DETERMINE THE EFFECT OF WORKING CAPITAL ON THE PROFITABILITY OF HOSPITALITY INDUSTRIES (A STUDY OF RADISSON BLU ANCHORAGE HOTEL)
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DETERMINE THE EFFECT OF
WORKING CAPITAL ON THE PROFITABILITY OF HOSPITALITY INDUSTRIES (A STUDY OF
RADISSON BLU ANCHORAGE HOTEL)
`TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
1.2
Statement of the Problem
1.3
Objectives of the Study
1.4
Research Questions
1.5
Research Hypothesis
1.6
Significant & Justification Of the Study
1.7
Scope& Limitation of the Study
1.8
Definition of Terms
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1 About the
Tourism and Hotel Industry
2.2 Conceptual
Framework
2.3 Theoretical
Framework
2.4 Empirical
Reviewand Studies
2.5 Components of
working capital management (WCM)
2.6 Analysis of
Working Capital Position
2.7 Determinants
of Financial Performance of Hospitality Industries
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Population of
the Study
3.3 Research
Design
3.4 Sample
Techniques and Sample Size
3.5 Data
Collection Instrument and Validation
3.6 Validity and
Reliability
3.7 Method of
Data Analysis
3.8
Operationalization of Variables
3.9 Limitation of
the Methodology
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND DISCUSSION OF FINDINGS
4.1 Preliminary
Data Analysis
4.2 Test of
Hypotheses
CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary
5.2 Summary of
Findings
5.3
Recommendations
5.4 Conclusion
Reference
CHAPTER ONE
INTRODUCTION
1.9
Background to the Study
Every business needs investment to procure fixed assets,
which remain in use for a longer period. Money invested in these assets is
called ‘Long term Funds’ or ‘Fixed Capital’.Business also needs funds for
short-term purposes to finance current operations. Investment in short term
assets like cash,inventories, debtors etc., is called ‘Short-term Funds’
or‘Working Capital’. Working capital refers to that part of thefirm's capital
which is required for financing short term orcurrent assets such as cash,
marketable securities, debtorsand inventories. Funds, thus, invested in current
assets keeprevolving fast and are being constantly converted into cashand this
cash flow out in exchange for other current assets.Hence it is also known as
circulating capital or revolvingcapital or short term capital.The ‘Working
Capital’ can be categorized, as funds neededfor carrying out day-to-day
operations of the businesssmoothly. The management of the working capital is
equallyimportant as the management of long-term financialinvestment.
According to Genestenberg:- "Circulating capital
meanscurrent assets of a company that are changed in the ordinarycourse of
business from one form to another, as for example,from cash to inventories,
inventories to receivables intocash."
The working capital is needed for the following purposes:-
1. For
the purchase of raw materials, components and spares.
2. To
pay wages and salaries.
3. To
incur day-to-day expenses and overhead costs such asfuel, power and office
expenses etc.
4. To
meet the selling costs as packing, advertising etc.
5. To
provide credit facility to customers.
Working capital policy is an important issue in any
organization because without the proper management of working capital
components it will be difficult for the organizations to run its operations
smoothly. Working capital management is significant due to the fact that it
plays a vital role in keeping the wheels of the business running (Lawrence and
Charles, 1985). Its effective provision can ensure the success of a business
while its inefficient management can lead not only to losses but also to the
ultimate downfall of what might otherwise be a promising concern. Business
success heavily depends on the ability of financial executives to effectively
manage receivables, inventory, and payables (Filbeck and Krueger, 2005).
Furthermore working capital policy has been major issue
especially in developing countries. Adequate working capital needs to be
maintained in order to discharge day-to-day liabilities and to protect the
business from adverse effects (Sayaduzzaman, 2006; Siddiquee and Khan, 2009).
It aims at protecting the purchasing power of assets and maximise the return on
investment.
Working capital is basically the portion of asset required by
a business in current operations. In its gross form, it is the investment in
current assets. However, it can also be described in its net form as the
difference between current assets and current liabilities. In most
organizations, current assets occupy a significant portion of the total asset
structure. This invariably requires efficient management of it. Working capital
management is concerned with managing the different components of current
assets (inventories, debtors/receivables, cash/bank, short-term investments,
prepaid expenses) and current liabilities (creditors/payables, provision for
tax, other provisions against the liabilities payable within a period of 1
year).
The issues involved in managing working capital of any firm
are concerned with the management of the firm’s inventory, cash, marketable
securities, receivables and payables etc, In order to achieve a proper balance
between risk and return. A well-designed and implemented working capital
management must contribute positively to the creation of a firm's value
(Zirayawati et al., 2009; Afza and Nazir, 2007). For maximising profits or
minimising of working capital cost or to maintain a balance between liquidity
and profitability, there is a need to optimise working capital (Padachi et al.,
2008). Too little investment in working capital i.e. aggressive working capital
policy can lead to disruption in production, increases the risk of not being
able to meet the financial obligations and impairs profitability. At the same
time a conservative financing policy i.e. too much investment in working
capital means idle funds that can earn no profit but involves cost. So, a
financial manager has to be vigilant in maintaining appropriate levels of
working capital.
1.10
Statement of the Problem
The main problem of this study is poor profitability of
hospitality companies and this is attributed to ineffective management of
working capital.
Invariably a company must neither keep excess inventory to
avoid unnecessary tying down of fund as well as loss in fund due to pilferage,
spoilage and obsolescence nor maintain low inventories so as to meet production
and sales demand as at when due.
These pose a problem to managers. And can be further discuss
in the following ways.
1. The
cause of over and under inventory in an organisation
2. Decrease
in company’s profitability as a result of ineffective inventory management.
3. The
deviation between inventory management and production.
1.11
Objectives of the Study
The main objective of this study is to evaluate and determine
the effect of working capital on the profitability of hospitality industries.
Specifically, this research work stands to achieve the following objectives:
1. To
examine how working capital can be effectively managed to enhance high
profitability in Nigeria hospitality companies.
2. To
examine the relationship between working capital and the performance of Nigeria
manufacturing company.
3. To
determine the cause of poor working capital management as it affect
profitability.
4. To
establish the relationship between working capital and profitability of
hospitality industries.
1.12
Research Questions
1. How
can working capital be effectively managed to enhance high profitability in Nigeria
hospitality companies?
2.
What are the relationship between working capital and the performance of
Nigeria hospitality companies?
3. How
can poor working capital management as it affect profitability of hospitality
companies?
4.
What are the relationship between working capital and profitability of
hospitality industries?
1.13
Research Hypothesis
Subject to the above stated objectives, the hypotheses
developed to be tested in this study was:
H0: Effective
management of working capital does not significantly enhance high profitability
in Nigeria hospitality companies.
H0: There are no
relationship between working capital and the performance of Nigeria hospitality
companies.
H0: Poor working
capital management does not affect profitability of hospitality companies.
1.14
Significant & Justification Of the Study
The study will increase awareness on the effect of working
capital on the profitability of hospitality industries and suggest measures in
managing working capital effectively. It will also reveal the problems caused
by bad management of working capital and be useful to researchers, scholars,
and other third parties as it shall open new area of further research work and
at same time advance challenges to up-coming researchers.
1.15
Scope& Limitation of the Study
The effect of working capital aids management effectiveness
in an organization (Chukwu, 2008). The study will focus on the effect of
working capital on the profitability of hospitality industriesand due to the
logical point that not every hospitality companies can be studied as a result
of time and resources available, this research is therefore limited to Radisson
blu anchorage hotel.
1.16
Definition of Terms
1.
WORKING CAPITAL: Working capital refers to that part of the firm's
capital which is required for financing short term or current assets such as
cash, marketable securities, debtors and inventories.
2.
HOTEL: These are companies that are engaged in hospitality business.
3.
LIQUIDITY: Ability of a company
to meet his financial need as at when due.
4.
PROFITABILITY: Ability of a business entity to make profit. It means
excess of revenue over expenses for a certain period usually a year period.
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