EFFECTS OF CASH MANAGEMENT ON FINANCAIL PERFORMANCE

IN PRIVATE SECONDARY SCHOOLS IN MOGADISHU-SOMALIA.

ABSHIR NUR MOHAMED

A RESEARCH PROJECT SUBMITED TO THE EPARTMENTOF BUSINESS AND

ECONOMICS IN THE COLLEGE OFHUMAN RESOURSE DEVELOPMENT IN

PARTIAL FULFILLMENT OF THEREQUIREMENTSFOR

THEAWARDOF A DEGREE OFMASTERS OF BUSINESS ADMINISTRATION

(ACCOUNTING) AT JOMO KENYATTAUNIVERSITY OFAGRICULTURE

ANDTECHNOLOGY

SEPTEMBER 2016

I

DECLARATION

This research proposal is my original work and has not been presented for a degree

in any other University.

Signature: ………………………………. Date: ………………………….

ABSHIR NUR MOHAMED

HD333-C005-1475/2014.

This research proposal has been submitted for the examination with my approval

as the University Supervisor.

Signature: ………………………………. Date: ………………………….

SUPERVISOR

MR: NAGIB OMAR

II

DEDICATION

This piece of work is dedicated to my dear parents, for all that they have sacrificed

to raise me up and direct me in the right path of life

III

ACKNOWLEDGEMENT

All praise is to Allah, who made it possible for me to complete this research project

successfully, and for granting me direction, protection, wisdom and knowledge in making

this project. Secondly, I would like to acknowledge and appreciate the support that I have

received from my supervisor, Nagb Omar for his academic and professional guidance. My

sincere appreciation also goes to JKUAT university management, my lecturers at the College

of Human Resource Development (CHRD) at the Jomo Kenyatta University of Agriculture

and Technology (JKUAT), for their support and fair criticism of this work so far.

Additionally, I also would like to express my sincere gratitude to the colleagues:Ali Abdi

Sheikhdon, and Abdirizak Salah Turyare. Special thanks to my parents and family members

for their support, patience, understanding and encouragement that enable me in completing

this project.

IV

TABLES OF CONTENTS DECLARATION .................................................................................................................................................. I

DEDICATION ..................................................................................................................................................... II

ACKNOWLEDGEMENT ................................................................................................................................ III

LIST OF ACRONYMS .................................................................................................................................... VII

DEFINITION OF TERMS ................................................................................................................................. X

ORGANIZATION GOALS, .............................................................................................................................. X

ABSTRACT ....................................................................................................................................................... XI

CHAPTER ONE ................................................................................................................................................... 1

INTRODUCTION ................................................................................................................................................ 1

1.1. BACKGROUND INFORMATION ................................................................................................................ 1

1.2. STATEMENT OF THE PROBLEM. .............................................................................................................. 4

1.3 .GENERAL OBJECTIVES. ............................................................................................................................. 5

1.3.1 .SPECIFIC OBJECTIVES. ............................................................................................................................ 5

1.4. RESEARCH QUESTIONS. ............................................................................................................................ 5

1.5 .JUSTIFICATIONS ............................................................................................................................................ 5

1.6 .SCOPE OF THE STUDY ................................................................................................................................ 6

1.8 .SIGNIFICANT OF THE STUDY ................................................................................................................... 6

CHAPTER TWO .................................................................................................................................................. 7

LITERATURE REVIEW .................................................................................................................................... 7

2.1 INTRODUCTION ............................................................................................................................................ 7

2.3.1 CASH PLANNING ..................................................................................................................................... 12

2.3.2 CASH BUDGET ......................................................................................................................................... 13

2.3.3 CASH COLLECTION ................................................................................................................................ 13

2.3.4 CASH CONTROL ....................................................................................................................................... 14

2.3.5 FINANCIAL PERFORMANCE ................................................................................................................. 16

2.3.5.1 MEASUREMENT OF FINANCIAL PERFORMANCE ......................................................................... 17

2.3.5.2Profitability: ...................................................................................................................................... 18 2.3.4.3 Return on Equity ............................................................................................................................... 19

2.4 EMPIRICAL LITERATURE REVIEW ......................................................................................................... 20

2.6 RESEARCH GAPS .......................................................................................................................................... 22 2.7 SUMMARY OF LITERATURE REVIEW ............................................................................................................ 23

CHAPTER THREE ............................................................................................................................................ 24

REASERCH METHODOLOGY ...................................................................................................................... 24

3.2 RESEARCH DESIGN .................................................................................................................................... 24

V

3.3TARGET POPULATION ................................................................................................................................... 24

3.4 SAMPLING FRAME ..................................................................................................................................... 26

3.5 SAMPLE SIZE AND SAMPLING TECHNIQUE ........................................................................................ 26

3.6 RESEARCH INSTRUMENT.............................................................................................................................. 26

3.7 DATA COLLECTION PROCEDURES ........................................................................................................ 28

3.8 PILOT OF STUDY .......................................................................................................................................... 28 3.9.1 QUALITATIVE ANALYSIS .......................................................................................................................... 30 3.9.2 QUANTITATIVE ANALYSIS ........................................................................................................................ 31

CHAPTER FOUR .............................................................................................................................................. 32

RESEARCH FINDINGS AND DISCUSSION ................................................................................................. 32

4.1 INTRODUCTION .......................................................................................................................................... 32

Table 4.1: Response Rate ............................................................................................................................. 32

4.3 RELIABILITY AND VALIDITY .................................................................................................................. 33

4.3.1 RELIABILITY ANALYSIS ............................................................................................................................ 33

4.4 DESCRIPTIVE STATISTICS ....................................................................................................................... 33

4.4.1 DEMOGRAPHIC DATA ................................................................................................................................ 35 4.4.2 RESPONSE OF GENDER DISTRIBUTION ....................................................................................................... 35 4.4.3 RESPONSE OF AGE GROUP ......................................................................................................................... 35 4.4.4 RESPONSE OF LEVEL OF EDUCATION ......................................................................................................... 36 4.4.5 YEARS OF EXISTENCE ............................................................................................................................... 36

4.5 STUDY VARIABLES FINDINGS ................................................................................................................ 37

4.5.1 CASH BUDGET........................................................................................................................................... 37

4.7 CASH PLANNING ........................................................................................................................................ 38

4.5.3. CASH CONTROL ...................................................................................................................................... 39

4.5.4 CASH COLLECTION ................................................................................................................................ 39

4.6 MULTIPLE REGRESSION ANALYSIS ...................................................................................................... 41

4.6.3 REGRESSION COEFFICIENTS ...................................................................................................................... 43

CHAPTER FIVE ................................................................................................................................................ 46

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .................................................................... 46

5.1 INTRODUCTION .......................................................................................................................................... 46

5.2.1CASH PLANNING AND FINANCIAL PERFORMANCE ........................................................................ 46

5.2.2 CASH BUDGETING AND FINANCIAL PERFORMANCE .................................................................... 47

5.2.3 CASH CONTROL AND FINANCIAL PERFORMANCE ........................................................................ 47

5.2.4 CASH COLLECTION AND FINANCIAL PERFORMANCE .................................................................. 47

5.3 CONCLUSIONS ............................................................................................................................................ 48

5.4 RECOMMENDATIONS ................................................................................................................................ 49

VI

5.5 AREAS FOR FURTHER RESEARCH ......................................................................................................... 50

REFERENCES ..................................................................................................................................................... 50

APPENDIX I ....................................................................................................................................................... 53

APPENDIX II: WORK PLAN ........................................................... ERROR! BOOKMARK NOT DEFINED.

VII

LIST OF TABLES

TABLE 3.1: TARGET POPULATION COMPANIES .................................................... 23

TABLE 3.2: TARGET POPULATION AND SAMPLE SIZE ........................................... 24

TABLE 4.1: RESPONSE RATE .............................................................................. 32

TABLE 4.2: RELIABILITY COEFFICIENT OF THE STUDY VARIABLES ........................ 33

TABLE 4.3: KMO……………………………………………………………………..34

TABLE 4.3: GENDER OF RESPONDENTS ............................................................ ...35

TABLE 4.4: AGE DISTRIBUTION .......................................................................... 35

TABLE 4.5: WORK EXPERIENCE ......................................................................... 36

Table 4.6: LEVEL EDUCATION……………………………………………………..36

TABLE 4.7: CASH BUDGETING ............................................................................ 37

TABLE 4.6: CASH PLANNING ............................................................................... 38

TABLE 4.7: CASH CONTROL……. ....................................................................... 39

TABLE 4.9: CASH COLLECTION .......................................................................... 40

TABLE 4.12: FINANCIAL PERFORMANCE ...................................................... 41

TABLE 4.13: MODEL SUMMARY ........................................................................... 42

TABLE 4.14: CORRELATION ANALYSIS ................................................................. 43

TABLE 4.14: ANALYSIS OF VARIATIONS ............................................................... 44

TABLE 4.15: REGRESSION COEFFICIENTS ............................................................. 45

VIII

LIST OF APPENDICES

APPENDIX I: QUESTIONNAIRE ................................................................. 53

APPENDIX II: WORK PLAN ......................................................................... 57

APPENDIX III: BUDGET ............................................................................... 58

IX

LIST OF ACRONYMS

PSS: Private Secondary Schools

FPENS: Formal Private Education Network in Somalia

UNESECO: United Nations Educational Scientific and Culture Organization

WFB: World Fact Book

JKUAT: jomo Kenyatta University of agriculture and technology

ROE: Return on Equity

X

DEFINITION OF TERMS

Cash management Cash management is an essential too l which aims at

establishing the financial position of the organization.(Pandey

2005) notes that it is a set of guidelines established by

management to ensure that the organization has optimal cash

balance at any time to meet the organization goals,

Cash planning According to Pandey (2003) cash planning is a technique used

to plan and control the use of cash. It involves preparation of

forecasts of cash receipts and payments so as to give out an

idea of the future financial requirements

Cash budget Cash budget is a tool used to manage the cash flow of a

business. This is a budget that is focused on the

Cash coming into the business and the cash that leaves the

business. Effective cash budget enhances growth which in turn

produces increased profitability.

Cash collection Külter, and. Demirgüneş (2007), noted that cash collection

systems aim to reduce the time it takes to collect the cash that is

owed to a firm. Some of the sources of time delays are mail

float, processing float, and bank float. Obviously, an envelope

mailed by a customer containing payment to a supplier firm

does not arrive at its destination instantly.

Financial performance although “performance” may appear to be an easy concept, a

unique definition in the literature does not exist. Moreover,

academics often use special definitions tailored to fit the

individual research purposes (Langfield-Smith, 1997). The

financial performance is often measured using traditional

accounting Key Performance Indicators such as Return on

Assets, Operating Profit margin, Earnings before Interest and

Tax, Economic Value Added or Sales growth (Ittner&Larcker,

1997; Fraquelli&Vannoni, 2000; Crabtree &DeBusk, 2008

XI

ABSTRACT

This study tried to investigate how private schools can properly manage their cash in an

“optimal way”. This optimal way is defined in this study as the most profitable way, so the

most optimal way of managing cash flow in this study is leading to the highest profitable to

the private schools. However, it was reported that among the problems that affect private

schools in Mogadishu leading to their failure were negative cash management and poor record

keeping at International Education. This leaves the gap that is poor cash collection fees from

the students and payment to pay teachers, operating expenses and miscalculate the actual time

to collect student’s overdue accounts receivables, in which the researcher caused to in

investigate about the impact of cash management on profitability of Private schools with a

case study of secondary schools. The general objective of the study is to investigate the

effects of cash management on profitability of private schools in Mogadishu, Somalia. The

population under the study included specific categories of individuals selected from the

private schools in Mogadishu. Research instrument used in the Data collection is

questionnaire to measure the variable(s), characteristic(s), or information of interest, often a

behavioral or psychological characteristic. Proceeding from general to specific research

questions, makes the research activities in any project more focused - in terms of data needed

to answer the research questions. Data collect from the questionnaire was analyzed,

summarize, and interpret accordingly with the aid of descriptive statistical techniques such as

total score and simple percentage. In the process of data analysis the researcher was used

descriptive and statistical analysis with the help of the SPSS computer package to analyze the

data. The regression was computed to determine the extent that each variable of cash

management influenced on the dependent variable (Private schools financial performance).

After data processing, statistical techniques of data analysis like SPSS were used to determine

the relationship between cash management and financial performance in Private schools.

The researcher recommends that the Private schools should adopt cash management strategyto

increase their control to collections fees as it was founded that cash collection positively

affects the financial performance of Private Schools to improve their competitiveness and

financial performance. The findings indicated that cash management has high effect on

financial performance of Private secondary schools in Mogadishu, Somalia.

The results revealed that cash planning was statistically significant in explaining Financial

Performance of Private secondary schools in Mogadishu, Somalia

1

CHAPTER ONE

INTRODUCTION

1.1. Background of the study

Cash management is an essential tool which aims at establishing the financial position of the

organization.( Pandey 2005) notes that it is a set of guidelines established by management to

ensure that the organization has optimal cash balance at any time to meet the organization

goals, cash recovered should be matched with cash spent on services so that there is no

unused cash balances.Cash management had a growing importance in the past years and

number of factors has brought serious attention to the importance of cash management. Swing

in interest rates on both borrowed and invested funds to get business away from basics and

into a go-go mind set with the temptation to make big money through stock issues; to the

economic malaise of the 1970s when businesses had to scratch harder to make money.

Then financial institutions, many troubled by problems in the 1980s, have aggressively

marketed cash management services that were previously beneath their dignity or capability.

Examples are cash collection lockbox services, electronic (cashless) payment services, online

transaction capability, and sophisticated cash investment programs. All the above have made

the “cash management” very important in business profitability. (Peter and Heyler, 2003)

In Africa, It has been 15 years since the original Cash Management Handbook was written,

and much has changed since then. Cash management is now a household term with frequent

articles in the media about its growth, innovation, and changes of technology that can be used

cash management such as email money transfer (EMT).According to (Pandey 2004) cash

planning is a technique used to plan and control the use of cash. It involves preparation of

forecasts of cash receipts and payments so as to give out an idea of the future financial

requirements. Therefore the management of the school needs to determine the schedules of

monthly disbursements and collection schedules of creditors. with efficient cash planning

system, the financial needs of the school was met, with reduced possibility of the cash

balances which lowers the school’s profitability and cash deficits which can lead to school’s

failure .

Cash budget is a summary statement of the firm projected time period and it is the estimation

of how much cash the company was produced in the future that enables it to ascertain

whether it generates enough cash, not only to cover its current operating needs, but also to

2

finance new acquisitions of capital goods or other capital projects (Matassi, 2008, p. 7; de

Caux, 2005, p. 106) Preparation of cash budget is one of the sure ways of measuring a firm’s

liquidity over a period of time. According to Brigham and Houston (1999) cash budget refers

to a table showing cash flows (receipts, disbursements, and cash balances) for a firm over a

specified period of time. This information helps the financial manager to determine the future

cash needs of the firm, plan for the financing of these needs and exercise control over cash

and liquidity of the organization (Kakuru2003).

Cash control is the overall attitude and actions of management regarding control system of

cash in the entity. A strong control is one with tight budgetary control over cash received,

cash banked, cash cheques, and effective control cash balances, cash brought down.

According to Hamilton (2001) an oblivious aim of a school is to control and manage its cash

affairs in such a way as to keep cash balance at a minimum level and invest surplus cash in

investment opportunities.

Cash allocation is that the Sources of cash should clearly be highlighted and cash should be

allocated accordingly, for example cash paid in line with supply of essential requirements

used in the school should be used to acquire such requirements or materials. Cash collection is

the recovery of cash from private schools or individual with which you have issued an

Invoice. Unpaid bills are considered outstanding. Bills are always issued with terms of

payment and Cash can be expedited by collection systems that provide for advance billing and

payment.

Cash management is essential for every business as it would contribute towards increasing

profitability, future planning and sustainability (Patel, 2010). Cash Management Essentials is

a suite of cash management solutions that can help you gain better control over your daily

financial activities.Puxty and Dodds (2013), it is essential to keep some of the organization’s

resources in cash due to generally recognized motives for holding cash by business unit. Cash

management is concerned with the management of cash flow that is to say inflow and outflow

of cash, this seeks to archive control of cash by paying obligations like meeting organizational

needs (Kakuru 2001), The indicators of cash management include cash planning which is a

technique use to plan and control the use of cash, safety that is to say there should be one to

authorize use of cash, cash control, cash allocation and cash budget. Cash managers should

practice effective cash management through different aspects which include: cash budgeting,

3

optimal cash balance, long term cash forecasting, reports for control monitoring collections

and receivables, options for investing surplus funds and strategies for investing surplus funds.

(Chandra, 2004)

Profitability is the organization’s desired state where turnover is greater than input cost

(Bogess 2008). According to (Kakuru2006) profitability is the ability of a firm to earn returns

on investment. The higher the cash balances are in a business, the more returns or profitability

was fore gone. The indicators of profitability include return on assets, return on capital

employed and sufficient cash flows.Cash management techniques applied by private schools

include paying school fees in the banks using school bank slips, students paying directly to

the school safety.(Kategaya 2001) argues that the public seems interested in the developments

in secondary schools where he cited a big number of private students that have shown steady

progress for example Green Hill Academy, Sir Apollo Kagwa.Somalia has adopted the

education system with eight years of primary education four year of secondary before the

state collapsed in 1991; education was free and compulsory for children between the ages of

six to thirteen in Somalia.

some Somali educated intellectuals established privately owned educational institutions who

privately run schools merged to form what has come to be known as Education Umbrellas

such as FPENS.UNESCO has increased primary school enrolment with the adopted minimum

standards of quality primary education and to improve access to post-primary education for

Somali children and youth, including technical, vocational education.

There are new eleven education umbrellas that predominantly run schools (primary and

secondary) in the whole of the South Central Somalia in which there are some private schools

that use cash management systems but more as an administrative tool than as something

integrated into profitability and outcomes.

According to (Foulks 2005) Effective cash management enhances growth which in turn

produces increased profitability, however some private schools continues to close down due

to weak cash management for example St John in Bombo -Luweero district (New Vision

20th 2008).Private schools are located in Mogadishu have been discovered that large number

of private schools failures in the past has been blamed on the inability of the financial

manager to plan and control the cash management.

4

1.2. Statement of the problem.

Cash management techniques are adopted by organizations in order to ensure effective

investment of cash and to achieve profitability both in the short run and long run (Dodds

2009) but despite the adoption of these cash management techniques, still most present

organizations run bankrupt to the extent that some are even closed due to poor cash

management. Cash is the lifeblood of all growing Organizations and is the primary indicator

of organizational health. The effect of cash flow is real, immediate and, if mismanaged,

totally unforgiving. Cash needs to be monitored, protected, controlled and put to work (Marie,

2001). Efficient cash management means more than just preventing bankruptcy but improves

the profitability and reduces the risk the school is exposed to, (Maness and John, 2002 Cash

management is generally acknowledged as the single most pressing concern of Private

schools.

Somalia Private schools are the educational institutions owned and operated entirely by

private and not governmental authority; fees are charged to students attending them by

collecting cash on hand not depositing quickly to bank accounts and that is a problem for the

enhancement and Financial Performance of private schools, most of Somalia private schools

do not have bank accounts to deposit the huge cash received from students.

Private schools are located in Mogadishu districts have been discovered that large number of

schools failures in the past has been blamed on the inability of the financial manager to plan

and control the cash management that caused not be profitable because of lack enough cash to

pay the obligations., such as salaries and another benefits of the teachers to meet school

success in terms of its mission, goal and objectives. It is therefore imperative that school

leadership put in place mechanisms to ensure that proper cash management practices are

followed in the schools. These private schools are not practicing cash management to

eliminate surplus cash in safety box in the schools by depositing the huge cash to the bank

account immediately and that leads cash to be stolen and they are not performing well enough

to be profitable due to the lack of proper cash management practice.

This study was tried to investigate how private schools can properly manage their cash in an

“optimal way”. This optimal way is defined in this study as the most profitable way, so the

most optimal way of managing cash flow in this study is leading to the highest profitable to

the private schools. However, it was reported that among the problems that affect private

5

schools in Mogadishu leading to their failure were negative cash management and poor record

keeping at (Abdinoor, Abdullah 2008) International Education. This leaves the gap that is

poor cash collection fees from the students and payment to pay teachers, operating expenses

and miscalculate the actual time to collect student’s overdue accounts receivables, in which

the researcher caused to in investigate about the impact of cash management on Financial

Performance of Private schools with a case study of secondary schools.

1.3 .General objectives.

The general objective of the study is to investigate the effects of cash management on

profitability of private schools in Mogadishu, Somalia

1.3.1 .Specific objectives.

The specific objectives of the study include:

1. To establish the effects of cash control on financial performance of private schools in

Mogadishu, Somali.

2. To evaluate the effects of cash planning on financial performance of Secondary private

schools in Mogadishu, Somali.

3. To determine the effects of cash budgeting on financial performance of private schools in

Mogadishu, Somali.

4. To investigate the effects of cash collection on financial performance of private schools in

Mogadishu, Somali.

1.4. Research Questions.

1. What is the effect of cash planning on financial performance of private schools in

Mogadishu, Somalia?

2. What is the effect of cash control on financial performance of private schools in

Mogadishu, Somalia?

3. What is the effect of cash budgeting on financial performance of private schools in

Mogadishu, Somalia?

4. How does cash collection effects on financial performance of private schools in

Mogadishu, Somalia?

1.5 .Justifications

After having seen the unprecedented number of private schools failure in many Somali

Regions specifically those in Mogadishu and noticeable private schools profitability despite

6

the huge cash on hand in many schools, it became a paramount importance to investigate why

such failure and how proper cash management can improve the private schools profitability.

Findings of this study are useful to the following groups of people;

1) Results of the study will give owners/managers of private schools in Mogadishu insight

information related to the need for effective cash management by considering it as a life-

blood of the business which becomes source of internal financing.

2) Findings of the study also may contribute to available literature by helping future

researchers and students get references for further studies on related areas.

3) It is first to conduct such study concerning forces contributing school failure in target area

and the best mechanism to improve school profitability.

1.6 .Scope of the study

The study was limited to cash management techniques, factors that determine profitability and

the role of cash management on profitability. This study will focus on one of the main

districts of Mogadishu called Hoddon and Howlwadag. This will be selected because these

two districts host the largest schools in Mogadishu. In addition to that the required

respondents of the study are easily accessible in that place in order to get the needed

information.

1.7 .Significant of the study

1. The study enabled schools to appreciate the importance of cash management techniques.

2. The research helped the researcher to improve on her research skills for example in

proposal writing and data analysis.

3. The study provided as reference and guidance to further students and researchers.

7

CHAPTER TWO

LITERATURE REVIEW

2.1 introduction

This chapter contains these sections: theoretical review, conceptual review variables which

contains cash management on profitability, and it will also discuss empirical review, critique

of literature and research gap.

2.2 Theoretical Framework

Cash Management originally means the management of liquidity in order to meet their dayto-

day commitment (Collins & Jarvis, 2000). There are many companies that do not put enough

focus on managing the liquidity of the firm. The result of poor focus on cash management

often means that the financial assets are bound. Instead of being bound, it could be used to

invest for example in material. According to recent studies they found that small businesses

have a poor cash management attention (Denver, 2005)

Modeling can also be useful in predicting the optimal amount of cash on hand to maximize

cash flow and minimize interest expense. The most common models are the Baumol cash

model and Miller-Orr cash model.

2.2.1 Baumol Model

Baumol Model Developed by William Baumol it is a derivative of theEconomic order

quantity (EOQ) model. It is used to determine the optimal amount of cash to hold in a

predictable environment. It treats cash as inventory and buying and selling investment

transactions as ordering costs. The objective is to minimize the fixed cost of buying and

selling investment transactions and minimize the opportunity cost of holding too much cash.

Just like in EOQ Baumol is a two-step formula. Step one is to determine the optimal

transaction size. Step two is to determine the optimal number of transactions in a period.

Average cash holdings would be one half of the optimal transaction size.

Jarrad (2000) explaining the treatment of cash management problem by Baumol in 1952,

noted that Baumol treated cash management problem as an inventory management problem

where he applied techniques developed for inventory optimization to the problem of covering

transactions demand for cash. Having optimal cash balance basically involves a tradeoff

between the opportunity costs of holding too much cash and the transaction costs of holding

too little cash. Ross et al (2011) stated that the Baumol model can be used to determine the

8

target cash balance that a firm should hold at any given time. The optimal (target) cash

balance is found where the opportunity costs equal the trading costs.

Baumol (2012) developed the “Revenue Maximization Hypothesis”. This theory stated that

after a minimum amount of profits have been reached firms that operate in an oligopolistic

market will aim for sales revenue maximization and not profit maximization. This means that

the firm will produce beyond the profit maximizing level of output. This can be tested by

looking at the number of firms which have a minimum profit constraint.

Baumol suggested that firms are more interested in sales for various reasons. Falling sales

may make it difficult to raise finance and may offer a negative impression of the firm to

potential buyers and distributors. Executive pay is often linked more closely to sales than to

profits. Baumol was not suggesting that firms attempted to maximize sales because it may

lead to greater market share and profits in the long run. In this model sales maximization was

the ultimate objective. Baumol (2012) developed his model to include advertising and his

model predicts that a sales revenue maximizing firm will advertise, no less than, and most

likely more than, a profit maximizing firm – as additional money spent on advertising will

lead to more sales – the only constraint is one of minimum profit. Baumol makes no attempt

to test this assumption empirically and offers no support for the validity of the hypothesis.

The model was developed from a profit maximizing frame; price and output were determined

by the intersection of the marginal revenue and marginal costs curves. Total costs increase as

the mangers waste money, therefore, the profits left to be paid, as dividends to shareholders,

are less than they would be under profit maximization.Baumol model of cash

management trades off between opportunity cost or carrying cost or holding cost & the

transaction cost. As such firm attempts to minimize the sum of the holding cash & the cost of

converting marketable security. Baumol model of cash management helps in determining a

firm's optimum cash balance under certainty. It is extensively used and highly useful for the

purpose of cash management. As per the model, cash and inventory management problems

are one and the same.

William J. Baumol developed a model (The transactions Demand for Cash: An Inventory

Theoretic Approach) which is usually used in Inventory management & cash management.

9

2.2.2 Miller-Orr Model

Pandey (2010 ) stressed that Miller Orr model overcame the shorting comings of Baumol

model as it allows for daily cash flow fluctuation and assumes that net cash flow are normally

distributed .Unlike the Baumol Model, this model allows for uncertainty cash flows and safety

stocks (precautionary balance). According to Marsh (2009), “The Miller-Orr model imposes

upper and lower limits which trigger buy/sell actions in order to bring cash balances back to

an optimal ‘return point’ ”. In doing this, it constrains the upward and downward movements

of cash to within ‘acceptable limits’. The model allows the company to set the lower control

limit while the model determines the higher control limit and the average cash balance.

Marsh further explained that an organization will either buy or sell securities for cash to return

its cash balance to a normal return point. When the cash balance reaches the upper limit, an

organization will buy securities in order to lower the cash balance to the return point.

Likewise also, when the cash balance reaches the lower limit, an organization will sell

securities to have the cash balance back at the return point. Jarrad (2000) also explained that

the approach of Miller and Orr in 1966 was to assume that the underlying problem facing the

manager is to keep enough cash on hand to meet daily transactions demand, while minimizing

the opportunity cost of not holding a return yielding asset. He further explained that Miller

and Orr focused their model on maintaining two boundaries; the upper and lower boundaries.

If the upper boundary is crossed, it will trigger a transfer out of cash into an interest bearing

asset and if the lower boundary is crossed, it will trigger a transfer into the cash account.

According to Brealey, Myers & Allen, 2008. Cash management is the process of ensuring that

businesses have good cash balances to ensure that they continue to stay in business. Thus

prudent cash management ensures that a small business would be able to honour its debt

obligations as and when they fall due and also to facilitate the responsibility of the firm to pay

for its upcoming expenses. Cash comes into the business from limited sources, mainly

through cash and credit sales and advance payments from clients.

Cash management involves managing the monies of the firm in order to maximize cash

availability. It includes policies and procedures adopted by the management of an entity to

assist in achieving the management policies, laws and regulations of cash, the prevention and

detection of fraud and error, promoting orderly, efficient operations (Van Horme2005).

10

According to Pandey (2003) cash is the money that a firm can disburse without any restriction

and the term cash includes coins, currency and cheques held by the firm and balances on its

bank accounts. Sometimes near cash items such as marketable securities or bank time deposits

are also included in cash. Pandey(2003)noted that cash management is concerned with

management of cash flows into and out of the firm, cash flow within the firm and cash

balances lent by the firm at a time of financing deficit surplus cash.

Cash management can be seen from two different perspectives depending on how many

responsibilities it includes: basic cash management (Treasury Management) and Advanced

Cash management. Specifically Basic cash management handles actual cash management at

companies, and one of its main functions is to establish the optimum cash level so that

payments can be made and received for proper operations of the company. The Second

concept includes not only Treasury management per se but also other tasks such as treasury

forecasting, negotiation and establishment of relationships with financial institutions and

financial risk management. (Leire, et al 2008)

Basic cash management refers to that part of working capital that makes up the optimum level

needed by the company. However, if the profit opportunities available in the process cash

flow creation are to be maximized, this scope must be broadened to take operational decisions

in optimum cash levels are influenced by other factors outside the restrictive concept of

"treasury" (Pidando, 2001).

Cash management is the stewardship or proper use of an entity's cash resources. It serves as

means to keep an organization functioning by making the best use of cash or liquid resources

of the organization. The function of Cash management at the U.S Treasury is threefold; to

eliminate idle cash balances because every dollar held as cash rather than used to augment

revenues or decrease expenditures represent a lost opportunity, timely deposit collections as

having cash in hand is better than having cash accounts receivables since is most liquid

compared to accounts receivables and it's risk, proper timely disbursements, some payments

must be made on specified or legal dates. (Avnish, 2009).

According to Westerfield and Jordan (2013), the basic objective of cash managementm is to

keep the investment in cash as low as possible while still operating the firm’s activities

efficiently and effectively. business must maintain cash balances to meet day-to-day

transactions and to take advantage of opportunities that may come it way. This is very crucial

11

for smooth and reliable business operations. They assert that an enterprise can also increase

its net cash flow by slowing down disbursements. Ross, Westerfield and Jordan (2004)

indicate that cash disbursements (payments) come in four basic categories and these include

payment of accounts payable, wages, taxes and other expenses, capital expenditure and also

long-term financing expenses. The importance of keeping cash balances by Private Schools

cannot be taken for granted. Moyer, Maguigan and Kretlow (2001) submit the effective cash

management is particularly important for small firms for the following reasons:

To prepare financial statement plan to support application for bank loans; Because of limited

access to capital, a cash shortage problem is both difficult and more costly for small firms to

rectify than for larger firm; Many entrepreneurial firms are growing rapidly; they have a

tendency to run out of cash. Growing sales require increases in inventories and accounts

receivable, thereby using up cash resources; and Entrepreneurial firms frequently operate only

a minimum of cash resources because of the high cost of, and limited access to capital.

2.3 Conceptual frame work

Conceptual frame work is a diagram of proposed causal linkage among a set of variables

believed to be related to particular problem. The variables are in the boxes while the

relationships are shown by arrows as shown below. Cash management is the practice of

planning and controlling cash flows into and out of the business, cash flows within the

business, and cash balances held by a business at a point in time (Pandey, 2004). Efficient

cash management involves the determination of the most favorable cash to hold by

considering the trade-off between the opportunity cost of holding too much cash and the

trading cost of holding too little (Ross et al., 2008 cited in Nyabwanga, et al., 2011.

Cash management consists of taking the necessary actions to maintain adequate levels of

cash to meet operational and capital requirements and to obtain the maximum yield on short-

term investments. Uwuigbe, Uwalomwa and Egbide (2011) observed that cash

management assumes more significance than other current assets because cash is the

most important asset that a firm holds.

12

Conceptual frame work

Figure 2.1: Conceptual frame work

Independent variable Dependent variable

2.3.1 Cash planning

According to Pandey (2003) cash planning is a technique used to plan and control the use of

cash. It involves preparation of forecasts of cash receipts and payments so as to give out an

idea of the future financial requirements. Therefore the management of the school needs to

determine the schedules of monthly disbursements and collection schedules of creditors. with

efficient cash planning system, the financial needs of the school will be met, with reduced

possibility of the cash balances which lowers the school’s profitability and cash deficits which

can lead to school’s failure. He further notes that a cash budget is the most significant device

used to plan for and control cash receipts and payments.

Cash planning

Forecast of cash receipt

Forecast of cash

Cash budget

Cash inflows

Cash outflows

Cash collection

Reduction the period of payment

Reducing the collection float

Financial Performance

Maximising shareholder wealth

Return on capital employed

Shareholder return and profits

Profitability

Sufficient cash flows

Cash control

Documentation of Procedures

Safeguarding Cash

13

2.3.2 Cash budget

Cash budget is a tool used to manage the cash flow of a business. This is a budget that is

focused on the cash coming into the business and the cash that leaves the business. Moore,

William and Longenecker (2010) believed that the cash budget is most important to a small

business. The cash budget is used to foresee and overcome cash flow difficulties when there is

little cash available or to indicate that there is excess cash inflow available to make

investments

A cash budget is a summary statement of the firm projected time period. This information

helps the financial manager to determine the future cash needs of the firm, plan for the

financing of these needs and exercise control over cash and liquidity of the organization

(Kakuru2003). The researcher is wondering whether private schools actually budgets for

inflows and outflows of cash. Preparation of cash budget is one of the sure ways of measuring

a firm’s liquidity over a period of time. According to Brigham and Houston (2014) cash

budget refers to a table showing cash flows (receipts, disbursements, and cash balances) for a

firm over a specified period of time. Cash budget therefore, identifies all the cash receipts

components and a schedule that tracks cash payments to suppliers with respect to purchases.

Cash budget,

According to Marfo-Yiadom (2009), is the most significant device to plan for and control the

cash receipts and payments. The total cash payments in the subtracted from the total cash

receipts for period which may result into cash deficit or surplus for the period. Where the cash

receipts exceed the cash payments the resultant is cash surplus. On the other hand where the

cash receipts fall short of the cash payment then it gives rise to cash deficit and must be

addressed accordingly. The cash budget is a measure that establishes the cash position (deficit

or surplus) of a firm given the cash inflows and outflows over the period under consideration.

2.3.3 Cash collection

Külter, and. Demirgüneş (2007), noted that cash collection systems aim to reduce the time it

takes to collect the cash that is owed to a firm. Some of the sources of time delays are mail

float, processing float, and bank float. Obviously, an envelope mailed by a customer

containing payment to a supplier firm does not arrive at its destination instantly. Likewise, the

payment is not processed and deposited into a bank account the moment it is received by the

supplier firm. And finally, when the payment is deposited in the bank account oftentimes the

14

bank does not give immediate availability to the funds. These three "floats" are time delays

that add up quickly, and they can force struggling or new firms to find other sources of cash to

pay their bills (Lazaridis, 2006).

A school can conserve cash and reduce its requirements for cash balances if it can speed up its

cash collections. A number of methods are designed to speed up the collection process and

they include the following;

Reducing the period it takes for payment from clients to reach the account of the school.

According to Kakuru (2001) the school could use a system of pre-authorized debts where an

arrangement is made in advance that clients could automatically transfer funds from the client

account to the school account at a specified future date.

Reducing the collection float; according to Pandey (2003),the collection float is the total time

it takes a cheque to reach the business, from the time it is put in the mail by the client to when

cash is actually available for use in the school. Usually this is affected by the time the cheque

spends in transit (mailing float), the time it takes the school to process the cheques internally

(processing float) and the time it takes the clearing process of the banking system. This can be

managed efficiently by two ways i.e. using a lock box system and billing up multiple

collection centers. The main advantages of a lock box system are that the bank handles the

remittance prior to deposit at a lower cost and cheques are deposited immediately upon

receipt of remittances and their collection process starts soon than if the school would have

processed them for internal accounting purposes prior to their deposit (Mills 2007).

Mills (2007), in his discussion, he recognized that lock box system involves a cost to run and

therefore the school will only be profitable if the benefits of its use exceed the cost of

financing it.

2.3.4 Cash control

This is the overall attitude and actions of management regarding control system of cash in the

entity. A strong control is one with tight budgetary control over cash received, cash banked,

cash cheques, and effective control cash balances, cash brought down. According to Hamilton

(2001) an oblivious aim of a school is to control and manage its cash affairs in such a way as

to keep cash balance at a minimum level and invest surplus cash in investment opportunities.

Examples of procedures illustrating good cash control system.

15

Control over cash received. This is where the school safeguards against possible interceptions

between receipt and opening of the post for example using a looked mail box and restricting

access to the keys.

Control over petty cash expenses should be budgeted for, that is to say petty cash should be

reconciled by an independent person and the level and location of cash floats should be laid

down formally and based on the needs of the organization.

Sources of cash should clearly be highlighted and cash should be allocated accordingly, for

example cash paid in line with supply of essential requirements used in the school should be

used to acquire such requirements or materials.

Puxty and Dodds (2002), it is essential to keep some of the organization’s resources in cash

due to generally recognized motives for holding cash by business unit. The need to hold cash

may be attributed to motives like transaction motive in order to protect profitability positions

of school, for precautionary motive that is cash is needed to Cashion the school against any

unforeseen problems like failure of electric system, emergency work force problems which

have a negative implication on the school’s profitability and speculative motive where the

school maintains cash balances in order to take advantage of any profitability venture that

may unexpectedly crop up.

According to puxty and Dodds (1999), it is essential to keep some of the organization’s

resources in cash by any business unit. The need to hold cash may be attributed to the

following motives, the transaction motive, precautionary motive and speculate motive.

Transaction motive recognized that the organization has to carryout daily transactions in order

to protect its profitability position. Cash is needed to pay labor, materials and utilities in order

to ensure smooth operations (Kakuru 2001).

Precautionary motive, cash is needed to Cashion the organization against any unforeseen

problems like failure of emergency work force problems, failure of electric system and such

problems have negative implications on the organizations profitability. Therefore the

availability of cash resource mitigates their effects and keeps the organization profits in

balance (mantilla et al 1999).

For speculative motive the organization maintains cash balances in order to take advantage of

any profitability venture that may unexpectedly crop up like a sudden fall in price of

scholastic materials. Once the organizations cash is stripped. It will not be able to take on

16

such advantages and additional incomes and savings from such events will be lost ( Puxty and

Dodds 1999)

According to van Horne (2005), the purpose of managing cash balance is to avoid having idle

cash reserves or having deficits that cannot be invested preferably in short term ventures like

treasury bills and other forms of commercial paper. Since investments are near cash, the

liquidity of the organization is not comprised by the investment plan while profitability is also

enhanced. The investment selected for this purpose should meet the following criteria.

They should be safe in that search for profitability does not increase the risks of liquidity. The

instruments should have a low default risk so that interest and principle repayment will be

realized (Kakuru 2001). He further notes that such investments in Uganda include fixed

accounts and government treasury bills. Investments can easily and quickly be converted into

cash with minimum possibility of a loss.

In case of deficits, arrangements for financing should be in advance to avoid hurried solutions

which rob the business of the opportunity to strike a fair deal and hence acquiring the

resources at costs higher than those of the decisions that were taken in a relaxed atmosphere

(Pandey 2003).

2.3.5 Financial performance

Although “performance” may appear to be an easy concept, a unique definition in the

literature does not exist. Moreover, academics often use special definitions tailored to fit the

individual research purposes (Langfield-Smith, 1997). The financial performance is often

measured using traditional accounting Key Performance Indicators such as Return On Assets,

Operating Profit margin, Earnings Before Interest and Tax, Economic Value Added or Sales

growth (Ittner&Larcker, 1997; Fraquelli&Vannoni, 2000; Crabtree &DeBusk, 2008). The

advantage of these measurements is their general availability, since every profit oriented

organization produces these figures for the yearly financial reporting

(Chenhall&LangfieldSmith, 2007). However, balance sheet manipulations and choices of

accounting methods may also lead to values that allow only limited comparability of the

financial strength of companies. Ratios are best used when compared or benchmarked against

another reference, such as an industry standard or "best in class" within the industry. This type

of comparison helps to establish financial goals and identify problem areas. Vertical and

17

horizontal analysis can also be used for easy identification of changes within financial

balances.

2.3.5.1 Measurement of financial performance

Financial performance measurement is a fundamental building block of TQM and a total

quality organization. Historically, organizations have always measured performance in some

way through the financial performance, be this success by profit or failure through liquidation.

However, traditional performance measures, based on cost accounting information, provide

little to support organizations on their quality journey, because they do not map process

performance and improvements seen by the customer. In a successful total quality

organization, performance will be measured by the improvements seen by the customer as

well as by the results delivered to other stakeholders, such as the shareholders according to

Garrison et, al(2012).

Profitability was defined by Mugerwa (2005) as an income earned in the excess of the input

cost after a sale of service or product. Balunywa (2003) observed that present traditional

economists take profit maximization as the objective of a firm. He further said that some

scholars have a different view as they think profit making as not as inclusive as that of

maximizing shareholders wealth. However Balunywa in his view noted that any good

performed organization should be able to realize profits.

Griffith (2001) in agreement with Baluywa(2003) noted that business profitability is the

justification of its good performance. In deed profits of a business are the end result of

operation and indication of its good performance.

Kimbowa (2003) noted that organizational profitability is affected by factors such as cost of

input, management of cash flows, government policy and borrowing culture. If the school

relies more on loans, costs such as interest rates will not be avoided and this has a negative

impact on profitability.

Kakuru (2003) provided that organizational profitability is affected by the cost of capital. In

this case the cost of capital is usually increased by related dividends and interest rates from

providers.

Eugen (1995) noted that default risk is one of such factors that threaten organizational

profitability. The greater the default risks the higher the interest rates lenders charge on loans

and the lesser the profitability. Contrary the chances of default, the lesser the interest rate

18

charged, the cheaper the cost of capital, the higher the profitability that will be earned on

capital. According to Lipsey (2012) organization profitability is affected by many factors and

this include change in demand, change in prices of both inputs and output such as capital and

labor4 then level of staff productivity. According to Pearce II and Robinson Jr (2002)

profitability is the main goal of a business organization. No matter how it is measured or

defined, profit of a long period of time is the clearest indication of firms’ ability to satisfy the

principle claims and desires of employees and stake holders.

2.3.5.2Profitability:

The word 'profitability' is composed of two words, namely; profit and ability. The term profit

has already been discussed at length in detail. The term ability indicates the power of a firm to

earn profits. The ability of an enterprise also denotes its earning power or operating

performance. Also, that the business ability points towards the financial and operational

ability of the business. So, on this basis profitability may be defined as ―the ability of a given

instrument to earn a return from its use"'1 Weston and Brigham defines profitability as "the

net surplus of a large number of policies and decisions.

A Profit is financial benefit that is realized when the amount of revenue gained from a

business activity exceeds the expenses, costs and taxes needed to sustain the activity.

According to MantileEtaal (1995), Hamilton (2001) and van Horne (2003) one of the primary

objectives of a cashier is to maintain a sound liquid position of the school in order to meet

motives of holding cash. In this case the amount of cash balance will depend on the risk return

trade off. The school maintains optimum neither just enough, nor too much, nor too little cash

balance. Optimum cash balance under certainty; BaumolsModel.This model provides a formal

approach for determining the schools optimum cash balance under certainty. The school

attempt to minimize the sum of holding cash and cost of converting marketable securities to

cash and guarantee profitability (Pandey 2003 and Hamiliton (2001). The limitation of

Baumol is that it does not allow cash flows to fluctuate. School uniformly do not use their

cash balances nor are they able to predict daily cash out flows and inflows.

With an efficient cash planning system, financial needs of the school will be met with reduced

profitability of idle cash balances which lowers the schools profitability and cash defeats

which cause schools failure (Kakuru 2001)

19

The purpose of managing cash balance is to avoid having idle cash reserves or having deficit

that cannot be covered easily (Kakuru 2003). If surplus cash balances are invested near cash

forms, the illiquidity of the school will not be compromised by the investment and

profitability will be enhanced.

According to Pandey (2003) cash management should ensure that firm’s illiquidity should

sound as profitability grows. Pandey noted that there is no advantage in paying sooner than

greed. By delaying payments as much as possible, the school makes it as a source of fund

which is interest free but earning the school some income. . Thus delaying payments enables

the school to realize extra profits from retained funds.

According to Kakuru (2001) if cash management concentrates on boosting the liquidity, high

balances of cash will be maintained. However the higher these balances are, the more

profitability will be fore gone. This is risky especially to people who expect profitable

ventures. On the other hand if cash management seeks to boost profitability, investments are

highly risky but profitable and the business is threatened as there will be no cost to meet the

operating obligations as they fall due. If care is not taken profitability will be short lived as

the school will be forced to close due to illiquidity.

2.3.4.3 Return on Equity

Return on equity a firm’s net income divided by its common book equity. This ratio is the

accounting rate of return earned on the common stockholders’ investment.(Arthur J. Keown,

2014). The most important ratio is the ROE, or return on equity, which tells us how much

stockholders are earning on the funds they provide to the firm. When ROE is high, the stock

price also tends to be high; so actions that increase ROE generally increase the stock price.

Other ratios provide information about how well assets such as inventory, accounts

receivable, and fixed assets are managed and about the firm’s capital structure. Managers use

ratios related to these factors to help develop plans to improve ROE.(Eugene F. Brigham &

Joel F, 2009). The advantage of the DuPont system is that it allows the firm to break its

return on equity into a profit-on-sales component (net profit margin), an efficiency-of-asset

use component (total asset turnover), and a use-of-financial-leverage component (financial

leverage multiplier). The use of the DuPont system of analysis as a diagnostic tool is best

explained using. Beginning with the rightmost value—the ROE—the financial analyst moves

to the left, dissecting and analyzing the inputs to the formula in order to isolate the probable

20

cause of the resulting above-average (or below-average) value. For the sake of discussion,

let’s assume that Bartlett’s ROE of 12.6 percent is actually below the industry average. ROE

is primarily the consequence of slow collections of accounts receivable, which resulted in

high levels of receivables and therefore high levels of total assets. The high total assets

slowed Bartlett’s total asset turnover, driving down its ROA, which then drove down its ROE.

By using the DuPont system of analysis to dissect Bartlett’s overall returns as measured by its

ROE, we found that slow collections of receivables caused the below-industry-average ROE.

Clearly, the firm needs to manage its credit operations better.(Zutter, 2012 ).

2.4 Empirical Literature Review

A study by Kwame (2007) established that the setting up of a cash balance policy ensures

prudent cash budgeting and investment of surplus cash. This finding agreed with the finding

by Kotut (2003) who established that cash budgeting is useful in planning for shortage and

surplus of cash and has an effect on the financial performance of the firms. The assertion by

Ross et al.(2011) that reducing the time cash is tied up in the operating cycle improves a

business profitability and market value furthers the significance of efficient cash management

practices in

Improving business performance.Dong and Tay Su (2010) also attempted to investigate the

relationship existing between profitability, the cash conversion cycle and its components for

listed firms in Vietnam stock market. Using a descriptive cross sectional design, their findings

showed a strong negative relationship between profitability, measured through gross operating

profit, and the cash conversion cycle and all of its components. This means that as the cash

conversion cycle increases, it will lead to declining of profitability of a firm. Therefore, the

managers can create a positive value for the shareholders by handling the adequate cash

conversion cycle and keeping each different component to an optimum level.Ali, et al (2013),

studies the association between various earnings and cash management measures of firm

performance and stock returns in Iran. They used the simple and multiple regressions to

analyses the data for a period of nine consecutive years from 2003 to 2011. The study

revealed that company’s performance and cash flow have a s earning based measures are

more related to stock returns and depict the company performance better than cash flow

measures in some companies with higher accruals.

Thanh and Nguyen (2013), carried out a study on the effect of Banking Relationship on

21

financial performance in Vietnam. They used the multiple regression to analyses the data,

using a sample of 465 companies listed in Vietnam observed in period 2007 to 2010. The

study revealed that firm performance decreases as the number of bank relationships increases.

Additionally, the study also indicates that cash management has negative relationship with

firms, return on equity, while assets have negative association with return on assets.

Chikashi (2013), carried out an investigation of comprehensive income and firm performance.

The case of the electric appliances industry of the Tokyo Stock Exchange. The researcher uses

the data for the fiscal year of 2009 to 2011 and employs the pooled regressions (Panel data

regression analyses). The study revealed that cash management and financial performance

have a significant negative relationship. In addition, comprehensive incomes published by the

firms were superior to other earnings or cash flow variables in predicting their future stock

returns.

Zhou, et al (2012), examined the relationship between free cash management and financial

performance evidence from the listed Real Estate Companies in China. They used principal

component analysis and regression analysis on the data from 2006 –2011 of all listed real

estate companies in China. The study revealed that the free cash management of a company is

negatively liner –correlated to its financial performance too much free cash management will

lead the financial performance to decline.

Khoshdel (2006), studied the relationship between free cash flows and operating earning with

stock returns and growth of net market values of operating assets in Tehran Stock Exchange.

The researcher tests the hypotheses via Pearson correlation and simple linear regression

method. The study revealed that there is a positive meaningful relationship between operating

earning with return on equity, return on assets, and growing of net market values in operating

assets.

Watson (2005), examined the associated of various earnings and cash flow measures of firm

performance and stock returns. The researcher used simple and multiple regressions to

analysis the data. The study revealed that cash management and financial performance have a

significant negative relationship. Thus a company, whose performance is acceptable

according to managements and shareholders opinion, may not be acceptable in social aspect.

The review of empirical literature from Management disciplines and the theoretical and

empirical literature from Finance show that the relationship between cash management and

22

performance is complex and is affected by intervening and contingent variables. Taken

together, the evidence and arguments presented above seems to suggest that unmanaged cash

schools should perform less well than managed cash schools, and highly cash managed

schools should perform better than moderately cash managed schools.

2.5 Critique of Literature Review

Baumol Model Developed by William Baumol it is a derivative of the EOQ model. It is used

to determine the optimal amount of cash to hold in a predictable environment. It treats cash as

inventory and buying and selling investment transactions as ordering costs. The objective is to

minimize the fixed cost of buying and selling investment transactions and minimize the

opportunity cost of holding too much cash. Just like in EOQ Baumol is a two-step formula.

Step one is to determine the optimal transaction size. Step two is to determine the optimal

number of transactions in a period. Average cash holdings would be one half of the optimal

transaction size,

So the researcher will agree Baumol Model based on predicting company of cash to hand.

Miller-Orr Model This model seeks to overcome the shortcomings of the Baumol model. It

determines the optimal amount of cash to hold in an unpredictable environment. It extends the

Baumol model in that it tracks both inflows and outflows of cash, allows inflows and outflows

on an irregular and unpredictable basis and establishes two trigger points - the lower cash

level at which securities must be sold to replenish cash and the upper cash level at which

surplus cash should be invested. The researcher disagree miller-or model because of it has

access cash flow on hand also it’s not good for business performance also it’s not consider

security transaction of a cash access.

2.6 Research Gaps

Most of the literatures that researcher reviewed focus on the study variables in certain

situations which is rather different from that of the current study. Reviewed literatures refer to

a situation where mostly all financial institutions exists such as banks, investment institutions,

government policy, chamber of commerce, labor union etc. This current study deals with a

situation where no enabling factors such security, financial institutions, law and order. So that

is why this study is very important because it investigates the study variables (cash

management & performance of small business) in practical way. This is the gap current study

aims to fill and specifically it explains deeply how these variables impact each other in such

23

situations where there are no enabling factors whereas the other old studies focused generally

the casual relationship between the factors which is not convincing all situations for these

variables.

2.7 Summary of Literature Review

Cash flow is the life blood of all businesses and is the primary indicator of business health. It

is generally acknowledged as the single most pressing concern of most private schools. The

effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to

be monitored, protected, controlled and put to work. (Robert A. Cooke, 2003) cash is king!

Cash availability is the lifeblood of the organization. With it, assuming there is proper

management and economical, efficient, and effective operations, the company can grow and

prosper—without it the organization perishes. Like the absence of water to anything living,

the absence of cash to the business means death—slow, torturous, physically painful, and

mentally agonizing. Profit is a periodic measure, calculated monthly, quarterly, and annually.

Cash, however, is a daily concern. (Heyler& Peter B. 2003) cash management impact on

business performance is based on different models such as that of Baumol which recognized

the similarities between cash and inventory management. He extended the economic order

quantity (EOQ) model to examine its implications to cash management. The Baumol model

assumes the cash manager invests excess funds in interest bearing securities and liquidates

them to meet the firm’s demand for cash. As investment returns increase, the opportunity cost

of holding cash increases and the cash manager decreases cash balance.

24

CHAPTER THREE

REASERCH METHODOLOGY

3.1Introduction

In this chapter the researcher presents the methods that were used in data collection, analysis

and presentation. This included the research design, study area and population, sampling

frame design and technique, and instruments, data processing, analyzing of the study.

3.2 Research Design

Burns and Grove (2003) define a research design as “a blueprint for conducting a study with

maximum control over factors that may interfere with the validity of the findings”. Polit et al

(20011) describes a research design as “a plan that describes how, when and where data are to

be collected and analyzed. Parahoo, 2006) describes a research design as “a plan that

describes how, when and where data are to be collected and analyzed”. (Polit& Beck, 2012)

define a research design as “the researcher’s overall for answering the research question.

The research design of this study will be quantitative design. And clear definition of the

details of the quantitative makes the desired statistical analyses possible, and almost always

improves the usefulness of the results. The overall data collection and analysis plan considers

how the quantitative design factors, both controlled and uncontrolled, fit together into a model

that will meet the specific objectives of the experiment and satisfy the practical constraints of

time and money. The data collection and analysis plan provides the maximum amount of

information that is relevant to a problem by using the available resources most efficiently.

Understanding how the relevant variables fit into the design structure indicates whether the

appropriate data will be collected in a way that permits an objective analysis that leads to

valid inferences with respect to the stated problem. The desired result is to produce a layout of

the design along with an explanation of its structure and the necessary statistical analyses.

(Burns & Grove 2003)

3.3Target Population

Population is the total collection of elements about which we wish to make interferences

(Nachamiasand Nachmias (2000).The population under the study included specific categories

of individuals selected from the private schools in Mogadishu. These people who are

entrusted with financial responsibility, Such as Accountants and principals of the Private

secondary schools, because they are responsible the financial managements the school.

25

According to (Lavrakas, 2008) define a population as any finite or infinite collection of

individual elements. Target population refers to the entire group of individuals or objects to

which researchers are interested in generalizing the conclusions (Ngumi, 2013), this research

targeted the accountants and principals of private schools in Hoden and Howlwdag Districts,

which have the biggest population in Mogadishu. The exact number of all Private schools in

thes two districts is 15 private secondary schools registered in Umbrellas, such as FPENS and

SAFE. The area was selected because the majority of Private secondary schools in Mogadishu

are located in Two Districts.

Table 1: target population

Types of secondary schools Number of accountants

&principles

%

(1)Adult Commercial 8 5%

(2)Somali youth league

(SYL)

8 5%

(3)Alblal school 8 5%

(4)Iftin School 8 5%

(5)Mumtasz school 8 5%

(6)Said Amir school 8 5%

(7)Al-mufid school 7 4%

(8)Hayan school 7 4%

(9)Express school 7 4%

(10)Al-huda school 6 3%

(11)Mugdishu school 6 3%

(12)Hammer School 6 3%

(13)Alimra school 6 3%

(14)Al-wadan school 6 3%

(15) Al-Hidaya School 6 3%

Total 105 100

%

26

3.4 Sampling frame

Slovene’s formula was used to this study to determine the sample size. Slovene’s formula for

obtaining the sample size. Denoting by n the sample size, Slovene’s formula is given by

N= 105 n=?

N=? = = = 5I.23≈ 51. So the sample was 51

3.5 Sample Size and Sampling Technique

The sample technique of this study was simple random sampling; a random sample is a sub-

set of units that are selected randomly from a population. A random sample represents the

general population or the conditions that are selected for the experiment because the

population of interest is too large to study in its entirety. Using techniques such as random

selection after stratification or blocking is often preferred. An often-asked question about

sampling is: How large should the sample be? Determining the sample size requires some

knowledge of the observed or expected variance among sample members in addition to how

large a difference among treatments you want to be able to detect.

Table 2: Sample distribution of accountants and principals of Private

Secondary schools.

Types of schools Financial

director/

accountant

s

% No.Staff

selected

(1)Adult

Commercial

8 5% 4

(2)Somali youth

league (SYL)

8 5% 4

(3)Alblal school 8 5% 4

4)Iftin School 8 5% 4

(5)Mumtasz

school

8 5% 4

(6)Said Amir 8 5% 4

27

school

(7)Al-mufid

school

7 4% 3

(8)Hayan school 7 4% 3

(9)Express school 7 4% 3

(10)Al-Huda

school

6 3% 3

(11)Mogadishu

school

6 3% 3

(12)Hammer

School

6 3% 3

(13)Alimra

school

6 3% 3

(14)Al-wadan

school

6 3% 3

(15)Al-Hidaya

School

6 3% 3

Total 105 100% 51

3.6 Research Instrument

Research instrument used in the Data collection is questionnaire to measure the variable(s),

characteristic(s), or information of interest, often a behavioral or psychological characteristic.

Research instruments can be helpful tools to your research study. Because the information

needed can be easily and quickly gathered from the respondents, and also it can target

respondents in widely dispersed locations, in questionnaire development, the research

objectives and previous studies about effect of cash flow management and business

performance provided a base for the questionnaire development in this study Cooper (2003).

The research questionnaire was involved Financial Performance of Private Schools in

Mogadishu-Somalia. The questionnaire translates the research objective into specific

questions. The answers to those questions provide the data for testing the research hypothesis.

Questions must also interest the respondents enough that they provided the information. The

28

first step in designing a questionnaire is to create a conceptual model. This includes

specifying the research problem; the purpose of the research, the research design, the

variables and hypothesis, and operational definitions and valid and reliable measures of the

variables, as well as the intended population, and the plans for data analysis.The second step

is to produce the questionnaire. This includes writing the introduction, the statement of

informed consent, and the questions and responses, as well as designing the overall format

("look and feel") of the questionnaire. The third step is to pre-test the questionnaire, to revise,

and to conduct a pilot test of how the questionnaire was used.

3.7 Data collection procedures

Proceeding from general to specific research questions, makes the research activities in any

project more focused - in terms of data needed to answer the research questions. Hence

questions associated with data collection are some of the most important in any research

enquiry.

It is fairly common for a Research Plan to be divided into two stages: Pre-empirical and

empirical stages. The first stage is where you start with the research question, go through what

others have done, modify your own research question(s) and set some kind of hypothesis or

theory. The second stage is that part of your research where you decide on your research

design i.e. qualitative or quantitative or a combination of both and assemble your conceptual

framework. These stages was informed by such decisions like:

What kind of data is required to test the hypothesis/theory? From whom to collect the data?

And what procedures need to be followed to collect that data?

3.8 Pilot of Study

A pilot study is a trial run of the major study. Its purpose is to check the time taken to

complete the questionnaire, whether it is too long or too short, too easy or too difficult and to

check the clarity of the questionnaire items, and to eliminate ambiguities or difficulties in

wording (Cohen et al 2002). A pilot study was conducted to test the questionnaire for

reliability. Six respondents (N=6) with similar characteristics to the research sample who are

not part of the main study interviewed. Following the pilot study, some ambiguous questions

were rephrased to give greater clarity and some questions werediscarding, as they proved

irrelevant.

29

Validity is the accuracy and meaningfulness of inferences, which are based on the research

results. Validity is the degree to which an instrument measures what it is supposed to measure

for a particular group. The instrument for this study that is the questionnaire guide was

validated by the supervisor. Also a content validity index formula was used to calculate the

validity of the instrument

3.8.1 Validity

Validity is the extent to which an instrument measures what it is supposed to measure and

performs as it is designed to perform. It is rare, if nearly impossible, that an instrument be

100% valid, so validity is generally measured in degrees. As a process, validation involves

collecting and analyzing data to assess the accuracy of an instrument. There are numerous

statistical tests and measures to assess the validity of quantitative instruments, which

generally involves pilot testing. The remainder of this discussion focuses on external validity

and content validity.

External validity is the extent to which the results of a study can be generalized from a sample

to a population. Establishing eternal validity for an instrument, then, follows directly from

sampling. Recall that a sample should be an accurate representation of a population, because

the total population may not be available. An instrument that is externally valid helps obtain

population generalizability, or the degree to which a sample represents the population.

Content validity refers to the appropriateness of the content of an instrument. In other words,

do the measures (questions, observation logs, etc.) accurately assess what you want to know?

This is particularly important with achievement tests. Consider that a test developer wants to

maximize the validity of a unit test for 7th grade mathematics. This would involve taking

representative questions from each of the sections of the unit and evaluating them against the

desired outcomes.

3.8.2 Reliability

Reliability can be thought of as consistency. Does the instrument consistently measure what it

is intended to measure? It is not possible to calculate reliability; however, there are four

general estimators that you may encounter in reading research: Inter-Rater/Observer

Reliability: The degree to which different raters/observers give consistent answers or

estimates. Test-Retest Reliability: The consistency of a measure evaluated over time. Parallel-

Forms Reliability: The reliability of two tests constructed the same way, from the same

30

content. Internal Consistency Reliability: The consistency of results across items, often

measured with Cronbach’s Alpha.

3.9 Data processing and analysis

The data, after collection, has to be processed and analyzed in accordance with the outline laid

down fo the purpose at the time of developing the research plan. This is essential for a

scientific study and for ensuring that we have all relevant data for making contemplated

comparisons and analysis. Technically speaking, processing implies editing, coding,

classification and tabulation of collected data so that they are amenable to analysis. The term

analysis refers to the computation of certain measures along with searching for patterns of

relationship that exist among data-groups. Thus, “in the process of analysis conflicting with

original or new hypotheses should be subjected to statistical tests of significance to determine

with what validity data can be persons (Selltiz, Jahoda and others) who do not like to make

difference between processing and analysis. They opine that analysis of data in a general way

involves a number of closely related operations which are performed with the purpose of

summarizing the collected data and organizing these in such a manner that they answer the

research question(s). I, however, shall prefer to observe the difference between the two terms

as stated here in order to understand their implications more clearly.

Data collect from the questionnaire was analyze, summarize, and interpret accordingly with

the aid of descriptive statistical techniques such as total score and simple percentage. In the

process of data analysis the researcher was used descriptive and statistical analysis with the

help of the SPSS computer package to analyze the data. The regression was computed to

determine the extent that each variable of cash management influenced on the dependent

variable Financial Performance.

3.9.1 Qualitative Analysis

In qualitative studies, the researcher was interested in analyzing information in a systematic

way in order to come to useful conclusions and recommendations. In qualitative studies,

researchers’ obtained detailed information about the phenomena being studied, and then try to

establish patterns, trends and relationships from the information gathered. Qualitative aims at

providing basic information without proof of it. Before processing the responses, data

preparation was done on the completed questionnaire by editing, coding, entering and

cleaning the data. Data collected was analyzedbyusing descriptive statistics. The descriptive

31

statistical tools helped in describing the data and determining the respondents' degree of

agreement with the various statements under each factor. Data analysis will be done with the

help of SPSS version 16.0.

3.9.2 Quantitative Analysis

Whereas qualitative analysis aims at providing basic information, quantitative analysis goes

further to test the theories in the theoretical framework behind the study and prove or

disapprove it. For this kind of a study, there is need to go further and test hypothesis. The

multiple regression analysis was used to explore the relationship between Cash Management

and as the independent variables and Financial Performance as the dependent variable.

Pearson's product moment correlation analysis was also used and it's a powerful technique for

exploring the relationship between variables. Correlation coefficient was used to analyze the

strength of the relations between variables. Correlation coefficients were calculated to observe

the strength of the association. A series of multiple regression analysis (standard and step

wise) was used because they provide estimates of net effects and explanatory power. Analysis

of variance (ANOVA) was used to test the significance of the model. R2 is used in this

research to measure the extent of goodness of fit of the regression model. The regression

model is indicated as shown as Follows: Y=β0+β1x1+ β2x2+ β3x3+eWhere:-

Y = represents the dependent variable, financial performance

𝜷𝟎 = Constant

𝜷𝟏 - 𝜷𝟑 = Regression coefficient

𝑿𝟏 = Cash Budgeting (independent variable)

𝑿𝟐 = Cash planning (independent variable)

𝑿𝟑 = Cash collection (independent variable)

𝑿𝟒 = Cash control (independent variable)

e = error term

32

CHAPTER FOUR

RESEARCH FINDINGS AND DISCUSSION

4.1 Introduction

In this chapter, raw data from the questionnaires was analyzed and interpreted. Various tests

were used to test the relationship between variables, level of significance, reliability and

random distribution of data. Specifically, I used Cronbach's alpha test, descriptive statistics

test, Pearson Bivariate correlation and Multiple Regression analysis (standard and stepwise).

The independent variables of the study Cash planning, cash budget, cash control, cash

collection and how they affected the dependent variable which was financial performance of

Private schools of in Mogadishu.

4.2 Response Rate

From the data collected, out of the 51 questionnaires administered, 50 were filled and

returned, which represent 98 % response rate. This response rate is considered satisfactory to

make conclusions for the study. Mugenda and Mugenda (2003) observed that a 50% response

rate is adequate, 60% is good, while 70% rated very good. This implies that based on this

assertion, the response rate in this case of 74.33% is therefore very good. The recorded high

response rate can be attributed to the data collection procedures for instance, the researcher

pre-notified the potential participants for the survey, the researcher administered the

questionnaire with the help of research assistants through drop and pick method and follow up

calls were also made to clarify queries as well as to prompt the respondents to fill the

questionnaire. These methods facilitated the whole process of data collection hence the high

response rate.

Table 4.1: Response Rate

Response Total Percent %

Returned 50 98.

Unreturned 1 1.96

Total 51 100

33

4.3 Reliability and Validity

Prior to exploring and describing the relationship between cash planning, budgeting, control

and cash collection, and financial performance of private secondary schools in Mogadishu.

The measures were examined and assessed to gauge reliability and validity.

4.3.1 Reliability analysis

Cronbach’s alpha was used to determine the internal reliability of the questionnaire used in

this study. Values range between 0 and 1.0; while 1.0 indicates perfect reliability Cronbach

Alpha value is widely used to verify the reliability of the construct. Therefore, Cronbach

Alpha was used to test the reliability of the proposed constructs. The findings indicated that

cash planning had a coefficient of 0.775, Cash budget had a coefficient of 0.718, Cash control

of 0.765, Cash control of 0.762, and financial performance of 0.848. The results indicate that

the questionnaire used in this study had a high level of reliability. These tables indicate that

each of the items relates to the identified factor and that the coefficient alpha value of the

identified factor was not increase if some of the items are left out. Basically, reliability

coefficients of 0.765.and financial performance obtained a coefficient of 0.762. All constructs

depicted that the above the suggested value of 0.7 thus the study was reliable (Mugenda and

Mugenda (2003). On the basis of reliability test it was supposed that the scales used in this

study is reliable to capture the constructs.

Table 4.2: Reliability Statistics

Variables Cronbach's Alpha Comments

Cash planning 0.775 Accepted

Cash budgeting 0.718 Accepted

Cash Control 0.765 Accepted

Cash Collection 0.762 Accepted

4.4 Validity of the Research Instrument

Validity is concerned with whether the findings are really, about what they appear to

beabout(Saunders, et al., 2007). Factor analysis was used to check validity of the constructs.

Kaiser-Mayor-Oklin measuresof sampling adequacy (KMO) & Bartlett’s Test of Sphericity

is a measure of samplingadequacy that is recommended to check the case to variable ratio for

the analysis beingconducted.

34

The KMO statistic variesbetween 0 and 1. A value of 0 indicates that the sum of partial

correlations is large relative to the sum of correlations, indicating diffusion in the pattern of

correlations (hence, factor analysisis likely to be inappropriate). Avalue close to 1 indicates

that patterns of correlations are relatively compact and so factor analysis should yield distinct

and reliable factors. Kaiser (1974) recommends accepting values greater than 0.5 as

acceptable (values below this should lead you to either collect more data or rethink which

variables to include). Furthermore, values between 0.5 and 0.7 are mediocre,values between

0.7 and 0.8 are good, values between 0.8 and 0.9 are great and values above0.9 are

super(Field, 2013).

The study applied the KMO measures of sampling adequacy and Bartlett’s test of sphericity

to test whether the relationship among the variables has been significant or not as shown in

below in table 4.3. Factor 1 was based on five items that represented extirinsic reward Cash

budgeting Factor 2 was based on five items that represented cash planning , Factor 3 was

based on five items that represented cash , acontrol , Factor 4 was based on five items that

represented cash collection,and Factor 5 with five items represented financail performance.

The Kaiser-Mayor-Oklin measures of sampling adequacy shows the value of test statistic as

0.728, which is greater than 0.5 hence an acceptable index. While Bartlett’s test of sphericity

shows the value of test statistic as 0.000 which is less than 0.05 acceptable indexes. This

result indicates a highly significant relationship among variables.

Table 4.3: Factor analysis -KMO and Bart

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.728

Approx. Chi-Square 305.500

Bartlett's Test of Sphericitydf 10

Sig. .000

4.5 Descriptive Statistics

This section outlines the demographic data, gender, years of existence and key players in the

industry.

35

4.5.1 Demographic data

The study sought to establish the demographic data of the respondents. The researcher begun

by a general analysis on the demographic data obtained from the respondents which included;

the gender, duration of existence and the key players in the industry. This research targeted

105 participants in regard to establishing the effects of cash management on financial

performance of private schools in Mogadishu. And 51 questionnaires were generated.

4.5.2 Response of Gender distribution

The descriptive statistics of the study indicated that 40 (78%) of the respondents were men

while the remaining 11 (22%) were women, this clearly shows that the industry is male

dominated as indicated in table 4.2.

Table 4.4 Gender of distribution

4.5.3 Response of age group

From the table 4.3, shows that 20 (39.2%) of private schools have been in existence for at

least 20-30 years, 16 (33.37%) have been in existence for 30-40 years and 14 (26.45%) have

been in existence for & above years. These results are consistent with Visvanathanm et al,

(2006), who state that private schools in Mogadishu Somalia. This clearly indicates that

majority of the private schools have been there for long.

Table 4.5 age group

Frequency Percent

Valid 20-30 20 39.2

30-40 16 33.37

40&above 14 27.45

Total 50 100.0

Frequency Percent

Valid Male 40 78

Female 10 22

Total 50 100.0

36

4.5.4 Response of level of education

The descriptive statistics of the study Table 4.4indicated that there are numerous levels of

education in the organization. Most of the respondents 10 (19.6%). Most of the respondents

highlighted the Private Schools in Mogadishu Somalia. As one of the secondary level, the

respondents indicated 20 (39.21%) as bachelor degree, the respondents highlighted as Master

Degree 17 (33.33%) other respondents indicated and obtained.4 (7.84%) PHD these results

show respondents' opinion and the level of education in the organization.

Table 4.6 level of education

Frequency Percent

Valid Secondary 10 19.6

Bachelor 20 39.21

Master 17 33.33

PHD 3 7.84

Total 50 100.0

4.5.5 Years of existence

From the Table 4.5, shows that 25 (49.1%) have been in existence for less than 5 years, 15

(29.41%) have been in existence for 5-10 years and 7 (13.72%) and 4 (7.84%) have been

existence for above 15 years. These results are consistent with, who states that private schools

have emerged as the major educational institutions occupations of mankind and in ancient

times economically and socially backward people were employed in this profession. This

clearly indicates that majority of the private schools have been there for long.

Table 4.7 Years of existence

Frequency Percent

Valid Less than 5years 25 49.1

5-10years 15 29.41

10-15years 7 13.72

above15years 3 7.84

Total 50 100.0

37

4.6 Study Variables Findings

Descriptive statistics such as frequency, percentage, mean, and standard deviation were

jointly used to summarize the responses as tables. The following presents the findings on the

various study variables.

The effects of Cash Management on Financial performance are mixed. Three recent

reviewers (Data, Rajagopalan and Rasheed 2000, Hoskisson and Hitt 2003, Kerin, Mahajan

and Varadarajan 2000), broadly conclude: the empirical evidence is inconclusive; models,

perspectives and results differ based on the disciplinary perspective chosen by the researcher;

and the relationship between Cash Management on financial performance is very close and

is affected by intervening and contingent variables . Some studies claim Cash management

on financial performance produces higher schools performance better than highly student’s

schools (Christensen and Montgomery 2004, Keats 2004, Michel and Shaked 2003, Rumelt

2001, 2002, 1986).

4.6.1 Cash budget

The study sought to establish the effects of price cash management on financial performance

in Private secondary schools. From the findings indicated in table 4.6 most of the respondents

agreed that that the Schools Budgets I pay communication with the determinants of the needs

I received on my network a mean of 1.10, the respondents agreed Private schools allocate

cash to safe guard organizational objectives. Due by a mean of 1.92 and a mean of 1.90 was

obtained the school allocates cash to safe guard organizational performance same as mean of

1.57 the network should always put more effort to understand the specific customers’ needs.

Table 4.8 cash budget

Statement N Mean Std. Deviation

school budgets for all operations in order to determine the

needs of the school

50 1.10 .300

Private schools allocate cash to safe guard organizational

objectives

50 1.92 .337

The school allocates cash to safe guard organizational

Performance

50 1.90 1.136

38

The network should always put more effort to understand

the specific customers’ needs

50 1.57 .500

4.6.2 Cash planning The study sought to establish the effects of Cash management on financial performance

of private secondary

Schools in Mogadishu Somalia From the findings indicated in table 4.7. Respondents

agreed that The School plan for cash with an aim of establishing financial position of

the school about depicted by a mean of 1.49, the

Respondents agreed schools plans to give dividends to shareholders every year. Due by

a mean of 2 and a mean of 1.04 was obtained School Cash planning to determine the

level of profitability in Private schools. Same as mean of 1.51 the respondent the school

provides social responsibility i.e. sponsoring sports, providing scholarships,

development initiatives.

Table4.9 Cash planning

Statement N Mean Std. Deviation

The School plan for cash with an aim of

establishing financial position of the

school

50 1.49 .505

schools plans to give dividends to

shareholders every year

50 2.00 .000

School plans Cash to determine the

level of profitability in Private schools

50 1.04 .196

The school provide social responsibility

i.e. sponsoring sports, providing

scholarships, development initiatives

50 1.51 .505

39

4.6.3. Cash control

Number of questions was asked to determine how cash control of private secondary schools in

Mogadishu Somalia. Respondents agreed that Cash Receipt is sufficiently documented in the

school as mean of 1.90 the department does not have unauthorized bank accounts or charge

accounts a mean of 1.51. And also agree a mean of 1.78 Daily collections are held in a secure

manner. Respondents agreed. Although “Vouchers are made on a daily For Cash control./ The

School has policy for cash control a mean of 1.02, a unique definition in the literature does

not exist. Moreover, academics often use special definitions tailored to fit the individual

research purposes (Mattile, 2006).

Table 4.10 Cash control

Statement N Mean Std. Deviation

Cash Receipt is sufficiently documented In

the school

5o 1.90 .300

The department does not have unauthorized

bank accounts or charge accounts

50 1.51 1.20

6

Daily collections are held in a secure

manner

50 1.78 .808

Vouchers are made on a daily For Cash

control./ The School has policy for cash

control

50 1.02 .140

4.6.4 Cash collection The study sought to establish the effects cash management on financial performance of

private secondary schools in Mogadishu Somalia From the findings indicated in table 4.9 the

respondents agreed the school keeps cash balance to capture sudden opportunities at all. With

a mean of 2.31 being obtained. These results are consistent with the findings obtained on

Awareness is the first step in collections in your school. a mean of 1.90. The respondent also

agreed Investigative and analytical techniques are used for credit collection approval a mean

of 1.51. The primary responsible for collections is to collect the money as close to the terms

of the obligation as possible obtaining a mean of 1.73.

40

Table 4.11Cash collection

Statement N Mean Std. Deviation

The school keeps cash balance

to capture sudden

opportunities

50 2.31 .905

Awareness is the first step in

collections in your school

50 1.90 .361

Investigative and analytical

techniques are used for credit

collection approval

50 1.51 .505

The primary responsible for

collections is to collect the

money as close to the terms of

the obligation as possible

50 1.73 .827

4.6.5 Financial performance

A number of questions were asked to determine how secondary schools gets sound profit

from their activities in Mogadishu Somalia. Respondents agreed The School gets sound

profit from the activities, obtaining a mean of 1.49. The respondents agreed that

Schools have enough market share that can ease it to be the leading institutions of this

field obtaining a mean of 1.92. And similarly a mean of 1.53 It is difficult to measure

the profitability of The Private school. Respondents also agreed. The return on equity

for the projects is satisfactory to the stakeholders Moreover, academics often use

special definitions tailored to fit the individual research purposes (Langfield-Smith,

1997). Financial performance is often measured using traditional education Key

financial Performance.

41

Table 4.12Financial performance

Statement N Mean Std. Deviation

The School gets sound profit from the

activities

50 1.49 .505

Your School has enough market share

that can ease it to be the leading

institutions of this field

50 1.92 1.129

It is difficult to measure the

profitability of The Private school.

50 1.53 .504

The return on equity for the projects is

satisfactory to the stakeholders

50 1.78 1.172

4.7 Multiple Regression Analysis

Multiple regression analysis was performed to assess the effects between the dependent

variable (Financial Performance) and the independent variables (Cash management) and to

test the research hypotheses on the cash budget management determinants on financial

performance multiple regression analysis was conducted in order to establish the best

combination of independent (predictor) variables would be to predict the dependent

(predicted) variable and to establish the best model of the study (Cooper & Schindler, 2013).

Multiple regressions is an extension of simple linear regression. It is used when we want to

predict the value of a variable based on the value of two or more other variables. The variable

we want to predict is called the dependent variable (or sometimes, the outcome, target or

criterion variable). The variables we are using to predict the value of the dependent variable

are called the independent variables (or sometimes, the predictor, explanatory or regress or

variables).

For example, you could use multiple regressions to understand whether exam performance

can be predicted based on revision time, test anxiety, Alternately, you could use multiple

regressions to understand whether daily cigarette consumption can be predicted based on

smoking duration, age when smoking, smoker type, income and gender started. Multiple

regressions also allow you to determine the overall fit (variance explained) of the model and

the relative contribution of each of the predictors to the total variance explained. For example,

42

you might want to know how much of the variation in exam performance can be explained by

revision time, test anxiety, lecture attendance and gender "as a whole", but also the "relative

contribution" of each independent variable in explaining the variance. This "quick start" guide

shows you how to carry out multiple regressions using SPSS Statistics, as well as interpret

and report the results from this test. However, before we introduce you to this procedure, you

need to understand the different assumptions that your data must meet in order for multiple

regression to give you a valid result.

4.7.1 Model summery

Model summary is a summery that describes how far the in dependent variables explain the

dependent variables that mean the greater R value has the great number the greater

independent variables explain with dependent variable. In order to test the research

hypotheses, a standard multiple regression analysis was conducted using financial

performance the dependent variable, and the four investigations determine effect of cash

budget, cash planning, cash control and cash collection of the financial Performance.

In order to test the research hypotheses, a standard multiple regression analysis was conducted

using value addition as the dependent variable, and the four cash management determinants of

financial performance cash budget, cash planning, cash control and cash collection as the

predicting variables. Tables 4.10, 4.11 and 4.12 present the regression results. From the model

summary in table 4.6.1, it is clear that the adjusted R2 was 0.987indicating that a combination

of cash budget, cash planning, cash control and cash collection explained 97.3% of the

variation in the Financial Performance of Private schools in Mogadishu, Somalia.

Table 4.13 Model Summary

4.7.2 Analysis of Variance

Analysis of Variance (ANOVA), as the name implies, is a statistical technique that is intended

to analyze variability in data in order to infer the inequality among population means. This

may sound illogical, but there is more to this idea than just what the name implies. The

Mode

l

R R Square Adjusted R Square Std. Error of the Estimate

1 .987a .975 .973 .07405

43

ANOVA technique extends what an independent-samples t test can do to multiple means. The

null hypothesis examined by the independent samples t test is that two population means are

equal. If more than two means are compared, repeated use of the independent-samples t test

was lead to a higher Type I error rate (the experiment-wise α level) than the α level set for

each t test.

Table 4.14 Analysis of Variance

ANOVAb

Model 1 Sum of Squares df Mean Square F Sig.

Regressio

n

9.883 4 2.471 450.523 .000a

Residual .252 46 .005

Total 10.135 50

a. Predictors: (Constant), cash collection, cash budgeting, cash control, cash planning

b. Dependent Variable: financial performance

From the ANOVA table 4.11, it is clear that the overall standard multiple regression model

(the model involving constant(cash collection, cash budgeting, cash control, cash planning)

is significant in predicting how cash collection, cash budgeting, cash control, cash planning

determine Financial Performance of the Private schools Mogadishu Somalia. The regression

model achieves a degree of fit as reflected by an R2 of 0.987 (F = 450.523; P = 0.00 < 0.05.

4.7.3 Regression Coefficients

Table 4.13 presents the regression results on how cash collection, cash budgeting, cash

control, cash planning determine financial Performance of Private schools in Mogadishu,

Somalia. The multiple regression equation was that: Y= β0+β1X1+β2X2+ β3X3 + ε and the

multiple regression equation became: Y = .587.039X1+.010X2+.279X3+ 1.692X4.As

depicted in table 4.13, p < . 0.05). There was Strong positive and significant effects of Cash

Management on financial performance (β = 1.133; t = 20.784; p < 0.05). There was strong

positive effects of cash control on financial performance (β = .008; t =. 3.100; p > 0.05).

44

However, there was negative but significant effects of cash collection on financial

performance (β = .021; t = .194.

Table 4.15 Regression Coefficient

Coefficientsa

Model 1 Unstandardized Coefficients Standardized

Coefficients

T Sig

.

B Std. Error Beta

(Constant) .287 .107 5.487 .000

Cash planning .492 .081 .133 20.78 .000

Cash budgeting .039 .046 .021 .859 .002

Cash control .010 .053 .008 .194 .003

Cash collection .279 .090 .162 3.100 .003

a. Dependent Variable: financial performance

4.7.4 Correlation Analysis

Pearson Bivariate correlation coefficient was used to compute the correlation between effect

of Cash Management the independent variables and financial performance the dependent

variable .According to Sekaran (2008), this relationship is assumed to be linear and the

correlation coefficient ranges from -1.0 perfect negative correlations to +1.0 perfect positive

relationships. The correlation coefficient was calculated to determine the strength of the

relationship between dependent and independent variables (Kothari, 2013).

From table 4.14, the results generally indicate that except for Cash planning, other

independent variables (Cash planning Cash budgeting Cash control and Cash control) were

found to have positive significant correlations on Financial Performance at 0.05 level of

significance. There was a weak positive but insignificant correlation between cash planning

and financial performance (r = 984*, P > 0.05)

45

Table 4.16 Correlation

Correlations

CP CB CC CC FP

CP Pearson Correlation 1 .017 .794** .884** .984**

Sig. (2-tailed) .904 .000 .000 .000

N 51 51 51 51 51

CB Pearson Correlation .017 1 .192 -.057 .052

Sig. (2-tailed) .904 .178 .693 .719

N 51 51 51 51 51

CC Pearson Correlation .794** -.192 1 .789** .760**

Sig. (2-tailed) .000 .178 .000 .000

N 51 51 51 51 51

CC Pearson Correlation .884*

*

.057 .789** 1 .832**

Sig. (2-tailed) .000 .693 .000 .000

N 51 51 51 51 51

FP Pearson Correlation .984** .052 .760** .832** 1

Sig. (2-tailed) .000 .719 .000 .000

N 51 51 51 51 51

**. Correlation is significant at the 0.01 level (2-tailed).

46

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter accordingly summarizes the findings in line with the objectives, draws

conclusions and makes the necessary recommendations. Areas of further study that may

enrich the study area are also suggested.

5.2 Summary of Findings

The general objective of this study was to investigate the Cash management of Financial

Performance in Somalia with specific focus of Private schools in Mogadishu, Somalia.

Specifically, this study investigated the effects of Cash planning, Cash Budgeting, Cash

Control and Cash collection of the Private schools. The study employed a survey research

design in data collection. This research employed quantitative data collection method

whereby data was gathered by the use of closed ended questionnaires which were self-

administered. Factor analysis was used to assess the validity and Cronbach alpha to assess

reliability of the questionnaire. Multiple regression analysis was performed to assess the

Effects between the dependent variable (Financial Performance) and the independent

variables (Cash planning, Cash Budgeting, Cash Control and Cash Collection) and to test the

research hypotheses on the Cash Management of Financial Performance in Private Schools in

Mogadishu, Somalia with specific focus on Mogadishu, Somalia.

5.2.1Cash Planning and Financial Performance

The first research objective was to find the effect of cash planning on financial performance

of Private secondary schools in Mogadishu, Somalia. Various methods analytical methods

were used to arrive at the findings. These methods included descriptive statistics, correlation

analysis and regression analysis. The findings indicated that cash planning has high effect on

financial performance of Private secondary schools in Mogadishu, Somalia.

The study had a hypothesis that cash planning affect financial performance of Private

secondary schools in Mogadishu, Somalia. The results revealed that cash planning was

statistically significant in explaining Financial Performance of Private secondary schools in

Mogadishu, Somalia.

Is an Educational institution’s capacity to meet its cash and obligations without incurring

unacceptable losses? Cash Planning is dependent upon the institution’s ability to efficiently

47

meet both expected and unexpected cash flows and collateral needs without adversely

affecting either daily operations or the financial condition of the Private schools.

5.2.2 Cash Budgeting and Financial Performance

The second research objective was to examine the effect of Cash Budget on financial

performance of Private secondary schools in Mogadishu, Somalia. Various methods analytical

methods were used to arrive at the findings. These methods included descriptive statistics,

correlation analysis and regression analysis. The findings indicated that was mechanism

established on cash budget and contributed high on financial performance of Private

secondary schools in Mogadishu, Somalia.

The study had a hypothesis that cash budget affect financial performance of Private secondary

schools in Mogadishu, Somalia. The results revealed that cash budget was statistically

significant in explaining Financial Performance of Private secondary schools in Mogadishu,

Somalia.

5.2.3 Cash Control and Financial Performance

The Third research objective was to examine the effect of Cash control on financial

performance of Private secondary schools in Mogadishu, Somalia. Various methods analytical

methods were used to arrive at the findings. These methods included descriptive statistics,

correlation analysis and regression analysis. The findings indicated that was mechanism

established on Cash control and contributed high on financial performance of Private

secondary schools in Mogadishu, Somalia.

The study had a hypothesis that Cash control affects financial performance of Private

secondary schools in Mogadishu, Somalia. The results revealed that Cash control was

statistically significant in explaining Financial Performance of Private secondary schools in

Mogadishu, Somalia.

5.2.4 Cash Collection and Financial Performance

The fourth research objective was to establish the effect of Cash control on financial

performance of Private secondary schools in Mogadishu, Somalia. Effective Cash Collection

require well regulated sector, since the financial risk exposure is very high. There is need to

revamp the role of the regulator especially creating its awareness levels since most of the

members seemed not to understand the mandate of the regulator.

48

5.2.6 Financial performance of Private secondary Schools.

The study sought to establish effect of Cash Management on financial performance of Private

secondary schools in Mogadishu, Somalia. Descriptive statistic, regression analysis and

ANOVA were conducted. The results showed that the growth of Private Schools in

Mogadishu, Somalia, in terms of profitability has been growing tremendously for the last

seven years, there was an increase in awareness level of the need of the institution and also

member was on a growing trend, membership tripled but loans only doubled during the same

period of analysis and there was a huge increase of products offered by Private Schools in

Mogadishu, Somalia that facilitated locking in members to the institutions.

It was possible to conclude from the study findings that there was improved and increased

financial performance of Private Schools in Mogadishu, Somalia across the years. The

performance indicators had all increased in number and growth. This implies that the

employees and members of the Private Schools in Mogadishu, had embraced the idea of

joining Private Schools in Mogadishu, Somalia and using their products fully.

5.3 Conclusions

Conclusions were arrived at the influence of independent variables (cash Planning, Cash

Budget, control, and Cash collection), and dependent variable of financial performance of

Private Schools in Mogadishu, Somalia based on the findings of the study.

The conclusions were based on the objectives of the study that cash management drivers had a

significant influence on financial performance of Private Schools. The results established that

cash management drivers were found to significantly and positively influence financial

performance. When all the stated variables were tested in the regression model they were

found to have a significant relationship between themselves and financial performance of

Private Schools. Cash control management was the driver which had the highest effect on

financial performance of Private Schools followed by cash collection and cash management.

The findings of the study established that Private Schools were operating under a highly

competitive environment between them. However, this moderate result revealed that there

were all variables which were influencing the financial performance of Private Schools in

Mogadishu- Somalia.

49

5.4 Recommendations

Based on the findings of the study, the researcher recommends that the Private schools adopt

cash management strategy. The empirical evidence from this study infers that cash

management has significant effect on financial performance of Private Schools The results

of this study thus provides a valuable reference for top Private Schools in Mogadishu in terms

of implementing cash management as this would help them achieve competiveness and

improve their performance.

1. It was found that management policies influenced cash control management. It is

recommended to the Private Schools management to ensure that the Schools have put in place

policies and procedures to be adhered to during trade credit.

2. There is need for the Private Schools in Mogadishu to increase their control to collections

fees as it was founded that cash collection positively affects the financial performance of

Private Schools in Mogadishu.

3.Management should in still discipline upon itself by ensuring good financial performance,

promote technological progress and increase its paid up capital regardless of the statutory

requirements so that the continued existence of the organization’s is not jeopardized after

undergoing cash management.

4. Management should not only undertake cash management in order to improve operation

and sustain failing Institutions but also improve their competitiveness and financial

performance.

5. Management should come up with a sound strategy towards cash control and cash

planning; budgeting management so as to prevent the problem of mismatching investments

and also the quality of liquidity should be enhanced.

6. Management should put into consideration the degree of transferability and cash invested in

so that these assets can provide liquidity to the firm with ease.

5.4. Limitation of the study

The major limitation of this study is as follows;

1. Security is most challenging limitation that poses difficulties in study, under the study

population scope security is very weak which is very dangerous to both researcher and

respondents and limits the free movement of researcher to seek the needed information of the

study.

50

2. Schools environment is also another challenging because there is no financial system

working in Somalia especially in study population (Mogadishu) where everything works in

haphazard way which also limits the study outcomes.

3. Despite these challenges which can lower the validity and reliability of the study, the

researcher decided to continue this study due the importance to conduct this study and due to

the willingness of the researcher to be defiant aggressively to come up the expected objectives

in the study by using the most suitable techniques in such circumstance

4. The researcher is only depending on the information provided by the School’s employees.

And also, most of the questions were directed to the FOs (Financial officers) therefore, the

responses are individual opinions which does not wholly reflect the school’s actual position.

5. There was also the limitation of the scarcity of time and money resources. The senior

managers were very sensitive with the relevant information fearing leakage of vital

information to competitors. Since the researcher targeted school manager, financial directors

and accountants of the Schools, there was a kind of bias on information provided as they tried

to respond positively on all the research questions.

5.6 Areas for further research

The general objective of this study was to investigate the cash management effects of

financial performance in the private schools in Mogadishu, Somalia with specific focus of two

districts in Mogadishu. Specifically, this study investigated the effects of cash planning

practices, cash budgeting, cash control and cash collection on financial performance of private

schools in Mogadishu, Somalia. These effects are not exhaustive hence further research can

be carried out to unearth other cash management effects of financial performance of private

schools in Mogadishu, Somalia.. Secondly, further studies need to be carried out to identify

industry based challenges cash management that these educational industries face and how

best these challenges can be addressed to enhance growth and financial performance of the

private sector in Mogadishu, Somalia. This research particularly assessed the contribution of

cash management and financial performance. Areas that need further research are:

i) School management and professionalism

ii) Private salary scale

iii) Examination setting in private schools vis-à-vis setting in government schools

iv) vi)Resource efficiency and effectiveness in private schools

51

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53

APPENDIX I

QUESTIONNAIRE

Dear respondent,

I am a student of Jomo Kenyatta University of agriculture and technology carrying out an

academic research ON EFFECT OF CASH MANAGEMENT FINANCAIL

PERFORMANCE OF PROIVATE SCHOOLS IN MOGADISHU-SOMALIA selected

PRIVATE SECONDARY SCHOOLS in Mogadishu-Somalia, you have been purposively

selected to participate in the study and I therefore kindly request you to provide an

appropriate answer by filling the questionnaires properly. The answers provided was only

used for academic purpose and was treated with extreme confidentiality.

NB: Do not write your name anywhere on this paper.

Section (A): Profile of the respondents

Dear sir/madam,

Please tick in the blanks in front of your appropriate response

Gender:

a) Male b) Female

Age group

20-30

30-40

40 & above

Level of education

1) Secondary 2) Bachelor degree 3) Master Degree 4) PHD

54

Experience

How long have you been working in the school?

1)Less 5years 2)5-10 years 3)10-15 years 4)Above 15 years

SECTION (B): QUESTIONS OF CASH MANAGEMENT

INDEPENDENT VARIABLE

Direction: Please write your rating on the space before each option which corresponds to

your best choice. Kindly use the scoring system below:

Response Mode Rating Description Legend

Strongly Agree (1) Very high SA

Agree (2) High A

Neutral (3) N

Disagree (4) Low DA

Strongly Disagree (5) Very low SD

SECTION C: CASH BUDGETdvcfa@uniso.edu.so

1 school budgets for all operations in order to determine the

needs of the school

SA A N SD D

2 Private schools allocate cash to safe guard organizational

objectives

3 The school allocates cash to safe guard organizational

objectives

4 The network should always put more effort to understand

the specific customers’ needs

55

SECTION D: CASH PLANNING

1 The School plan for cash with an aim of establishing

financial position of the school.

SA A N SD D

2 schools plans to give dividends to shareholders every year

3 School plans Cash to determine the level of profitability

in Private schools

4 The school provide social responsibility i.e. sponsoring

sports, providing scholarships, development initiatives

SECTION E: CASH CONTROL

1 Cash Receipt is sufficiently documented In the school.

SA A N SD D

2 The department does not have unauthorized bank

accounts or charge accounts

3 Daily collections are held in a secure manner

4 Vouchers are made on a daily For Cash control./ The

School has policy for cash control.

56

SECTION F: CASH COLLECTION

1 The school keeps cash balance to capture sudden

opportunities

SA A N SD D

2 Awareness is the first step in collections in your school,

3 Investigative and analytical techniques are used for credit

collection approval

4 The primary responsible for collections is to collect the

money as close to the terms of the obligation as possible

THE DEPENDENT VARIABLE

SECTION G: FINANCIAL PERFORMANCE

1 The School gets sound profit from the activities SA A N SD D

2 Your School has enough market share that can ease it to be

the leading institutions of this field.

3 It is difficult to measure the profitability of The Private

school.

4 The return on equity for the projects is satisfactory to the

stakeholders.