Cash Management and Financial Performance: a Case Study of Shallom Supermarket
CHAPTER ONE
Objectives of the Study
The study was undertaken under the following objectives
General Objective
The main objective of this study was to assess the effect of cash management on the financial performance of businesses within Lagos state, Nigeria.
Specific Objectives
- To establish the effect of bank and cash reconciliation on financial performance of Shallom Supermarket.
- To determine the effect of cash position on financial performance of Shallom Supermarket
- To assess the effect of cash planning on financial performance of Shallom Supermarket
- To establish the effect of credit management on financial performance of Shallom Supermarket
CHAPTER TWO
LITERATURE REVIEW
Introduction
The material accessible from many studies conducted in the same subject of study was summarized in this chapter. The following topics were specifically discussed in this chapter: conceptual framework, empirical review, literature review summary, research gap(s) that the study attempted to fill, and literature theoretical review.
Theoretical Review
The Free-Cash Flow Theory (Huseyin, 2011) contends that management must hold cash to gain control over it when making investment decisions. Cash Conversion Theory (Gitman, 1974) contends that the larger the cash conversion cycle, the better the financial performance. Baumol Model Approach (Baumol, 1952) and Miller-Orr Model (Miller and Orr, 1948) proposed that management should hold cash to gain control over it when making investment decisions.
Free Cash Flow Theory
According to the argument, management must keep cash on hand in order to have control over it and make investment decisions. When capital is readily available, managers can invest more easily (Huseyin, 2017). The management must always make sure that its investments are made in ventures that optimize returns to shareholders. Holding a significant quantity of cash allows management to invest in expansion projects with confidence, which leads to increased financial performance.
Due to a lack of finances, the management won’t be able to make any investments that would enhance the welfare of the shareholders. Eljelly (2014) challenged the free cash flow theory, contending that managers who hoard excessive cash are more likely to make poor investment decisions.
Cash Conversion Cycle Theory
Gitman (1974) asserted that financial performance improves with a larger cash conversion cycle. Any company organization must have a cash conversion cycle in place so that it can determine how much cash is required. The cash inflows from sales of the company’s products and the time it takes to acquire raw materials are the main topics of the cash conversion cycle hypothesis. Since it will impact the financial performance, each each company entity needs to analyze its cash conversion cycle in order to make any adjustments.
The shorter the cycle, the less resources are needed for corporate organizations to function. When the cash conversion cycle is brief, it means that businesses only need a minimal amount of resources to function. A longer cash conversion cycle indicates that sales growth is likely to be strong, which translates to larger profits and thus better financial performance. The cash conversion cycle should be as brief as possible, according to Akinsulire (2013), who disputed the notion, as this will increase value for the shareholders.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter discussed the methods used in the research study. The areas covered under this topic include the research design, research population, the sampling framework and data collection procedures, reliability, validity, data analysis as well as presentation and ethical contribution of the study.
Research Design
The study adopted a descriptive-survey design. Descriptive research design entails a scientific method that concerns observing as well as describing a subject’s behavior without duly influencing it in any manner (Burns, 2010). This research was a survey study which explored how cash management affects success of Shallom Supermarket. The collection of data approach was quantitative in nature. The survey design nature of research simplifies the answering of research questions in a more efficient way (Gall & Borg, 2019).
CHAPTER FOUR
RESEARCH FINDINGS AND DISCUSSION
Introduction
This chapter entails the findings of the study and the discussion on the findings. The chapter is divided into two parts; descriptive and inferential analysis.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter entails summary of the research findings, conclusion and recommendations of the study.
Summary of Findings
The current study focused on assessing the effect of cash management on the financial performance of Shallom Supermarket. Cash management was assessed on the basis of bank and cash reconciliation, credit management, cash planning and cash position. The study found that Shallom Supermarket practices timely reconciliation, frequent bank and cash reconciliations and Establishment of an internal control system. Shallom Supermarket maintained cash flow statements and established internal cash monitoring mechanisms. However, Shallom Supermarket did not conduct prequalifying debtors before granting credit and Liquidity analysis of SME before accepting credit sales. Preparing cash budgets and Understanding the firm’s cash operating cycle were highly prevalent in Shallom supermarket. The results depicted strong positively correlated scenario (r=0.859) between cash management and financial performance whereby 73.7% of performance of Shallom Supermarket could be attributed to cash management. There was a significant relationship (F =19.60 (4,74), P=0.000) between cash management and financial performance. Credit management (p=0.003) and cash planning (p=0.003) were significant.
Conclusion
The paper concluded that most Shallom Supermarket state, Nigeria fail to undertake formal cash management practices. Even so, Shallom Supermarket state, Nigeria conducted some of the cash management practices via informal means whereby they did not depict any written policy statements regarding cash management practices.
The study also concluded that there is a significant positive relationship between financial performance and Cash management of Shallom Supermarket state, Nigeria. These results suggest that managers can create value for their shareholders by effective bank reconciliation statement, credit management, cash position and cash planning.
Additionally, the paper concluded that the management needs to develop a comprehension of appreciating the daily activities of carrying out cash management in relation to the Shallom supermarket financial performance. At the same time, managers involved in the day-to-day cash management operations need to become conversant with the language of management relating to cash management operations so as to put in place a process that ensures high impact on firms’ performance.
Recommendations
To ascertain the link existent between effective cash management with improved financial performance, company management has to commit to the development a comprehension in the company on the manner in which cash management impacts on financial performance. There is dire call for both management as well as staff charged for managing cash to have thorough training in managing metrics on financial performance so that the decisions arrived at the level of operation are related to duly expected outcomes. The general educational programs should be conducted among SMEs managers to increase their awareness level on the purpose of cash management in their businesses and how related effect of other personnel daily activities affect the entity’s overall performance.
The establishment of internet has sparked many innovations in managing cash. For instance, through the use of internet the SMEs could automatically curtail surplus funds into profitable ventures. This area should be considered by SMEs investing in ventures. A treasury function which is web-enabled attracts many advantages. It enables enhanced regulation on cash positions as well as creating portfolio management portals and short-term instruments trading such as call accounts which function overnight, treasury bills and the rest found in money markets. To assist increase financial reporting standards in SMEs, it is required that entrepreneurs/managers make ample use of the packages of computerized accounting. Computer spreadsheets are of utmost importance to modern firms and enable management to prepare many financial reports. For instance, budgets on cash are important in managing cash. Company management usually utilize cash budgets to determine surplus as well as deficit amounts of cash. Computer spreadsheets assist in preparation of many cash budgets on the basis of expected future situations.
The SME managers should invest their cash surpluses in ventures that yield high returns such as treasury bills or in overnight call accounts which yield high returns. This will help avoid keeping large cash balances in non-interest yielding current accounts. They should also make use of computerized accounting packages to help improve their efficiency in cash management. The National Board for Small Scale Industries (NBSSI) should design and print more simplified record keeping documents, like the current cash book, for use by the SMEs. The use of field staff by financial institutions to collect deposits from the SMEs at their place of business is laudable and should be maintained. The financial institutions should monitor the savings habits of their clients especially during their peak and lean periods and improve their advisory services to enable the entrepreneurs invest in short-term instruments.
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