Appraisal Of Financial Management Practices In A Manufacturing Industry
This study is on the appraisal of financial management practices in a manufacturing industry. The study was conducted in a manufacturing industry (EAGEL CEMENT) in Lagos, Nigeria. A total of 200 staff of the company were selected randomly by the researcher as the population of the study. The primary data contained information extracted from the questionnaires in which the respondents were required to give specific answer to a question by ticking in front of an appropriate answer and administered the same on staffs of the five institutions. The questionnaires contained about 16 structured questions which were divided into sections A and B. The findings revealed that information for decision making practices is the most highly used management accounting practice amongst the manufacturing companies. From the practice perspective, this study recommends the creation and enhancement of awareness among firms of the importance of information for decisions making practices as this is the highest used management accountants’ practice. It is the responsibility of the management accounting professionals to remain relevant in adding value to the companies for which they work and to their profession by keeping abreast of research findings in their area of responsibility.
1.1 Background of the Study
Almost all kinds of business activities directly or indirectly involve the acquisition and use of funds. There exists an inseparable relationship between finance on the hard and production and other functions on the other. In a business set up, the functions of recruitment and promotion of employees are clearly the work of the personnel department.
Sales promotion policies come within the functions of the marketing department. These activities performed by these departments (personnel and marketing departments) require outlay of funds and therefore affect resources. The finance function of raising and using money although has a significant effect on other functions but it need not necessary limited the general running of the business. Generally firms formulate their policies (marketing productions, personnel and other policies) most of the time, to tally with the financial resources of the company available to them.
The word “Finance” is viewed from different perspective by different group thus: –
- A layman sees finance as the volume of money in h-is prose, vault and at the bank.
- Investors sees finance as the provision of funds as at the time it is need for investment. It goes beyond coursing and applying the fund for profit maximization as well as the state of sharing the profits.
- Academic sees finance as the science of fund management.
The investor view about finance shall be upheld in this write up. This because it emphasizes on profit making for the maximization of shareholders wealth. Wealth maximization is one of the corporate financial objectives of a firms. This can only be achieved by efficient and effective management of the company’s resources.
Financial management involves all the activities that are concerned with planning cash and credit requirement, including the effective control of the financial resources
The activities could be segregated as follows
- Forecasting the future availability of and requirements of cash
- Converting forecasts into plans and budgets
- Planning the appropriate capita structure
- Raising of cash from outside the business
- Controlling cash balances and flows in accordance with plans and changing circumstances
- Investing surplus fund
In financial planning, this involves estimating and planning of the future flow of cash receipt and disbursements. Also this is useful in raising of funds organizing and ensuring that funds necessary for carrying on the operation of planning is available. The wise use of funds by allocating such funds ensuring efficient use of funds.
In financial controlling, monitoring financial operations to ensure that cash flows are proceeding according to plan.
As a company is part of financial community, its financial management can be fully interpreted only within the context created by the workings of financial institutions and markers.
The variables considered in the framework of financial management are:
- The financial goals of the company
- The valuation of the company and the extent to which this valuations uninfluenced by company decision.
- The means of measuring the performance of the company.
When it goals have been identified and the method of valuation chosen, the company’s performance must be monitored and measured accordingly.
The researcher here wants to access the financial health of a manufacturing industry, its strengths, weaknesses, recent performances, future prospects and the implementation of its financial policies. This involves a review of the financial policies.
This involves a review of financial statements followed by careful consideration of their use in evaluating financial performance. Assessing the financial health of a manufacturing company. The most important source of information for evaluating the financial health of a company is its financial statement consisting of a balance sheet and a income statements. EAGLE CEMENT is a public liability company and as required by law, it is expected to submit her annual account to the registrar, corporate affairs commission, Abuja.
The account so prepared is for the consumption of many interest group like: the shareholders, tax authorities, investors, creditors etc.
For the purpose of evaluating the financial health of the company (EAGLE CEMENT), the use of financial statement for 1999 year shall be reviewed and analyzed. See chapter four on data presentation and analysis.
The research work is based on the NIGERIAN CEMENT Company Plc. Nkalagu in Ebonyi State. As miller puts it, “we cannot understand the attitude of either management of workers unless they are seen in their historical context”. Here the history of NIGERCEM Nkalagu is briefly narrated and derived from the management audit enquiry of NIGERCEM, 1976.
The history of NIGERCEM dates back to colonial days in Nigeria. I the early thirties of this century, several district officers, geologists had report tot he existence of large deposits of limestone in Nkalagu area – various over sees had as a result of this shown interest in working of deposit.
On 23rd August, 1954, the Nigerian government signed an agreement with F. L Smith and company for the erection of a cement works at Nkalagu. By the same agreement, F. L. Smith and company limited as managing agents. The Nigerian Cement Company Limited, Nkalagu was incorporated on 13th Novemenber 1954 to operate this cement project. Mr. E. E. Sabben – Clare became the first chairman of the board of directors.
On December 20, 1957, the governor general of Nigeria, Sir, James Robertson, opened the factory officially. Commercial production commenced on 1st January, 1958.
Once of such investors is flour mills of Nigeria which Chief Emmanuel Ukpabi said arrears of staff salaries alone in Nigrecem in conservatively put at N1.4billion according to him. Liabilities to individuals and corporate bodies are estimated at several billions of naira. He recalls that there had been desperate move by cement importing companies to either buy wholly or acquire majority shares of ailing cement manufacturing firms. But they all shunned Nigercem because of the said liabilities.
Nigercem owned by the five south-eastern states ran into hitches from the late 80’s due mainly to gross mismanagement. The development led to break down of three of firms vital machines which remained unserviceable with the only functional one operating at low capacity for some time until it finally got grounded. The south-east governors who are the major investors in the company had also contemplated many options aimed at reviving the company.
At recent meeting of the five south-eastern governors in Owerri the Imo State capital, various options for the revival of Nigercem topped the agenda of their parley. The host governors Achike Udenwa who spoke with news men said Nigercem will be privatized if the governor’s ratify is being considered for privatization. The government of the five eastern states are already considering this in order to improve efficiency and productively.
The chairman of Nigercem “Nze Clement Maduako noted that eastern Rukeem company limited producers of Eagle Cement, was the major shareholder in the privated Nigercem with a controlling share of 60 percent. Expressing confidence on the ability of new management to kick-start Nigercem now called Eagle Cement again, he said the new board has the first general manager of the cement company as member, while another employee of the company is expected to join the six-member board. Member of board, who emerged from the election conducted by the 165 shareholder in attendance were Nze Maduako, chairman; captain I.A Hastrup, Mr. H.N Onugbogu, Mr. Coran Wejdmark, Mr. S.A Oludemi and Dr. J.O Ojukwu.
The plant stopped production in 1999, but had a text run in 2001 for only three months in preparation for the privatization. Some of shareholders who spoke said they had not been paid for the past 40 months and pleaded with the new board to consider clearing the arrears then works commences in the factory.
1.2 Objective of the Study
The overall purpose of the study is to understand the financial management practices that equips them with the conceptual and analytical knowledge requires to make skillful, informed, sound, objective and reliable decision of the company. Specifically the objective of the study on this project is stated as follows:
- To evaluate the financial performance of EAGLE CEMENT Company.
- To evaluate the management levels of control of financial performance of the company.
- To identify the accounting systems and procedures and check whether the financial polices of the company are implemented accordingly.
- To prefer solution to ineffectiveness in financial management of the company.
1.3 Statement of the Problem
- It is believed from the evaluation of financial status of the company that the company is not financially healthy.
- It is also established that there is inefficient and ineffective management of the company’s resources
- It equally discovered that the financial policies are not properly implemented.
- Exposing financial fraud noticed.
It include as follows:
- Cash advance: Staff and management do apply for cash advance but over spend the amount approved for them only to come back to claim a very huge amount as their balance
- Car repairs: Outside, manager do not allow their official cars to be repaired by the company’s employed mechanics. They prefer repairing it outside only to present an inflated biill to the company payment
- The provision that all purchases should be routed through the purchasing department is just in principle not in practice.
- Price invoicing: The company allows suppliers to inflect the prices of their suppliers because of the interest some of them have.
- Price variation: Some supplier do after some months of supply sent a price increase to the company for items already supplied and the company will honour such claim.
- Supply of item, which do not agree with the specification of item actually required by the company.
- Contract prices are unjustifiable inflated
- Cheque exchange granted to some staff or managers take more than one year before it is redeemed.
1.4 Scope and Limitation of the Study
The study covers the area relating to financial manger of EAGEL CEMENT. It also touched on the effective implementation of financial policies of the company.
The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.
Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.5 Research Questions
- What are the levels of the financial management control of the company?
- What are your accounting system and procedures relating tot he receipt and disbursements of the company money?
1.6 Research Hypothesis
- Financial management practices EAGLE CEMENT COMPANY are not in line with the approved policy
- The accounting procedures are not in line with the approved policy
- The internal control system of the company are not in line with the establishment system.
1.7 The Significance of the Study
- The study will reveal the ineffectiveness of financial management practices in the company
- The study will equally reveal the weaknesses in the internal control system of the company
- The study will also over haul the accounting procedures of the company as to see how adequate they are.
1.8 Operational Definition of Terms
Finance is a field that is concerned with the allocation (investment) of assets and liabilities over space and time, often under conditions of risk or uncertainty
Management (or managing) is the administration of an organization, whether it is a business, a not-for-profit organization, or government body.
Modern manufacturing includes all intermediate processes required in the production and integration of a product’s components. The manufacturing sector is closely connected with engineering and industrial design
1.9 Organization of the Study
This research work is presented in five (5) chapters in accordance with the standard presentation of research work.
Chapter one contains the introduction which include; background of the study, statement of the problem, aim and objectives of study, research questions, significance of study, scope of study and overview of the study. Chapter two deals with review of related literature. Chapter three dwelt on research methodology which include; brief description of the study area, research design, sources of data, population of the study, sample size and sampling technique, instrument of data collection, validity of instrument, reliability of instrument and method of data presentation and analysis. Chapter four consists of data presentation and analysis while chapter five is the summary of findings, recommendations and conclusion.
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to examine financial management practice in manufacturing industry.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of financial management in manufacturing sector.
The research work showed that the overall profitability in the manufacturing industry will be enhanced if good financial structure is properly managed as measured by leverage, short term debt and equity. This therefore means that, manufacturing companies operating in Nigeria should place more emphasis on equity funding compared to debt finance.
The study concludes that Information for Decision Making practices is the most highly used management accounting practice amongst the manufacturing companies in Nigeria followed by Strategic Analysis, Budgeting, Performance Evaluation, Costing, Size and Leverage respectively. The study further concludes that the most important elements of management accounting practices amongst the manufacturing companies in Nigeria are; The management accounting function identifies key factors that influence performance and risky areas that require improvements and Return on equity, ROE (Net income / Average Equity) has increased as a result of application of management accounting practices, The management accounting function develops strategies that enable the manufacturing companies to exploit financial innovations in creating a sustainable competitive advantage and Management accounting provides information from its environment to management to facilitate decision-making and Return on Asset, ROA (Net income /Total assets) as a result of application of management accounting practices.
This study examined effects of management accounting practices on financial performance of manufacturing companies in Nigeria. From the practice perspective, this study recommends the creation and enhancement of awareness among firms of the importance of information for decision making practices as this is the most highly used management accounting practice amongst the manufacturing companies in Nigeria. The findings recommend that to achieve a proper measure of financial performance, firms need not only to integrate Return on Equity, Return on Asset and Earnings per share as the measures for accounting but also other value based measures which have gained popularity in academic literature in last two decades. As an efficient accounting ethical practice, it is the responsibility of the management accounting professionals to remain relevant in adding value to the companies for which they work and to their profession by keeping abreast of research findings in their area of responsibility.
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