The impact of working capital management on the profitability of the manufacturing companies (a study of PZ-Cussons industries PLC)

TABLE OF CONTENTS

Title page

Approval page

Certification page

Dedication

Acknowledgement

Abstract

Table of contents

CHAPTER ONE

1.0 Introduction

1.1 Background of the study

1.2 Statement of the problems

1.3 Objective of the study

1.4 Research questions

1.5 Research hypothesis

1.6 Significance of the study

1.7 Scope of the study

1.8 Limitation of the study

1.9 Definition of terms

CHAPTER TWO

2.0 Literature review

2.1 Brief history of PZ-Cussons plc

2.2 Definition and concept of working capital management

2.3 Working capital and its components

2.4 Implication of excess or inadequate working capital

2.5 Importance of working capital management

2.6 Inventory management

2.6.1 Debtors (account receivable)        management

2.6.2. Marketable securities management

2.7.3 Credit account payable management

2.8.5 Benefits of trade credit account payable

2.6 Working capital cycle

CHAPTER THREE

Methodology                                                         

3.1 Introduction

3.2 Research design

3.3 Sources of data

3.4 Population sample size

3.5 Data analysis

3.6 Validity and reliability of measure of instrument

Reliability of measuring instrument

3.7 Method of data analysis

CHAPTER FOUR

4.0 Data presentation and analysis

4.1 Introduction

4.2 Data presentation

4.3 Data analysis

4.4 Hypotheses testing

CHAPTER FIVE

5.0 Summary, conclusion and recommendation

5.1 Summary of findings

5.2 Conclusion

5.3 Recommendation

Bibliography

Appendix

Questionnaire

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

From time to time, manufacturing companies and organization have been making tremendous efforts in the administration of their working capital; many of them have adopted various survival strategies to maintain substance. This primary proposed on adequate recognition by financial experts of the importance of maintaining an optimum level of working capitals and also obstetrics the clean that greater importance is attached to profitability than the management of working capital.

Working capital management of a manufacturing company is referred to as all the working capital aspect of current assets which includes cash marketable securities debtors, inventories and current liability. The most important aim of working capital management is profitability and solvency. Profitability here, refers to the firm ability to generate the maximum profit from the available resources for it owners.

While solvency means the firms continue ability to meet maturity obligations effective management of working capital is one area of great concern to every business organization business organizations exists in a changing environment which threatens the survival.

Many of them have adopted various survival strategy to maintain this survival has to become the control philosophy of most manufacturing business concerns.

For a business to entities, it must make a substantial profit in order to experience growth and to meet their financial obligation as they fall due. This aspect of survival objectives form the central focus of their research work which bothers on the impact of working capital management on the profitability of manufacturing companies, working capital management is the administration of all aspect of current assets which includes cash marketable securities debtors, inventories and current liability. The most important aim of working capital management is profitability and solvency. Profitability here refers to the firm’s ability to generate the maximum profit from the available resources for it owners. Implication of these changes of their business and the ways of controlling them

1.2 STATEMENT OF THE PROBLEMS

Efficient working capital management can make a difference between the survival and inadequate of a business endeavor. Therefore this study aims at addressing such problem as:

1. The misappropriation of the working capital
2. The ill quality and insolvency of manufacturing companies
3. Increasing inefficiency in working capital financing
4. Nonimplication of an adequate working capital management policies
5. The inability to meet the required production and sales levels by a manufacturing companies
6. The problem of maintaining optimum financial policies

1.3 OBJECTIVE OF THE STUDY

The study was carried out to identify:

1. The dangers shortage in excess of working capital management
2. The study objective will also make suggestion for the improvement of the working capital and in making a proper balance between cost of liquating
3. The contribution of working capital to effective management of assets on the profitability of a firms
4. The role of working capital in the management of PZ-Cussons industries plc
5. The correction of adverse situation that may occur before calculation of working capital
6. The improved understanding of PZ-Cussons industries PLC
7. The risk involved in the working capital management on the profitability of a manufacturing company

1.4 RESEARCH QUESTIONS

The following are the research questions

1. Does effective working capital management increase the profitability of manufacturing companies?
2. Is adequate attention paid to working capital management?
3. Are legal actions taken against a debtor who meting maturing obligations in defaulting debtors?

1.5 RESEARCH HYPOTHESIS

H1:  Efficient working capital management does not increase     the profitability of manufacturing companies

HA1:       Effective working capital management increase the     profitability of manufacturing companies

HA2:       Effective working capital management does not   enhance growth of the manufacturing company

HA3: Effective working capital management enhance the    growth of the manufacturing companies

1.6 SIGNIFICANCE OF THE STUDY

It is important that at any time, a business should be in a position of stabilized solvency, in order to take advantage of such business opportunity such as discount and implementation of venture plans.

Therefore, on completion of this research work, it will contribute immensely to the effectiveness of working capital management in PZ-Cussons Industries Plc. The manufacturing companies will make to understand that excessive or inadequate working capital positions are dangerous from all points of view.

In addition, the result of this study will help manufacturing companies understand the need and goals of establishing sound credit policy and the possible ways of implementing it.

Finally, the study will remain a source of preference for a related subject matter in the future. Also, it will provide a bearing material for students, of business administration and the society in general that will be studying about working capital management.

1.7 SCOPE OF THE STUDY

This research work deals with the effect of working capital on the profitability of manufacturing firms of PZ Cussons industries Plc. The component of working capital which are identified and analyzed in this study are stock, debtors marketable securities cash, current liabilities and account payables.

1.8 LIMITATION OF THE STUDY

This research work is not without limitation, these limitations can be broadly classified under the subheading via

• Time limitation
• Material limitation

Under the human limitations, the attitude of some of the respondent is nothing to talk about. Some of them were so dourly (i.e. they has no future lively interest) that they would not wait to release any fair information to the research. Material limitation played many roles in this research, which could further be classified as financial problems and needs such as text book.

1.9 DEFINITION OF TERMS

Some definitions of terms that may impede readers understanding are listed below for their understanding and appropriation of this research work.

WORKING CAPITAL

The capital used for day to day trading operations.

NETWORKING CAPITAL

This represents the difference between the firm’s current assets and current liabilities. It represents the number of current assets that are supported and financed by non-current sources of funds.

WORKING CONVERSION PERIOD

The length of time required to produce and sell the product of a firm

RECEIVABLE CONVERSION PERIOD

It represents the length of them required to collect sales receipts.

COST OF LIQUIDITY

This is the cost of holding sufficient current assets

COST OF ILLIQUIDITY

The cost of holding insufficient current asset

CREDIT LIMIT

The minimum amount of credit the firm will extend at any point in time. It indicates the extent of risk taken by the firm by supplying goals on credit to their customer.

CREDIT PERIOD

This is the length of time for which credit is extended to customers. It is generally stated in term of a net date.

ECONOMIC ORDER QUANTITY

The inventory level which maximized the total o the ordering and caring cost.

RE-ORDER POINT

The inventory level at which an order is placed to replenish the inventory.

LEAD TIME

The time normally taken to replenish inventory after an order has been placed.

OPERATING CYCLE

The time duration required to covert sales after conversion of resources from inventory into cash.

CURRENT LIABILITIES

These are these claims that are outside which are expected to mature for a permit within an accounting year and include creditors (account payable) bills payable and outstanding expenses.

SOLVENCY

The ability of the business to meet its financial obligation at any time even in the long run when all assets are converted to cash.

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