EVALUATION OF FINANCIAL MANAGEMENT PRACTICES IN A MANUFACTURING INDUSTRY

CHAPTER ONE 

1.0   INTRODUCTION 

Almost all kinds of business activities directly or indirectly involve the acquisition and use of funds.  There exists an inseparable relationship between finance on the hard and production and other functions on the other.  In a business set up, the functions of recruitment and promotion of employees are clearly the work of the personnel department. Sales promotion policies come within the functions of the marketing department.  These activities performed by these departments (personnel and marketing departments) require outlay of funds and therefore affect resources.  The finance function of raising and using money although has a significant effect on other functions but it need not necessary limited the general running of the business.  Generally firms formulate their policies (marketing productions, personnel and other policies) most of the time, to tally with the financial resources of the company available to them. The word “Finance” is viewed from different perspective by different group thus: -a.    A layman sees finance as the volume of money in his prose, vault and at the bank.b.    Investors sees finance as the provision of funds as at the time it is need for investment.  It goes beyond coursing and applying the fund for profit maximization as well as the state of sharing the profits.c.    Academic sees finance as the science of fund management. The investor view about finance shall be upheld in this write up.  This because it emphasizes on profit making for the maximization of shareholders wealth.  Wealth maximization is one of the corporate financial objectives of a firms.  This can only be achieved by efficient and effective management of the company’s resources.         Financial management involves all the activities that are concerned with planning cash and credit requirement, including the effective control of the financial resources         The activities could be segregated as follows 

i.    Forecasting the future availability of and requirements of cash 

ii.   Converting forecasts into plans and budgets 

iii.  Planning the appropriate capital structure 

iv.  Raising of cash from outside the business 

v.   Controlling cash balances and flows in accordance with plans and changing circumstances 

vi.  Investing surplus fund In financial planning, this involves estimating and planning of the future flow of cash receipt and disbursements. Also this is useful in raising of funds organizing and ensuring that funds necessary for carrying on the operation of planning is available.  The wise use of funds by allocating such funds ensuring efficient use of funds. In financial controlling, monitoring financial operations to ensure that cash flows are proceeding according to plan. As a company is part of financial community, its financial management can be fully interpreted only within the context created by the workings of financial institutions and markers. The variables considered in the framework of financial management are: a.    The financial goals of the company b.    The valuation of the company and the extent to which this valuations uninfluenced by company decision. c.    The means of measuring the performance of the company.  When it goals have been identified and the method of valuation chosen, the company’s performance must be monitored and measured accordingly. The researcher here wants to access the financial health of a manufacturing industry, its strengths, weaknesses, recent performances, future prospects and the implementation of its financial policies.  This involves a review of the financial policies.  This involves a review of financial statements followed by careful consideration of their use in evaluating financial performance.   ASSESSING THE FINANCIAL HEALTH OF A MANUFACTURING COMPANY The most important source of information for evaluating the financial health of a company is its financial statement consisting of a balance sheet and a income statements. EAGLE CEMENT is a public liability company and as required by law, it is expected to submit her annual account to the registrar, corporate affairs commission, Abuja.  The account so prepared is for the consumption of many interest group like: the shareholders, tax authorities, investors, creditors etc. For the purpose of evaluating the financial health of the company (EAGLE CEMENT), the use of financial statement for 1999 year shall be reviewed and analyzed.  See chapter four on data presentation and analysis. 

1.1   BACKGROUND OF STUDY 

The research work is based on the NIGERIAN CEMENT Company Plc. Nkalagu in Ebonyi State.  As miller puts it, “we cannot understand the attitude of either management of workers unless they are seen in their historical context”.  Here the history of NIGERCEM Nkalagu is briefly narrated and derived from the management audit enquiry of NIGERCEM, 1976. The history of NIGERCEM dates back to colonial days in Nigeria.  The early thirties of this century, several district officers, geologists had report tot he existence of large deposits of limestone in Nkalagu area – various over sees had as a result of this shown interest in working of deposit. On 23rd August, 1954, the Nigerian government signed an agreement with F. L Smith and company for the erection of a cement works at Nkalagu.  By the same agreement, F. L. Smith and company limited as managing agents.  The Nigerian Cement Company Limited, Nkalagu was incorporated on 13th Novemenber 1954 to operate this cement project.  Mr. E. E. Sabben – Clare became the first chairman of the board of directors. On December 20, 1957, the governor general of Nigeria, Sir, James Robertson, opened the factory officially.  Commercial production commenced on 1st January, 1958. Once of such investors is flour mills of Nigeria which Chief Emmanuel Ukpabi said arrears of staff salaries alone in Nigrecem in conservatively put at N1.4billion according to him. Liabilities to individuals and corporate bodies are estimated at several billions of naira.  He recalls that there had been desperate move by cement importing companies to either buy wholly or acquire majority shares of ailing cement manufacturing firms.  But they all shunned Nigercem because of the said liabilities. Nigercem owned by the five south-eastern states ran into hitches from the late 80’s due mainly to gross mismanagement.  The development led to break down of three of firms vital machines which remained unserviceable with the only functional one operating at low capacity for some time until it finally got grounded.  The south-east governors who are the major investors in the company had also contemplated many options aimed at reviving the company. At recent meeting of the five south-eastern governors in Owerri the Imo State capital, various options for the revival of Nigercem topped the agenda of their parley.  The host governors Achike Udenwa who spoke with news men said Nigercem will be privatized if the governor’s ratify is being considered for privatization.  The government of the five eastern states are already considering this in order to improve efficiency and productively. The chairman of Nigercem “Nze Clement Maduako noted that eastern Rukeem company limited producers of Eagle Cement, was the major shareholder in the privated Nigercem with a controlling share of 60 percent.  Expressing confidence on the ability of new management to kick-start Nigercem now called Eagle Cement again, he said the new board has the first general manager of the cement company as member, while another employee of the company is expected to join the six-member board.  Member of board, who emerged from the election conducted by the 165 shareholder in attendance were Nze Maduako, chairman; captain I.A Hastrup, Mr. H.N Onugbogu, Mr. Coran Wejdmark, Mr. S.A Oludemi and Dr. J.O Ojukwu. The plant stopped production in 1999, but had a text run in 2001 for only three months in preparation for the privatization.  Some of shareholders who spoke said they had not been paid for the past 40 months and pleaded with the new board to consider clearing the arrears then works commences in the factory.   

1.2   OBJECTIVE OF THE STUDY 

The overall purpose of the study is to understand the financial management practices that equips them with the conceptual and analytical knowledge requires to make skillful, informed, sound, objective and reliable decision of the company.  Specifically the objective of the study on this project is stated as follows: 

a.     To evaluate the financial performance of EAGLE CEMENT Company. 

b.     To evaluate the management levels of control of financial performance of the company. 

c.     To identify the accounting systems and procedures and check whether the financial polices of the company are implemented accordingly. 

d.     To prefer solution to ineffectiveness in financial management of the company.      1.3   STATEMENT OF THE PROBLEM   

a.     It is believed from the evaluation of financial status of the company that the company is not financially healthy. 

b.      It is also established that there is inefficient and ineffective management of the company’s resources 

c.      It equally discovered that the financial policies are not properly implemented. d.      Exposing financial fraud noticed. It include as follows: 

i.       Cash advance Staff and management do apply for cash advance but over spend the amount approved for them only to come back to claim a very huge amount as their balance

ii.       Car repairs: Outside, manager do not allow their official  cars to be repaired by the company’s employed mechanics.  They prefer repairing it outside only to present an inflated bill to the company payment   

iii.      The provision that all purchases should be routed through the purchasing department is just in principle not in practice. 

iv.      Price invoicing: The company allows suppliers to inflect the prices of their suppliers because of the interest some of them have. 

v.       Price variation: Some supplier do after some months of supply sent a price increase to the company for items already supplied and the company will honour such claim. 

vi.      Supply of item, which do not agree with the specification of item actually required by the company.vii.     Contract prices are unjustifiable inflated viii.    Cheque exchange granted to some staff or managers take more than one year before it is redeemed.   

1.4   SCOPE OF STUDY 

The study covers the area relating to financial manger of EAGLE CEMENT.  It also touched on the effective implementation of financial policies of the company.     

1.5   RESEARCH QUESTIONS 

i.      What are the levels of the financial management control of the company? 

ii.      What are your accounting system and procedures relating tot he receipt and disbursements of the company money?  

 1.6    HYPOTHESIS 

i.    Financial management practices

EAGLE CEMENT COMPANY are not in line with the approved policy 

ii.    The accounting procedures are not in line with the approved policy 

iii.   The internal control system of the company are not in line with the establishment system.   

1.7    THE SIGNIFICANCE OF THE STUDY 

1.   The study will reveal the ineffectiveness of financial management practices in the company 

2.   The study will equally reveal the weaknesses in the internal control system of the company The study will also over haul the accounting procedures of the company as to see how adequate they are.