The Effect of Working Capital on the Operational Efficiency of an Organization (a Study of Cadbury Nigeria Plc)
CHAPTER ONE
Objectives of the Study
The broad objective of this study is to examine the effect of working capital management on the profitability of manufacturing firm. The specific objective is to:
- Investigate the various components of working capital in Cadbury Nigeria PLC.
- Examine the level of working capital management in Cadbury Nigeria PLC and
- evaluate the impact of working capital management on the profitability of Cadbury Nigeria PLC.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Prior studies reported that working capital management may have an important effect on the organization’s profitability. Shin and Soenen (1998), Lazaridis and Tryfonidis (2006), Raheman and Nasr (2007), among others, measured working capital with cash conversion cycle, which consists of stockholding period, debtors’ collection period and creditors’ payment period. These researchers supported that greater investment in working capital (the longer cash conversion cycle) leads to reduction in the organization’s profitability (Banos-Caballero et al, 2010, and Nazir and Afza, 2003, 2009).Deloof (2003) used a sample of Belgian organizations and found that organizations can increase their profitability by reducing the debtors collection period and the days-in-inventory period. He also found that less profitable organizations wait longer to pay their bills. Wang (2002) used a sample of Japanese and Taiwanese organizations and found that a shorter cash conversion cycle would lead to a better organization’s operating performance. Teruel and Solano (2007) took samples of small to medium-sized Spanish organizations for the 1996-2002 period and found that the organizations can create value by reducing the days-in-inventory period and the debtors collection period, thus leading to the reduction in the cash conversion cycle.On the other hand, though, other researchers support that investing more in cash conversion cycle (conservative policy) may lead to increased profitability since maintaining high inventory levels is expected to increase sales, reduce supply costs, reduce cost of possible interruption in production and protect against price fluctuations (Blinder and Maccini, 1991). A higher debtors’ collection period may also strengthen the relationship with customers and hence may lead to an increase in sales revenue (Ng et al, 1999). Deloof (2003) showed that a relatively huge amount of organizations’ assets are reserved for working capital. Summers and Wilson (2000) also stated that more than 80% of the daily business transactions in the UK corporate sector is on credit terms. As it can be seen from the aforementioned empirical evidence, there are inconclusive and inconsistent results with regard to the role of working capital management on organizations’ financial performance. This is due to the fact that researchers used either the conversion cycle as it relates to the organization’s profitability or they examined only part of the components of the conversion cycle. Dong (2010) reported that the organizations’ profitability and liquidity are affected by working capital management in his analysis.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the Effect Of Working Capital On The Operational Efficiency Of An Organization. Cadbury Nigeria Plc forms the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the Effect of Working Capital On the Operational Efficiency of an Organization (A Study of Cadbury Nigeria Plc). 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 pattern of the effect of Working Capital On the Operational Efficiency of an Organization
Summary
This study was on the Effect of Working Capital On the Operational Efficiency of an Organization (A Study of Cadbury Nigeria Plc). Three objectives were raised which included; Investigate the various components of working capital in Cadbury Nigeria PLC, Examine the level of working capital management in Cadbury Nigeria PLC and evaluate the impact of working capital management on the profitability of Cadbury Nigeria PLC. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Cadbury Nigeria Plc. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Following from the results presented above we conclude that working capital management has a significant impact on the performance of firms in the consumer and industrial goods sectors of the Nigerian economy. In view of the identified role of working capital in enhancing firm performance, industry managers are advised to innovate efficient ways of managing working capital to optimize its potentials. Efficient working capital management ensures maintenance of optimal levels of inventory at a point in time.
Recommendation
It is also recommended that there should be proper inventory management system to avoid over stock of inventory. Manufacturing firms should engage in relationship with those suppliers who allow long credit time period and those customers who will take short payment period.
References
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