Problems of Working Capital Management in Manufacturing Industries (a Case Study of Pz Cussons Nigeria Plc, Aba)

 

Abstract

This study focuses on the problems of working capital management with special reference PZ  cussons Nigeria Plc Aba. This export is carried out in order to seek solution to the problems encountered by PZ cussons Nigeria Plc data were collected per the study y using questionnaire the data collected were analyzed tabulated and presented using average and simple percentages the hypothesis (research question) tested using chi square (x2) as the inferential statistic at =0.05 significant level and for sample size n, which is same as in N in this study the chi-square(x2)was  calculated and compared with critical value. The hypotheses were accepted since statistic test calculated was higher than the critical values. The major findings made in the course of this study include that there is problem in working capital management in manufacturing indusial and finally there is accepted valuation of efficient and effective working capital management on recommendations. The manager of  manufacturing industries should be the priority of the financial manager with a view of increasing profitability.

 

CHAPTER ONE

    1.    INTRODUCTION
    2.   GENERAL DESCRIPTION OF THE STUDY

The viability of an organization can be enhanced through effective and efficient management of the firm’s working capital. In order to run the day to day business activities of a firm, the need for working capital cannot be over emphasized. We will hardly find a business firm, which does not, require any of working capital.

There are two concepts of working capital, gross working capital, which refers to the firm’s investment in Current Assets and net working capital which refers to the difference between Current Assets and current liabilities. Two concepts of working capital (Gross and Net) are not exclusive, rather they have equal significance from the management viewpoint. The gross working capital concept focuses attention on two aspects of Current Assets management.

  1. How to Optimize investment in current asset?
  2. How should Current Assets be financed? The consideration of the level inadequate in Current Assets.

Investment in Current Assets impairs the company profitability, an idle investment earns nothing. On the other hand, inadequate amount of working capital can threaten solvency of the company because of its inability to meet its currents obligation.

Not working capital is a qualitative concept. It indicates the liquidity position of the company and suggests the extent to which working capital needs may be financed by permanent sources of funds.

Here, the management decided the extent to which Current Assets should be financed with equity capital and or borrowed capital. However, it may be emphasized that both gross and net concepts of working capital management refers to the administration of all components of working capital such as; cash, marketable securities, debtors (receivables) and inventories creditors (payables) pandey (2010:585).

The needs for financial resources are limited and costly and even where it is available the scope into which they could be applied is diverse. A company that is about to start operation needs a fixed assets and adequate working capital to pay staff salaries, wages and other administrative expenses.

The working capital management should be the most important aspect of a company’s overall financial management; this is because efficiency in this area is to ensure the company’s success and to achieve its overall goal, which is maximizing the wealth of its shareholders. This study therefore addresses the critical factors of working capital management in manufacturing industries.

    1.    HISTORY OF CASE STUDY/ ORGANIZATION

This company was incorporated in Nigeria on 4th December 1948 under the name PB Nicholas and company limited. It name was changed to Ailagbon Industries limited in 1960. The company became a public company in 1972 and was granted a listing on the Nigeria Stock Exchange then the name was changed to Peterson Zochonis Industries Limited on 24 November 1976 and compliances with the companies and allied matters Act, it changed its name to Peterson Zochonis Industrial 21 September 2006, the company adopted it present name of PZ Cussons Nigeria Plc. Its product include to manufacture soap based on local palm oil, cosmetic, freezers, air conditions, plastic container and components.

    1.  STATEMENT OF THE PROBLEM

The study title “Problems of working Capital Management in manufacturing Industry” (A Case study of PZ Cussons Nigeria Plc ,Aba) has the major problems of studying how working capital could be managed so as to lead to reduction in cost and improvement in profit potential of the firm, another problem that would be looked into in this study is the adequacy of working capital management.

The problem that affects the effective implementation of working capital policy will also be dealt with.

Other problems include the following:

  • How much cash does the company need to operate it day – to – day activities adequately?
  • Whether the company has an inventory policy.
  • How the company manages its cash?.
  • Whether the working capital management has an impact in manufacturing company?.
  • Whether the company has a credit policy.

Finally, the researcher will look into the problem of the understanding and acceptability of members of staff of such organization to the working capital management.

 

 

    1.     PURPOSE OF THE STUDY/ OBJECTIVE

This project work title “Problems of working capital management in manufacturing industries” with particular reference to PZ Cussons Nigeria Plc, has the overriding objective of identifying the ways working capital can effectively and efficiently utilized for the achievement of the company’s profit target.

The study will address the following objectives:

  • To find out whether working capital is properly managed in PZ Cussons Nigeria Plc.
  • To know the problems that engulf PZ Cussions Nigeria  Plc in respect to working capital management.
  • To appraise the effect working capital management to the profitability of the company.
  • To ascertain the measures that can be taken to improve the performance and growth of the company.
  • To eradicate the adequate and quality of the company’s working capital policy.
    1.    RELEVANT RESEARCH QUESTIONS

This study seeks to answer the following question:

  • Is working capital properly managed in PZ Cussions Nigeria Plc?
  • What are the measures that can be taken to improve the performance and growth of the company?
  • Does the location of the company affect the performance and growth of PZ Cussons Nigeria Plc?
  • What are the problems that engulf PZ Cussons Nigeria Plc?
  • Does misappropriate affects the working of the company?
    1.     STATEMENT OF HYPOTHESIS

H0: Working capital is not properly managed in PZ Cussons Nigeria Plc.

Ha: Working capital is properly managed in PZ Cussons Nigeria Plc.

 

 

1.7    DELIMITATION (SCOPE) OF THE STUDY

This study lays much emphasis on the problems of working capital management and the measure that can be taken to improve the performance and growth of the firm. The study did not involve all the manufacturing industries but only PZ Cussons Nigeria Plc, Aba.

This study would have had more information than it has now due to the secret nature of companies these days but to accept any written evidence as may be provided by the people concerned. It also faces with other inevitable constraints, chiefly among was limited time duration and carrying out the research along side with the strenuous academic work.

    1.   ASSUMPTION OF THE STUDY

Based on this study, the following assumption has been arrived at it was assumed that:

  • This study will improve the performance and growth of the manufacturing industry.
  • This study will also create room for adequate working capital manufacturing in the industry.
  • The PZ Cussons Nigeria Plc, Aba, and other industries will apply and consult this research work while going into any venture.
    1.     SIGNIFICANCE OF THE STUDY

The importance of this study is not farfetched. This study has been prepared to help investors and owners of manufacturing industries companies who have adopted any policy on working capital management.

This study will contribute immensely to the management of working capital in PZ Cussons Nigeria Plc, to manage its working capital in the best possible way to get the maximum benefit/ result.

This study will also direct the attention of the manager of PZ Cussons Nigeria Plc, in determining the factors that influence their working capital and the necessary precaution against them.

Finally, it is also useful to the general public who may find it reliable in the areas they wish to broaden their knowledge on the working capital management policy in business enterprises.

    1.    DEFINITIONS OF UNFAMILIAR TERMS

Working capital management according to pandey (2010:586), working capital management refers to the administration of all components working capital- cash, marketable securities, debtor (receivable) and stock (inventories) and creditor (payable).

MANAGEMENT: OBI (2005:3) defines management as the act of planning, organizing, implementing, evaluating, controlling coordinating, communicating and motivating the entire workforce to achieve desired objectives.

CAPITAL: Cynthia (2010:45), defines capital as a wealth used for the production of other forms of wealth.

WORKING CAPITAL: Those capital goods (such as, raw material, cash at hand and those from loans and credit facilities) used up in the course of production.

CURRENT ASSETS: Pandey (2010;579), Current Assets are the assets which can be converted into cash within an accounting year.

CURRENT LIABILITIES: Are those claims of outsiders which are expected to mature for payment within an accounting year.

CREDIT POLICY: This is how a firm plans to give out it credit and collection of debt owned to it by its customers.

 

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