ASSESSING WORKING CAPITAL MANAGEMENT ON THE FINANCIAL PERFORMANCES (A CASE STUDY OF SUNGLASS KADUNA)

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

No matter the amount of money spent on equipment, plant and machinery, building etc. if the ingredient for production are not efficiently managed the entire amount committed will become a waste. As essential as these are without working capital there is going to be a set back.

Aminu (2003) defines working capital as a firms investment in short term assets that is cash account receivable, short term or marketable securities and inventories similar Philip (2001) sees working capital as items that are required for day to day production of goods (services) to be sold by a firm. 

Philip (2001) stated that working capital management refers to a process of all aspect of the administrations of both current assets and current liabilities. He also explains that it is a process of planning, directing, controlling and decision making over working capital to achieve the aims and objectives of the company. Philip (2001) defines management as a process of planning, directing, controlling and decision making in order to achieve the aims.  

Finance is a broad term that describes two related activities, the study of how money is managed and the actual process acquiring needed funds, while Don (2012) defined finance as a field that deals with the study of investment that includes the dynamics of assets and liabilities over time under conditions of different degree of uncertainty and risk.

The availability of working capital is an important factor to be consider as it is a pivot upon which the life of the firm revolves. But more importantly it is the ability of the manager to harness the components of working capital to bring about consistency in the success and growth of the firm. The efficiency and effectiveness of the management of this vital ingredient is a determining factor of the company’s community in business.

1.2       Statement of the Problem

It is an established fact that no matter how an organization is well equipped with both machines and human resources without the necessary working capital management operating the business will be difficult and the organization will not be able to produce goods and services. Working capital plays a very important role in the success of any organization especially in a manufacturing concern. In a period when there is surplus cash flow in an organization, the effect of working capital may not be notified and this is not always obtained in many organizations. Philip (2001) observed that poor management of working capital in business often leads to low profits and lack of capital investment structure (short and long term). With the present global economic recession, increasing interest rate and therefore it is necessary to assess the working capital management on the financial performance in sunglass Kaduna.

1.3       Objectives of the Study

The study would attempt to achieve the following objectives

i)                To analyze the sources of working capital for sunglass limited  

ii)              to identify the relevance of working capital to operational performance 

iii)             To identify the components of working capital of sunglass limited

iv)             To assess the working capital management on financial performance of sunglass limited

The following questions are formulated to guide the study

(i)              What are the relevance of working capital to the manufacturing company

(ii)            How can we asses the working capital management on financial performance in sunglass limited Kaduna?

1.4         Significance of the Study

The significance of the study are as follows:

i.                 Individuals who will have any opportunity to have company on his/her own to serve as a guide in his/her working capital management based on financial record.

ii.               Serve as a reservoir of knowledge and secondary data for students companies or other interested individuals or group who may embark on research on related topic in the future

iii.             The research will be of great help to the management of Sunglass Limited to trace areas of weakness and possible corrective actions to be taken as to avert similar failure in the future.  

1.5       Scope of the Study

This study will be limited to assess the working capital of management on the financial performances of sunglass limited Kaduna, and the study will not cover the production capacity, but only on working capital on the financial performance.