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THE EFFECTS OF WORKING CAPITAL MANAGEMENT ON THE
PROFITABILITY OF BANK PHB PLC KADUNA
ABSTRACT
Working
capital, as the name implied comprises capital that are not used for long-term
investment. Thus, the instrument used for collecting the data are questionnaire
and official document of the bank (Bank PHB), the researcher used mean
statistic, method to analyze the data and extract the findings. However,
emphasis should be directed towards systematic introduction of appropriate
technology for control and management information system purpose. Indeed a
financial data is relevant in banking industries. The introduction of the
method in the banks to take care of the determination of cash balances for
different periods in as much as experience is a good teacher, a scientific
forecasting method should be introduced. The study would be of benefits to
students, banking and institution i.e. it would enable students carryout
research and persuade learning on issues that has to do with working capital
management. The majority of the documents shows how working capital management
had made it possible on the operational exercise and providing services of the
banks in Nigeria
TABLE OF CONTENTS
Title
Page i
Declaration ii
Approval
page iii
Dedication iv
Acknowledgement v
Abstract vi
Table
of contents vii
CHAPTER
ONE
1.0 Introduction 1
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of the Study 4
1.4 Significance of the Study 5
1.5 Research Questions 6
1.6 Scope of the Study 7
1.7 Limitation of the Study 7
CHAPTER
TWO - Literature Review
2.0 Introduction 11
2.1
Concept of Working Capital Management 11
2.2
Characteristics of Working Capital
Management 15
2.3
Working Capital Component in Banking
Sector
2.4
The Meaning and Importance of Cash
Management
in
the Bank
2.5
Approaches to Working Capital
Management 18
2.6
Determinant of Working Capital 21
2.7
Financial Working Capital 22
2.8
Management for Cash and Marketable
Securities 23
2.9
Summary of the Review
CHAPTER
THREE
Research
Methodology
3.1
Introduction 26
3.2
Research
Design 26
3.3
Area of Study 27
3.4
Population of
Study 27
3.5
Sampling Size
and Sampling Techniques 28
3.6
Instrument of
Data Collection 28
3.7
Validation of
Instrument 28
3.8
Reliability of
Instrument 29
3.9
Method of Data
Collection 30
3.10 Method of Data Analysis 31
CHAPTER
FOUR - Data Presentation and
Analysis
4.0
Introduction 33
4.1 Characteristics of Respondents 34
4.2 Presentation of Data and Analysis 36
4.3 Summary of Findings
4.4 Discussion of Findings
CHAPTER
FIVE
Summary,
Conclusion and Recommendation
5.0
Introduction 49
5.1 Summary 49
5.2
Conclusion 50
5.3 Recommendations 51
Reference 54
Appendix I 55
Appendix
II
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Working Capital is the investment at the firm in
short-term or current assets, which include cash, account receivable,
marketable securities, short-term note receivables, inventories and some
expense prepayments. A portion of the investment in current assets is financed
by current liabilities such as short-term note payable to banks. Income tax
liabilities advances by customers and account payable. Therefore, networking is
that portion of current assets financed by long term debt and equity sources.
The liquidity position of many firms is of
fundamental importance. Hence, the importance of working capital management and
its operations thus become relevant in the growth and success of any
organization management policies and decisions are made due consideration of
its working capital position. Organization faces a lot of shortcomings in it
operation, if working capital is not given full consideration.
Inadequate working capital hinders the success of
any organization. This is because it affects the daily operational activities,
which directly affect the efficiency rate.
Inadequate cash for marketable securities brought
about deficiency in investment and revenue generation for the organization.
Inventories are often being short in supply if there is insufficient cash for
the daily operation of the organization which will affect the productivity.
If there is inadequate working equipment in the
organization, it discourage employee from being performing their official
assignment.
The concept of working capital as a tool in
financial analysis has long been recognized for instance, the American
Institute of Certified Public Accountant (AICPA) in 1936 officially recognized
the importance of working capital to the creditor. As a rule, a creditor is
more particularly interested in the liquidity of enterprises the nature and
adequacy of its working capital, hence the details of this current asset and
current liabilities.
Lastly by definitions, in reality and fact working
capital is not statistic of fixed figure, it changes continuously as its
constitutes are turned over and over again. Often several times within a
particular financial year. The crucial importance of working capital has fact,
that it is used to finance production inventories and also provide credit to
customers. Therefore, the availabilities of sufficient working capital is very
vital to successful running of any business.
1.2 STATEMENT
OF THE PROBLEM
In all corporate bodies and business enterprises,
the availability of sufficient working capital commensurate with the level of
business activity, as it is of fundamental importance, while shortage and
problems encounter in the process of utilizing working capital affect the
banking operation and profitability on whether inadequate provision of working
capital, is made how inadequate inventories affect and hinder the success of
business operation, the study also is focused on how inadequate cash and
marketable securities and lock of proper utilization and allocation of
resources affects organizations.
1.3 OBJECTIVES
OF THE STUDY
The specific objectives of the working capital
management on this study are:
i)
To identify
ways of improving working capital management in the bank.
ii)
To identify
the working capital management policy adopted by the bank.
iii)
To assess the
process that are involved in the management of the component that make up the
working capital i.e. stock, cash, creditor, debtors and marketable securities.
iv)
To provide
useful suggestion and as well make reasonable recommendation were deem
necessary.
1.4 SIGNIFICANCE
OF THE STUDY
It is significance to established and to analyzes
what are the problems of inappropriate working capital management has on the
profitability, credit worthiness, possibility of bankruptcy and overall
performance. The study would be relevant to student and banking institutions.
To students it enables them to carryout research
and personal learning on issue that has to do with working capital management.
1.5 RESEARCH
QUESTIONS
i) Can inadequate provision of working
capital lead to loss of profit?
ii) Can inadequate provision of cash for
marketable securities hinder revenue generation?
iii) Can insufficient working capital lead to
total collapse of the enterprises?
iv) What are the ways to improving working
capital management?
1.6 SCOPE
OF THE STUDY
This study covers the role played by the working
capital management in Bank PHB. It will also cover the aspect of working
capital management in Bank PBHB for two (2) years period of 2007 and 2008 which
involves working capital components such as current assets, current
liabilities, the study will also cover the problems faced in working capital
management as well as prospects.
1.7 LIMITATION
OF THE STUDY
Constructions to this research are:
- Inability to lay hands on some of the document
because the supposed staff and officials try to keep such documents away
believing that going through them might be an intrusion into their privacy.
- The research work bothers around what the bank
considers part of their strategies to a successful banking in Nigeria
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