ABSTRACT
The purpose of this study is to examine and evaluate the working capital management as a tool for cost reduction and profit maximization, a case study of Allstream energy solution limited Kaduna State. To this effect, working capital is current assets less current liabilities. This study covers in detail, all aspects of working capital management in a manufacturing companies which includes; cash, inventories, and marketable securities. A total number of 21 personnel staff were chosen as the population of study. This number was later scaled down to a sample size of 20. The sources of data used were both primary and secondary sources of data. The primary sources of data are interviews, while the secondary sources of data are obtained from other related literature. The analysis and discussion of the results of the study is in relation to working capital management as a tool for cost reduction and profit maximization. Research instruments used were interviews and questionnaires. The data collected were analyzed critically using tables and chi-square (x2) distribution from the researchers finding. It will be seen that working capital management created a lot of problems in today’s business environment. This can be attributed to the dynamics nature of business operations due to global development of science applied in business. The researcher recommends that seminars and workshops should be organized for the staffs and management of the company on the effect and advantages of effective and efficient working capital management.
TABLE OF CONTENTS
Title page - - - - - - - - - - i
Declaration - - - - - - - - - ii
Approval page - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgment - - - - - - - - v
Abstract - - - - - - - - - - vi
Table of contents - - - - - - - - vii
CHAPTER ONE
1.1 Background to the study - - - - - - 1
1.2 Statement of the problem - - - - - - 2
1.3 Objectives of the study - - - - - - 3
1.4 Research questions - - - - - - - 3
1.5 Formation of hypothesis - - - - - - 4
1.6 Significance of the study - - - - - - 5
1.7 Scope and limitation of the study - - - - - 5
1.8 Definition of terms - - - - - - - 7
CHAPTER TWO
LITERATURE REVIEW
2.1 Working capital management and its significance to the firm - 9
2.1.1 Importance of working capital management - - - 10
2.1.2 The need for working capital - - - - - - 11
2.2 Components of working capital - - - - - 12
2.2.1 Current assets - - - - - - - - 12
2.3 Financing working capital - - - - - - 26
2.4 Profitability as a measure of firms performance - - 28
CHAPTER THREE
3.1 Research design and methods - - - - - 31
3.2 Population of the study - - - - - - 31
3.3 Determination of sample size - - - - - 32
3.4 Questionnaire design - - - - - - - 33
3.5 Description of respondents - - - - - - 33
3.6 Method of data analysis - - - - - - 34
CHAPTER FOUR
4.0 Presentation, analysis and interpretation of data - - 35
4.1 Data analysis - - - - - - - - 35
4.2 Analysis of hypothesis formed - - - - - 42
4.3 Discussion of Findings - - - - - - 44
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary - - - - - - - - 45
5.2 Conclusion - - - - - - - - 46
5.3 Recommendations - - - - - - 47
Bibliography
Appendix
CHAPTER ONE
1.0 Introduction
1.1 Background to the Study
According to Retriof (1982), a firm should always maintain a sound working capital position for it to have enough working capital to run its business activities. But excessive as well as inadequate working capital positions are dangerous from firms view point.
Excessive working capital means ideal fund which earns no profit for the firm, while inadequate working capital on the other hand, renders the firm unable to avail, attractive credit opportunities, drastic reduction in the rate of return on total investment. Firm losses its reputation and the capital base could be eroded, thereby, affecting the organization credit worthiness. Working capital cuts across all departments and functions of an organization to the extent that all organizational activities would ground to a halt, if the working capital were not properly managed.
Therefore, the need for a sound and realistic working capital policy for a manufacturing firm like Allstream Energy Solution Ltd Nigeria Plc, becomes imperative, more so, when the structural adjustment programme (SAP) and other stringent economic policies that aimed towards achieving self-reliance has created a more or less suffocating business environment. In this case, survival of the fittest is the watch-word and will not be an exaggeration to say that this survival can only come about through prudent and effective and efficient working capital management.
1.2 Statement of the Problem
The present world economic hazard coupled with economic policies being operated in this country has led to a situation where many business organizations have had to fold up. Others barely survive by thriving on a very lead financial and material resources. This is due to the fact that procurement of capital to finance their daily operation is increasingly becoming difficult. However, the efficient management and control of working capital can generate a considerable amount of internal financing.
Therefore, the project topic seeks to analyze the Allstream Energy Solution Ltd’s working capital and its segments. This study uses ratio analysis as a measure of efficiency of working capital management. The study will also determine the extent to which the profitability of the company’s dependent on the level of its working capital management using the percentage ratio measurement.
Working capital management as a tool for cost reduction and profit maximization (a case study of Allstream Energy Solution Limited Kaduna state)
1.3 Objectives of the Study
The aim and objective of any study undertaken is to contribute to the development and growth of its case study. The objectives of this study are as follows:
- To examine the contribution made by working capital management on the activities of a manufacturing firm with particular references to Allstream Energy Solution Limited Kaduna.
- To recommend where necessary and appropriately alternative working capital management techniques, practical procedures to the officials of Allstream Energy Solution Limited Kaduna.
- To test the effectiveness, adequacy and relevance of those controls and to determine the extent these have contributed to the performance of the above mentioned manufacturing firm.
- To carry out an indebt analysis of Allstream Energy Solution Limited Kaduna and how these are effectively managed and controlled.
1.4 Research Hypothesis
In order to determine the contribution, efficient working capital management had made towards the performance and growth of the company, it is essential to test the following hypothesis.
Ho: The profitability of a company is not dependent on the level of the company’s working capital management.
Hi: The profitability of a company is depended on the level of the company’s working capital management.
Ho: Working capital is not a tool for management control in business concern.
Hi: Working capital is a tool for management control in a business concern.
Ho: Ineffective working capital management has no effect on production.
Hi: Ineffective working capital management has effect on production.
1.5 Significance of the Study
This very work-working capital management as a tool for cost reduction and profit maximization will assist business organizations on their operations and enable them formulate a working capital management that is suitable for their business environment in order to optimize the profit of their operations.
Also, it is hoped that factors defy the smooth operation of the organization in an area of working capital will be identified. This will go a long way to help the management in future planning of ideal capital management.
The research work equally intended to provide a base for further researches in the area of working capital management. Finally, it is hoped that the recommendation of this work would be of immense important to other manufacturing companies that may adopt them to suit their target.
1.6 Scope of the Study
In the process of conducting this research work, the researcher’s examination is focused on a case study of Allstream Energy Solution Ltd Kaduna State. This research topic covers working capital management. The researcher intended as much as possible to conduct an adequate research but, it could not be achieved because of some limitations. However, based on the developing nature of the country’s economy and high demand of adequate working capital, there is every indication that there are limitations to the validity of the conclusions reached.
1.7 Historical Background of Allstream Energy Solution
Allstream Energy Solution Ltd was incorporated as a private limited liability company in 2004. The company’s registration number is RC 775421. The authorized share capital was N2,000,000 issued and fully paid.
Allstream Energy Solution Ltd Limited started operation in the year 2004 (same year of its incorporation). It has over 25,000 workers and projected that by the year 2015 it (the company) would have been able to employ over 1.3 million Nigerians as its workforce. This in essence, implies its total commitment to delivering quality services to the public. The objective of the company is to provide quality services to the users that cover Northern, Southern and Central part of the nation.
It has branches scattered across the country which are as follows:
Kano office: 17A House, Sabon Sakinzo Road Kano No. 14 300 Road Kano.
Lagos office: Plot 437, Wamco Road Ikeja Lagos State
Maiduguri office: No. 5/17, Sir Kashim Ibrahim Road, Maiduguri
Jos office: No. 13/15 Yakubu Gowon Way Jos, Plateau State
1.8 Definition of Terms
The following terms are defined in the context which is used in this research work.
Working capital management: This refers to the administration of current assets and current liabilities.
Management: This can be defined broadly as “getting things done through other people”.
Working capital: Current assets less current liabilities. It is also defined as capital available for day to day operation of the business.
Current assets: This refers to as cash and other assets that are expected to be turned into cash if sold or exchanged with the normal operating cycle of the firm-usually one year.
Current liabilities: A debt or business obligation that must be discharged within one year.
Liquidity: It is refers to the availability of cash or hear cash resources for meeting company’s obligations.
Profitability: Accounting for profit in relation to assets used in business operations.
Cash flow: Cash receipts less disbursement from given assets or groups of assets for a given period.
Effectiveness: This is the extent to which a predetermined goal is achieved.
Efficiency: This is the extent to which input are used in relation to a given level of output.
Re-order time: The time at which new stock is due for procurement.
Economic order quantity: This is the optional order quantity for as item of stock, which will minimize cost spontaneous financing.
