THE IMPACT OF WORKING CAPITAL MANAGEMENT OF THE PRODUCTIVITY OF A MANUFACTURING COMPANY

 

CHAPTER ONE

INTERODUCTION

1.1   BACKGROUND OF THE STUDY

Business organizations exist in a rapidly changing environment which threatens their survival. Many of them have adopted various survival strategies to maintain substance. Hence, this has become the central philosophy of most business concern for a business to survival, it must make sustained profit so as to experience growth and meet its obligation when they fall due and ensure that the company does not run of working capital management and its effect on the portability of manufacturing companies. Its aim is to bring focus of this work, which borders on the importance of working capital management and its effect on the profitability of manufacturing companies.

Most manufacturing companies have been making tremendous effort capital. This primary is reposed on adequate recognition by financial experts of the importance of maintaining an optimum level of working capital and also obviates the claim that greater importance is attached to profitability than the management of working capital.

Working capital refers to the firm’s commitment in current assets. Current assets are made up of cash and near items like debtors, stock, marketable securities etc. in other words they are assets which are immediately convertible into cash or can be converted within a short period of say one year. The above description refers to the gross working capital. On the other hand, net working capital refers to the total current liabilities

1.2   STATEMENT OF THE PROBLEM

It is an obviously truth that working capital management is a global one, there is a problem confronting both big and small entities, even the government is involved in this great concern. The problem at stake is to identify the difficulties encountered by a manufacturing company on realizing that profit is made at the expenses of running an efficient would be analyzed, the identified problems and useful suggestion offered.

1.3 RESEARCH QUESTIONS

1.  Is there any relationship between working capital management and profitability?

2.  Is there increasing inefficiencies in the management of working capital?

3.  Should a manufacturing company make merit at the expense of effective working capital management?

4.  Does effective working capital management increase profitability?

5.  Does ineffective management of working capital entail absence of profitability?

1.4  OBJECTIVE OF THE STUDY

The most important objective of this study is to find out or point out a good cashier in manufacturing company so as to achieve their need

1.  To identify or to point out good cashier in manufacturing company.

2.  To advice the management of manufacturing companies on how to increase there profit rate of growth.

3.  To increase general employment opportunities.

4.  Finding out the general impact working capital will have on the productivity and profitability of manufacturing companies.

1.5   SIGNIFICANCE OF THE STUDY

It is significance because at any time, management of a business should i.e. in a position to pay its debts as they arise and in addition to take advantage of such business opportunities as reasonably visualized.

The importance of this study includes:

The achieve their aim of development through the establishment of management of a manufacturing company rather than dependence on heavy and dependence on imported raw materials, machinery and spare parts which constitutes major sources of foreign leakage.

It is in the light of those chances the continues research in the finance of working capital management and profitability of a manufacturing company.

Finally, this research would also be an invaluable tool for students, academic staff or tertiary and higher institutions, corporate managers, small scale and big manufacturing companies and individuals who wants to know more about the effect of working capital on the profitability of manufacturing companies

1.6 LIMITATION OF THE STUDY

This research work is not without limitation, these limitations can be broadly classified under three subheadings via:

a.  Human limitation

b.  Time limitation

c.  Material limitation

Under the human limitations, the attitude of some of the respondent is nothing to write home about, some of them were so doubtful that they would not wait to release any form of information to the researcher. Time also played of role the research being a final ND student had a lot of work to do within the sort semester.

1.7   DEFINITION OF TERMS

Liquidity: This has to do with an organization current financial position and more especially with its ability to pay its debts or meet up its obligation ads they fall due.

Solvency: This is the ability of business to meet financial obligation at any time even in the long run when all asset are converted to cash.

Assets: This is the value of all items own by the business inducing borrowed fund and proprietor equity contribution or net.

Liability: This are the value of all items owned to the business e.g. credit and equity

Equity or Net Worth: This is the values of assets contribute by all debtor of the business.