CHAPTER ONE
INTRODUCTION
No firm operation is isolative of cash management. Cash management is imperative in every business organization as cash is said to be the life blood of any business (Chartered Institute of Management Accountant (CIMA), 2012). According to Olowe, 2012, Cash is seen as the most vital current asset for the functionality of a firm. The purpose of cash management is to ensure positive cash flow for smooth business operation. Cash is the vital input necessary to maintain and keep the firm running on a continuous basis and it is also the ultimate output expected to be realized by marketing the services or products produced by the firm (Pandey, 2010). Adetifa (2010) asserted that cash management has been professionalized due to the importance of managing corporate cash. The question that will then come to mind will be, how vital is cash management to the operation of a firm? Or of what importance is cash management in ensuring an effective, reliable and positive fund flow system of a firm? Primarily, the process of managing cash today has been significantly affected by the growing developments in the business world over the years (Kesseven, 2011). These developments include; the innovation in the corporate banking relationship from buyer’s to a seller’s market, the globalization of the world business which includes the creation of the economic monetary union in Europe with its single currency and the proposed adoption of a single currency in the west region of Africa; the emphasis on new treasury structures to better manage resources on a worldwide basis; the developing interest in e-commerce for business-to-business transactions which changes how data and funds flow greatly reduces working capital cycle time; the emergence of the “new economy” with its orientation to information and cash, driving finance into every aspect of a firm (Marsh, 2009). Based on all these developments, proper cash management has become vital to business survival and success. However, cash management centers on how a firm manages its cash flow cycle or operating cycles as this defines the timing of cash inflows and cash outflows. The method of the cash and operating cycles differs per industry but in a general term, the method involves the availability of cash as capital for firm’s initial outlay, the purchase of raw material in manufacturing companies and finished goods in marketing companies, distribution of the finished goods to acquire immediate cash or create debtors when goods are sold on credit term. (Akinbuli, 2009). Furthermore, the process of managing corporate cash has become a basic challenge for most firms, because of its significant impact on the output of a company (Ekwere, 2010). The determination of problems in cash management involves identifying areas that are unique to solving cash problems in an organization. One of the challenges faced by finance managers in managing cash is determination of appropriate source of fund for the company either to be used as the initial or working capital. Other challenges are identifying of right investment for idle funds, lack of cash planning, and determination of the most favourable level of cash to be maintained by the firm. Kesseven (2011) asserted that most financial managers are hooked with the problem of achieving an expected trade-off between liquidity and cash management in maximizing the value of the firm. Cash management is important to every firm that needs to meet up with its short-term financial obligations. Akinsulire (2013) asserts that the exploit of any business establishment is foreseen on how the management has planned and controlled its cash flows. According to Olowe (2008), cash management is concerned with the efficient management of cash so as to achieve a most favorable level of cash in the firm’s working capital. Cash represents the basic input necessary to start and keep a business running. A firm needs to maintain sufficient cash to keep its business working smoothly. Shortage of cash will hinder the firm’s operation and can even result to insolvency. Too much cash will tie down unnecessarily long-term capital with a result that the return on capital employed will be low. A firm therefore needs to maintain sound cash position to avoid liquidity. Liquidity management is vital for every firm as it practically affects its overall liquidity and profitability (Appuhami, 2008). Firms have to do with the processing of goods(manufacturing firms), usually keep working capital in the form of the cash, marketable securities, cash equivalents and the inventories. The working capital are made up of almost half of the total of the asset side of the balance sheet, while this proportion may be higher in the case of firms involved in the business of marketing these products (merchandising companies). The excessive amount of investment in these assets may result in the barrier of the company’s precious cash resources and eventually profit of firms may decline. There is always tradeoff between cash management and liquidity (Eljelly, 2014). Liquidity and cash management are important goals for any firm and to sacrifice one goal at the cost of other can create severe problems for the firm (Kargar and Bluementhal, 2012). Cash management is important for long term survival of firms which helps to maximize the wealth of shareholders. On the other hand liquidity is important to cover its short term obligations like payment to supplier and to protect itself from bankruptcy (Howorth and Westhead, 2013, Deloof, 2013, Afza and Nazir, 2011,Afza and Nazir, 2008) cash management and Liquidity Management requires a careful attention since it plays a major role in firms effectiveness, value and risk (Smith, 2012). Hence the study examines cash management and liquidity in Nigeria non-financial firms.
Cash management represents an important component of working capital management (Akinyomi & Tasie, 2011; Malik, Waseem & Kifayat, 2011). Literature revealed that several studies on working capital management have been conducted both in the advanced market economies and developing economies (Wongthatsanekorn, 2010; Abbasi & Bosra, 2012). These studies have reported the relationship between working capital management and financial performance (Hutchison, Farris II and Anders, 2011; Akinyomi & Tasie, 2011). However, till date, only limited studies have investigated cash management and liquidity especially in the context of non financial firms (Raheman & Nasr, 2011). Peavler (2009) observed that most failed businesses (up to sixty percent) were of the opinion that all or most of their failures were due to cash flow problems. Thus the cash management and liquidity in Nigeria non-financial firms remains unresolved and called for investigation.
The major aim of the study is to examine assessment of open space location and its functionality to planning in Akure. Other specific objectives of the study include;
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESES
Hypothesis 1
H0: There are is no significant impact of cash management and liquidity on performance of non- financial firms.
H1: There is a significant impact of cash management and liquidity on performance of non- financial firms.
Hypothesis 2
H0: There is no significant relationship between cash management and liquidity in Nigeria non- financial firms.
H1: There is a significant relationship between cash management and liquidity in Nigeria non- financial firms.
1.5 SIGNIFICANCE OF THE STUDY
The study will be of profound benefits to enlighten the managements and stakeholders on cash management and liquidity in non financial firms. This study would also be of immense benefit to students and scholars who are interested in developing further studies on the subject matter.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study is restricted to cash management and liquidity in Nigeria non-financial firms
LIMITATION OF THE STUDY
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 OPERATIONAL DEFINITION OF TERMS
Liquidity: the ability to settle obligations with immediacy”. The management of liquidity is essential for financial and non-financial firms (Drehmann and Nikolaou, 2013).
Cash: refers to money which an organization or firm can disburse immediately without restriction.
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