to have effective cash
management. Organisation should avoid maintaining idle cash
balances unless it is necessary to do so. If a company keeps too
much cash it may be depriving itself of some other profitable
opportunities which the cash kept could have been used for the
improve returns. The idle cash may be invested in marketable
securities, used in replenishing stocks or to pay off contain current
assets or current liabilities or even used to purchase fixed assets.
Efforts should be made for effective and efficient cash plan as this
is the key to the survival of all business undertakings.
ii. Debtors Management: The need to have a good management
of debtors account.
It is known that no organisation can improve its sales return unless
it makes provision for credit facilities to customers. The
organisation should have a credit control policy which must be
strictly applied in order to minimize implicit cost and explicit cost of
selling on credit. Furthermore, organisations are advised not to
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relax their credit policy beyond a bearable level because more
often not the cost associated with such decisions are much more
than the gains.
iii. Management of Credits: The need for adequate management.
The brief of some organisations is that they should make short the
debtors payment period. This resolution may not be advantageous
to the company as the creditors too will interest in making short
they payment period as much as possible. On this note, the
company is advice to usually negotiate the payment period with the
creditors and try to meet up with any agreement they resolved on
as this may strengthen the relationship between the two parties.
iv. Stock Management: The need to have adequate stock
management. Organisation ensures that their investment
inventories (stocks) are properly monitored and control. The in and
out movement of stocks from stores should be controlled and
checked through proper documentation. Physical stock taking can
still be increased as this will forestall falsifications will respect to
records keep and equally help in identifying obsolete stocks,
damaged stocks as well as slows moving items. Pilfering can also
be checked through this medium.
Organisation should pay attention to the level of stock kept. They
should make efforts to keep stock as how as possible as this will
lead to the release of fund which would have been tried down if the
stock level is not checked. The ability to reduce inventory
successfully will depend on the reasons for holding inventories and
the reasons why it builds up.
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The research work has leads to focus effective management of inventories
on two cores area, which the researcher feels will be of much
benefit to organisations if considered.
v. Inventory Optimization: This area is assisted with the newly
developed sophisticated personal computer based inventory
optimization model. The model takes into account the required
safety and cycle stock levels while optimizing the cost trade off
between holding inventory and incurring a shortage situation.
vi. Demand Management: This area focuses on more detailed
information integration with both suppliers and customers. The
close links to customers demand forecast can have significant
benefits in inventory minimization both for the producer and the
suppliers.
vii. Working Capital Ratio: The need to have a close match on the
working capital ratio. Since it is known that accounting ratios are
good means of interpreting a companys financial positions
financed managers are implored to watch their working capital
ratios and ensure that they do not fall beyond the accepted
standards of below the industrial average of the manufacturing
industry.
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JOURNALS AND ARTICLES
Igbinosun, F. E. (2002): In search of Excellent Cash Management and
Control Strategies in Business endeavors. The Nigerian Accountant Vol.35, No 4 pp. 20-28
Ken, H. (1998), Improving returns and cash flow in process industries
through aggressive Working Capital Management Mercer Management
Consulting.
Michael, A. O. (1996): Inventory Model The National Association of
Polytechnics Accountancy Students. Kwara State Polytechnics Chapter,
Ilorin Vol 6. pp. 8
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Department of Management
Science,Lagos State University,
Ojo,
Lagos State
Dear Sir/Ma,
RESEARCH QUESTIONNAIRE
I am an MBA student of the Management Science Department of Lagos
State University Ojo Lagos State. I am conducting a research study on
The Management of Working Capital in the Manufacturing Industry (A
Case Study of Unilever Nig. Plc.)
This work is done in partial fulfillment of the requirement for the award of
a Masters in Business Administration
Please kindly answer the entire questions in the attached questionnaire,
the responses of the concerned top management staff are highly needed
on the questions. All information supplied by you shall be used for the
intended purpose.
Thanks.
Yours faithfully
Adeyinka Adeniji
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QUESTIONNAIRE
Instruction: Please answer the following questions by ticking
appropriate boxes provided.
SECTION A
PERSONAL DATA
1. Gender: Male Female
2. Age: (a) 21 30 ( ) (b) 31 40year ( ) (c) Above 41 years ( )
3. Marital Status: (a) Single ( ) (b) Married ( )
4. Educational Qualification (a) WASSCE/SSEC ( )
(b) OND/NCE ( ) (c) B.Sc/HND ( ) (d) MBA/MSC ( )
5. Which department or section are you in?
(a) Administrative/Personnel ( ) (b) Accounting ( )
(c) Purchasing ( ) (d) Sales ( ) (e) raw material ( )
6. What is your working experience in the company?
(a) 1-5 year ( ) (b) 5 -10years ( ) (c) 11 -15years ( )
(d) Above 15 years ( )
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13. How is authorization given for the usage of inventory in your
organisation? (a) By the use of predetermined inventory document
( ) (b) by verbal instruction ( ) (c) all of the above ( )
14. Do you agree that the pace of growth of the company should not
outstrip the ability of the business to finance additional assets that
is needed to support any growth? (a) Yes ( ) (b) No ( )
15. Cash shortage can be corrected by negotiating a reduction in cash
outflows so as to reduce payment. Do you agree?
(a) Yes ( ) (b) No ( )
16. The profitability of the company depends on the liquidity level,Do
you agree? (a) Yes ( ) (b) No ( )
17. Do you think that a company should sell on credit at all?
(a) Yes (b) no
18. A company can increase in sales volume by relating its credit policy
(a) Yes (b) No
19. Why is it necessary for a business to have a credit policy?
(a) To control its investment in account receivable ( )
(b) To ensure that credit facilities are given to those that worth it ( )
(c) All of the above ( )
20. What do you think, determines the creditors payment period?
(a) Debtor collection period ( )
(b) Availability of cash discount ( )
(c) Availability of cash surplus ( )
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(d) All of the above ( )
21. Do you think accounting ratios are good means of interpreting
financial statement? (a) Yes ( ) (b) No ( )
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