CASH MANAGEMENT AND CASH CONTROL IN BUSINESS ORGANIZATION

Abstract

The purpose of this project is to examine the effect of cash management and cash control in business organization in Nigeria and its important base on managing the cash outflow. I use Cadbury Nigeria limited. As a cash study in order to discuss with the management and how they have been able to overcome the effect in organisation. The major finding is that after the collection of data analysis, it was discovered that cash management and cash control in business organization particularly Cadbury plc has no problem in cash managing here in Nigeria.

 

 

 

 

 

 

 

 

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

• Background of the study

Cash management is essential to every business that desires to meet up with its short-term financial obligations. Akinsulire (2003) asserts that the success of any business venture is predicated on how the management has planned and controlled its cash flows. According to Olowe (2008), cash management is concerned with the efficient management of cash so as to achieve an optimum level of cash in the firm’s working capital. Cash represents the basic input necessary to start and keep a business running. A company needs to maintain sufficient cash to keep its business running smoothly. Cash shortage will disrupts the firm’s operation and can even lead to insolvency. Excessive cash will tie down unnecessarily long-term capital with a result that the return on capital employed will be low. A firm thus needs to maintain sound cash position.  Working capital management or cash management is among the four vital decision areas of financial management, for which every profit making organization has to make (Pandey, 2005). Interestingly, working capital components of a firm’s financial management deals with the liquidity aspect of a firm and hence fundamental for the effective and efficient operations as well as the sustainability of its going concern status (Enyi, 2006). It is worth mentioning from the outset that working capital and liquidity are use in this study interchangeably and relates to the management of current assets and currents liabilities of an enterprise. This synonymy is based on the observation that working capital ratios are the most common measures of liquidity (Lamberg, & Valming, 2009). Liquidity management as it were, determines to a large extent the quantity of profit that result as well as the value of shareholders wealth (Ben-Caleb, 2008). This is because, a firm in order to survive must remain liquid as failure to meet its obligation in due time results in bad credit rating by the short term creditors, reduction in the value of goodwill in the market and may ultimately leads to liquidation (Bhavet, 2011). Hence, a good and firm financial management policy seeks to maintain adequate liquidity in order to meet its short-term maturing obligations without impairing profitability. Unfortunately, the principal focus of most organizations is profitability maximization while the need for efficient management of liquid assets is ignored. This approach is justified by the belief that profitability and liquidity are conflicting goals. Hence, a firm can only pursue one at the expense of the other, in consonance with the theory of liquidity and profitability trade-off. On the contrary, Padachi (2006) advised that a firm is required to maintain a balance between liquidity and profitability while conducting its daily operations. This is because both inadequate liquidity and surplus liquidity directly affect profitability (Ogundipe, Idowu and Ogundipe, 2012). For instance, when the “necessary” level of liquid assets is exceeded, their surpluses when the market risk remains stable, become a source of ineffective utilization of resources which has an adverse effect on profitability. An insufficient working capital on the other hand, result in a liquidity crisis which is life threatening and can force a company into bankruptcy, often with little notice; this also affect the returns of the firm (Spinella, 2007) Cash Management is essential to every business that designs to meet up with its financial obligations. No business operation is isolative of cash management. Olowe (1998) said that cash is regarded as the most important current asset for the operations of businesses. Cash is the basic input required to keep the business running on continuous basis and it is also ultimate output expected to be realized by selling the services or products manufactured by firm (Pandey, 2004). Cash Management in imperative in every business organization as cash is said to be the life blood of any business. The essence of cash management is to ensure positive cash flow for smooth business operation. According to Ross et.al (2011) said and as stated by Atrill (2003) that efficient cash management involved the determination of the optimal cash to hold by considering the trade- off between the opportunity cost of holding too much cash and trading cost of holding too little. Therefore there is the need for careful planning and monitoring of cash flows overtime as to determine the optimal cash to hold. According to Gitman (2009) it is objectively used to manage and determine the optimal level of cash required for business operation and the investment in marketable securities, which is suitable for the nature of the business operation cycle. The pattern of the cash and operating cycle varies per industry., but in general term, the pattern involves the provision of cash as capital for firm’s initial outlay., the procurement of raw material in manufacturing companies and finished goods in marketing companies, distribution of the finished goods obtain immediate cash or create debtors when goods are sold on credit term (Akinbuli,2009).

Cash management has attracted increasing attention among both academics and practitioners during last decades. In Finland, the increasing interest in this field is related to the liberalization of the money market, technological progress, and internationalization of businesses. These changes have forced management to critically review cash management strategy and, consequently, also cash management policies and responsibilities. These factors have created additional demand for various kinds of cash management services, either produced in-house or purchased from outside suppliers. In addition, Finnish banks have promoted new services for their corporate customers. Markets for money market instruments, derivatives and mutual funds have grown rapidly along with the new technology to provide greater scope for cash management. In modern cash management, the emphasis is usually on the part of the cash management which is responsible for money market operations. A person responsible for the cash management function is primarily concerned with short-term financial activities. In a changing money market environment, it is more important than before to know how to further improve the company’s cash position, including managing accounts receivable, improving cash flow, transferring funds, and controlling cash disbursements. In addition, one should understand the basic principles of short-term investment, including investment policies, available instruments, as well as investment strategies and techniques to minimize the cash management costs or to maximize profits. The importance of internal control and cash management in the company, even small, cannot be neglected. Each year it saves for companies a great deal of money and helps to keep records in order. It is widely known that no matter what is the size of the organization, any business entity would only succeed if it controlled and managed its cash resources appropriately. Among other aspects, the inflow and outflow of cash are of a prime importance in any business because those areas are susceptible to fraud, theft and misstatement most of all. This situation occurs because the majority of the organization’s top managers nowadays tend to neglect importance and strength of internal control. However, means of internal control influence the level of success and effective management of cash resources of the business entity. This thesis is valuable to the commissioning organization as it emphasises the importance of the internal control and cash management in the small business companies. One of the purposes was to find a correlation between poor internal control and financial loss in the company. In addition, the author searched for the most suitable software application to handle Cash Reserve Fund expenses and developed Cash Reserve Fund handling procedure. Consequently, the thesis could be used by the company to achieve stated objectives and the suggested development plan is aimed at improvement of the problematic side of the business. Establishment of mentioned above procedures is crucial and will provide a sustainable internal environment for the company as a financial loss the company is experiencing now would be eliminated. It is necessary to explain, that the issue investigated in the current thesis is concerning the petty cash fund, which is appropriated for every school, not overall company’s cash fund. However, as the fund is £15,000, it is not reasonable to call it petty cash, hereby, the term Cash Reserve Fund was introduced. The author did it, in order to emphasise the significance and the complexity of the issue.  In order to invest in the money market, a firm must know when the cash is needed. This is a difficult forecasting task even for large companies. To invest properly on an almost daily basis, a cash manager has to forecast the amount of funds that will be required to meet payments. He must maintain sufficient cash to handle immediate disbursements. In order to be effective, he should be aware on the various alternatives and relationships between interest rate yield curves for various investments and compare these with the existing market conditions prior to investing. He should also use modern techniques to improve overall returns on invested funds.

• STATEMENT OF THE PROBLEM

Cash Management in imperative in every business organization as cash is said to be the life blood of any business. The essence of cash management is to ensure positive cash flow for smooth business operation. According to Ross et.al (2011) said and as stated by Atrill (2003) that efficient cash management involved the determination of the optimal cash to hold by considering the trade- off between the opportunity cost of holding too much cash and trading cost of holding too little. Therefore there is the need for careful planning and monitoring of cash flows overtime as to determine the optimal cash to hold. It is in view of this that the researcher intends to investigate the effect of cash management strategy on the profitability and liquidity of an organization.

• OBJECTIVE OF THE STUDY

The main objective of this study is to ascertain the effect of cash management strategy on the liquidity and profitability of the organization. But for the successful completion of the study, the following sub-objective was put forward by the researcher;

1. To investigate the relationship between liquidity and profitability
2. To ascertain the effect of cash management strategy on profitability

• To ascertain the role of the accountant on the liquidity and profitability of an organization

1. To ascertain the impact of cash management strategy on return on investment of the shareholders.
   • RESEARCH QUESTION

To aid the completion of the study, the following research questions were formulated by the researcher;

1. Is there any relationship between liquidity and profitability of an organization?
2. Is there effect of cash management strategy and cash control in an organization?

• What is the role of the accountant on the liquidity and profitability of an organization?

1. What is the impact of cash management strategy on return on investment?
   • RESEARCH HYPOTHESES

The following hypotheses are formulated to aid the completion of the study

H₀: there is no significant relationship between liquidity and profitability of the organization

H₁: there is a significant relationship between liquidity and profitability of the organization

H₀: cash management strategy and cash control does not have any significant effect in the organization

H₂: cash management strategy and cash control does have a significant effect in the organization

• SIGNIFICANCE OF THE STUDY

At the completion of the study, the findings will be of great importance to all financial managers and accounting officers of the organization who are saddle with the responsibility of managing and planning the resources of the organizations. The study will also be of great importance to the internal and external auditors of the organization who are charge with the responsibility

responsibility of carrying out independent investigation and authentication of the financial report as to whether it shows or give a true and fair view of the financial state of the company as reported in the statement of financial position. The study will also be useful to researcher who intend to embar on investigation on similar topic as the study seek to enumerate the benefit of cash management and profitability of an organization. Finally, the study will also be beneficial to the academia, students, lecturers and the general public as the study will add to the pool of knowledge.

• JUSTIFICATION OF THE STUDY

The effectiveness of cash management strategy has a significant impact on the liquidity and profitability of manufacturing organization. Most manufacturing organizations have the cash but the challenge is effective management strategy. It is no doubt that the cost of labor is on the high side, but research has shown that its benefits supersede the cost.

As part of my requirement for the award of Bachelor of science degree (B.SC) in business administration, this study is carried out to ascertain the effect of cash management strategy on the liquidity and profitability of manufacturing firms.

• SCOPE OF THE STUDY

The scope of the study covers the effect of cash management strategy on the liquidity and profitability of firms. The scope of this study covers the cash management strategy on the liquidity and profitability of manufacturing companies in Lagos metropolis.

• DEFINITION OF TERMS

Cash

In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts). Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow or as a way to avoid a downturn on financial markets

Cash management

Cash management is the corporate process of collecting and managing cash, as well as using it for (short-term) investing. It is a key component of ensuring a company’s financial stability and solvency

Liquidity

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

Market liquidity

Refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable prices. Cash is the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

Profit

Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business’s owners, who may or may not decide to spend it on the business

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