Effectiveness Of Cash Management On Growth And Survival Of Manufacturing Company

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Effectiveness Of Cash Management On Growth And Survival Of Manufacturing Company


Abstract


The study was designed to determine the effectiveness of cash management on growth and survival of a manufacturing company using Nigeria Bottling Company Plc as a case study.

A descriptive survey sample design was adopted. Data was collected for funding a self developed questionnaire which was validated and tested for reliability. A total of seventeen people took part in the survey.

The random sampling technique was used to select the subjects – to answer the research questions and hypothesis raised in the investigation, percentage and chi-square were used.

The result showed that effective cash management is necessary to ensure the smooth running and survival of the company. The data collected indicated that all variable investigated do not significantly influence effective cash management on growth and survival of a manufacturing company in Nigeria Bottling Company Plc.

Recommendations were therefore made based on the findings for improvement in the communication net work. And more so it is important to consider other valuable like stock management, debtors management among others affecting management company’s growth and survival.


Chapter One


Introduction

1.1 Background of the Study

Cash is the most important asset for business operation. It is the basic input required to start the business and essential tool needed to keep the business running on a continuous basis. Cash is also the ultimate output expected to be realized by selling the products or service on an organization. Infact, it is the lifeblood of business. Effectual management of cash is essential in maintaining the cash control of business cash flow.

While management is the process of organizing controlling, coordinating the resources of an organization in an efficient and effective manner iii order to achieve direct result.

Cash management can be defined as the art of managing (i.e. planning, controlling, organizing and co-ordinating) cash and cash equivalent in an organization to ensure the objective of the organization which might include profitability, growth and survival (Pandey I. (2004).

Every organization estimate its future cash need with some relevant technique or tools for making financial decision for the organization as a whole, but face a fundamental problem of managing cash with a liquidity buffer to meet unexpected contingency. Liquidity itself is a measure of financial viability. It refers to a firms ability to pay its obligation when they become due. Management of cash involves trade off between:

  1. Liquidity: Having enough cash available to meet everyday demand;
  2. Profitability/Cost: Holding high balance of cash is costly in terms of cost investment interest. while unexpected deficit can be expensive if emergency funding is required.

Cash management in any organization involve the operating cash cycle which is component of the working capital. Therefore cash cannot be studied in isolation. In a manufacturing company, cash management covers the following:

  1. The provision of cash as Capital for the Company initial out lay which generated from friends family or loan at bank.
  2. The procurement of raw materials
  3. The distribution of finished goods to obtain immediate cash or create debtor when goods are sold on credit term.

In practice, a carefully monitored budget will generally provide the basis for cash management.


1.2 Historical Background of Nigeria Bottling Company Plc

The Nigerian Bottling Company Plc was incorporated on 22nd November, 1951 as private limited liability company with authorised share capital of N200.000 divided into 400,000 ordinary shares of 50 kobo each and issued per capital of N130,900 divided into 261,800 ordinary shares of 50 kobo each. The entire shareholding was then owned by foreign shareholders notably late Anacliasions George Leveiltis.

It got converted to public company in 1972, and it is the most profitable and promising member of Leventies Group of Companies but the manufacturing units within the Leventies group known as Beta Industries Limited which was to operate as a wholly owned subsidiary of Nigeria Bottling Company Plc.

In the light of emerging developments, however, it became necessary for the new company to run independently as a commercially viable unit.

The main business of the company is the bottling of soft drink. It is sole bottler in Nigeria of the coca-cola and scheweppes range of soft drinks.

As at the date of this study, NBC’s authorized share capital is N275,000,000 divided into 550,000,000 ordinary shares of 50 kobo each. Out of which 483,740,4400 share are issued and fully paid.

The paid up capital of Nigeria Bottling Company Plc is beneficially held as follows:

Shareholders

No. of Shareholders

% Holding

Nigeria citizen

234,037,880

48.59%

Foreign shareholders

199,347,341

41.21%

Molino Soft Drinks S.A.

49,355,210

10.20%

Total

483,740,440

100.00%

Its subsidiaries associated companies and investment are as follows-,

A. Subsidiaries: 100%

Sum it Agro Industrial Company Ltd 100%

Nigeria Bottling Company Plc Benin) Ltd. 100%

Apapa Chemical Industrial Limited 100%

Grown Products Limited 60%

Delta Glass Plc 57%

B. Associated Companies:

Valley Foods Limited 48.13%

Blaize Industrial Company Limited 40.00%

Kupa Firms Limited 40%

Continental Can (Nigeria) Ltd. 22.05%

C. Investment

Beta Industries Limited 3.67%

The manufacturing process of Nigeria Bottling Products is based on carefully measured combination of sugar, water, carbon dioxide and concentration which are 400, usually imported from the United States to ensure that some standard is maintained 261,8( throughout the world.

NBC Ikeja plant, has a very broad organizational structure with the plant managers at its apex, directly under him are those occupying the functional management position. These are the assistant plant manager, plant accountant, sales manager and bottling manager.


1.3 Statement of the Problem

During the proceed of achieving efficient cash management, financial manager encounters source problems, which have not made the management of cash resources an easy task.

The type of problem associated with cash management which the management which the study will be trying to provide answer to in relation to manufacturing company includes the following:

  1. Problem of generating fund either to be used as start-up capital or daily operations.
  2. Determination of right investment opportunities to invest idle cash.
  3. Determination liquidity policy to embark upon to maintain a balance between liquidity and profitability.
  4. Identification of methods of ensuring cash adequacy.
  5. Problem of funding mis-match in project or investment financing in which short term fund is used to finance long term project.
  6. Problem of deciding on the amount of cash to be hold by the organization in order to meet up with their demand.
  7. Determination of uses to which surplus funds can be put to generate income.
  8. Adequate management of receivable or debtors to ensure debt recovery.
  9. Problem of planning for the adequate supply of stock that will provide constant inflow of cash to be the organization.

1.5 Aim and Objectives

The aim of the research is to examine the impact of cash management on the growth and survival of Nigeria Bottling Company Plc. They are:

  1. To examine the sources of Nigeria Bottling Company Plc
  2. To identify the constraints and likely problem that Nigeria Bottling Company Plc. face in raising funds.
  3. To review the existing cash management of Nigeria Bottling Company Plc for efficiency and effectiveness.
  4. To examine the effect of inadequate on the profitability and growth of Nigeria Bottling Company Plc
  5. To make policy recommendations on efficient and effective cash management in the manufacturing industry.

1.5 Statement of Research Hypothesis

The following hypotheses will be tested in the project:

Hypothesis One
  • Ho: There is no relationship between cash management and growth of manufacturing companies.
  • Hi: There is a relationship between cash management and growth of manufacturing companies.
Hypothesis Two
  • H0: There is no significant relationship between cash management and growth and survival of a company.
  • Hi. There is a significant relationship between cash management and growth and survival of a company.

1.6 Significance of the Study

The significance of this study is established on the assumption that for any manufacturing company to survive and maximize profit, there is need for such company to manage it can effectively.

The research will also enable the management to compare and contrast the various methods of raising fund to finance the productive activities of the company and it will allow them to choose the best alternative. More so, it will be of great value to the management of the company because it will afford the management of to examine the current system of cash management in the organization.

It will afford the company the opportunity to maintain an optimum cash position and take corrective measure in situation of shortage or surplus liquidity. The findings of this study is expected to educate the general and potential manufacturer who might be opportune to lay hand on this project in their respective line of business.

Above all, the study will enable the company to amend some system of operation which the research world reveal as inappropriate for effective cash management.


1.7 Scope and Limitation of Study

This study is primary concerned with effectiveness of cash management on growth and survival of manufacturing company. This study concentration of the study would be to find out in Nigeria Bottling Company Plc. operate and effective. Cash management determines the ways by which cash management affect the growth and survival of Nigeria Bottling Company Plc. The chief among many, limitation of the study is the difficult in obtaining relevant information Nigeria Bottling Company Plc. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.


1.8 Definitions of Terms

Cash:

Money or any negotiable money under a cheque, including the collected balances or deposit with a bank that is assumed to be available for use by the enterprise.

Cash Balance:

a cash budget is a summary statement of the firms expected cash inflow and outflow over a projected time current asset..

Cash Surplus:

This is the excess of cash generated over a cash applied resulting in an inverse in working capital.


1.9 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of effectiveness of cash management on growth and survival of manufacturing company.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of effectiveness of cash management in manufacturing companies.


5.2 Summary

This study aimed at having a critical analysis of effectiveness of cash management on growth and survival of manufacturing company. Four objectives were raised. These objectives include: To identify the constraints and likely problem that Nigeria Bottling Company Plc. face in raising funds, to review the existing cash management of Nigeria Bottling Company Plc for efficiency and effectiveness, to examine the effect of inadequate on the profitability and growth of Nigeria Bottling Company Plc, to make policy recommendations on efficient and effective cash management in the manufacturing industry.


5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
This study has revealed that the company’s decision on what amount to hold as cash balance, the choice of the source of short term finances, the approach adopted for the management of its collections and disbursements, its cash forecasting strategy and investment attitude towards idle fund form the major basics for ensuring an efficient and effective cash management system. As suggested by Gallagher (2002), implementation of a good cash management system will ensure better control of financial risk, increase the opportunity for profit, strengthen the company’s balance sheet, ensure increased confidence in the company and improve operational efficiency.


5.4 Recommendation

Based on the findings of this research, it is obvious that there is need for manufacturing companies to improve on their present efforts towards ensuring an effective and efficient cash management system. To this end, the researcher will recommend that effort should be made to improve on existing banking relations. The finance manager should strive to be constantly aware of the range of services available from banks. The rates and charges of the banks should be regularly evaluated to ensure that the company is best served and to justify the need to continue banking relationship with the banks. As a component of implementing an effective cash management program, finance manager should always prepare a cash budget and cash flow statement for effective cash planning and control. He should also make sure that the cash management process is in compliance with applicable laws, regulations, and professional and ethical standards. Receivable processing should be improved such that bills and invoices are done promptly and accurately. Invoices should be dispatched faster to aid prompt payment, while also offering small discounts for prompt payment. This is primarily to ensure a continuous inflow of cash from the company’s business activities.

Manufacturing companies should also identify appropriate software solution for their cash management. This will go a long way in tracking cash balance, monitoring payments, receivables, and performing liquidity management functions thereby ensuring greater control on liquidity. In addition, Finance managers should have adequate knowledge of sources of funds as well as investment opportunities where idle funds may be temporarily invested. Management decisions concerning cash should not be solely left to the financial manager alone. Other departmental heads should partake for optimality to be attained easily. Financial information system should also be introduced to develop financial discipline in cash management. While financial forecasting, planning and control devices are to be move intensive to enhance the efficiency of cash management. Above all, manufacturing companies should engage in an extensive training program in finance for its workforce regardless of their different educational background and attainment. Through this, staff will be exposed to trends in the finance world thereby enhancing their understanding of cash management system and the need to maintain liquidity.


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