77758104 Research Project Table 11

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THEEFFECTOFWORKINGCAPITALMANAGEMENTONTHECOMPANYSPERFORMANCESASELECTIONOFVARIOUSMANUFACTURINGCOMPANIESINNAIROBI

BY

CATHERINECHEBETBIRIR

BBM/2757/10

THERESEACHPROJECTISAPARTIALFULLFILLMENTOFAREQUIREMENTFORTHEAWARDOFBACHERORINBUSINESSMANAGEMENTDEGREE,SCHOOLOFBUSINESSANDECONOMICS,MOIUNIVERSITY.

OCTOBER2010


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DECLARATIONDECLARATIONBYTHECANDIDATEThisresearchprojectismyoriginalandhasnotbeenpresentedfordegreeinanyotheruniversityorinstitution.NopartofthisprojectmaybereproducedwithoutpriorpermissionoftheauthorandorMoiUniversity.

Signature;Name;CatherineChebetBirirRegNo.BBM/2757/10

Date;

DECLARATIONBYSUPERVISIORThisresearchprojecthasbeensubmittedforexaminationwithourapprovalasuniversitySUPERVISIORSignature;Name;GeorgeNChembereDate;

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MOIUNIVERSITY,NAIROBIKENYAACKNOWLEDGEMENTIwishtoexpressmyheartfeltappreciationtoallthosewhocontributedeitherdirectlyorindirectlytothesuccessofmyresearchIwishtothankmymotherMonicaBirir,brothersKevin,RubenandmysweetsisterIreneforgivingmeencouragementtogoon.SpecialthanksgotomybelovedhusbandAugustineformoralandfinancialsupport

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DEDICATIONThisresearchisdedicatedtomyhusbandAugustineandmysonsEthanandJaydenfortheirpatient,understandingandsupport.

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ABSTRACTTheoverallobjectiveofthestudywastoexaminetheeffectofworkingcapitalmanagementonthecompanyperformancesbutwithspecificreferencesonNairobi.Manufacturinghavebeenfacedwithmanyproblems.Thestudypopulationwastoassesseffectofinvestmentincashoncompanysperformances,theeffectofholdingstockonthecompanysperformances,theeffectofgivingcreditonthecompanysperformances,theeffectofhavingcreditorsandtheeffectofdelayingpaymentofcreditorsontheperformancesofthefirm.Thestudypopulationwas20manufacturingcompaniesinNairobi.Asampleof200manufacturingcompanieswaspickedTherespondentsweremanagersfinanceandtreasures.Closedandopenendedquestionnaireswereadministeredto20targetedrespondentusingadropandpickmethod.FinancedatawastargetedwasanalysesatNairobicentralAandBdistrictoffice.ThedatawasanalysesusingdescriptivestatisticswiththehelpofSPSSandexcessworksheetandpresentedinthetableandfigures.Thefindingsofthestudyarethatworkingcapitalmanagementisanimportantpartinfirmfinancialmanagementdecision.Anoptimalworkingcapitalmanagementis

expectedtocontributepositivelytothecreationoffirmvalue.Toreachoptimalworkingcapitalmanagementfirmmanagershouldcontrolthetradeoffbetweenprofitabilityandliquidityaccurately.Thepurposeofthisstudyistoinvestigatetherelationshipbetweenworkingcapitalmanagementandfirmprofitability.Cashconversioncycleisusedasmeasureofworkingcapitalmanagement.

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Itisrecommendedthatthatreducingcashconversionperiodresultstoprofitabilityincrease.Thus,inpurposetocreateshareholdervalue,firmmanagershouldconcernonshortenofcashconversioncycletillaccomplishoptimallevel.

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TABLEOFCONTENTDECLARATION...................................................................................................iiACKNOWLEDGEMENT......................................................................................iiiDEDICATION....................................................................................................ivABSTRACT........................................................................................................vTABLEOFCONTENT........................................................................................viiCHAPTERONE..................................................................................................1INTRODUCTION.............................................................................................1Background................................................................................................1Overviewofthecontextscope...................................................................3Statementoftheproblem..........................................................................3Objectivesofthestudy..............................................................................4HypothesesTesting....................................................................................5Scopeofthestudy.....................................................................................6SignificanceoftheStudy...........................................................................6CHAPTERTWO..................................................................................................7LITERATUREREVIEW.....................................................................................7Introduction...............................................................................................7Theconceptofworking

capitalmanagement..........................................10Conceptualframework.............................................................................10CHAPTERTHREE.............................................................................................12METHODOLOGY...........................................................................................12Introduction..............................................................................................12Researchdesign.......................................................................................12Samplingdesign......................................................................................13vii


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DescriptiveAnalysis................................................................................13QuantitativeAnalysis...............................................................................13Datacollectionprocess............................................................................14Dataanalysisandpresentation................................................................14Limitationofstudy...................................................................................15REFERENCES...........................................................................................16APENDICES...............................................................................................18Appendix1;Timeplan.............................................................................18Appendix2;Proposalresearchbudget....................................................19

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CHAPTERONEINTRODUCTIONBackgroundWorkingcapitalmanagementisaveryimportantcomponentofcorporatefinancebecauseitdirectlyaffectstheliquidityandprofitabilityofthecompany.Itdealswithcurrentassetsandcurrentliabilities.Workingcapitalmanagementisimportantduetomanyreasons.Foronething,thecurrentassetsofatypicalmanufacturingfirmaccountsforoverhalfofitstotalassets.Excessivelevelsofcurrentassetscaneasilyresultinacompanysrealizingasubstandardreturnoninvestment.Howevercompanyswithtoofewcurrentassetsmayincurshortagesanddifficultiesinmaintainingsmoothoperations(HorneandWachowicz,2000).Efficientworkingcapitalmanagementinvolvesplanningandcontrollingcurrentassetsandcurrentliabilitiesinamannerthateliminatestheriskofinabilitytomeetdueshorttermobligationsontheonehandandavoidexcessiveinvestmentintheseassetsontheotherhand(Eljelly,2004).Manysurveyshaveindicatedthatmanagersspendconsiderabletimeonday-to-dayproblemsthatinvolveworkingcapitaldecisions.Onereasonforthisisthatcurrentassetsareshort-livedinvestmentsthatarecontinuallybeingconvertedintootherassettypes(Rao1989).Withregardtocurrentliabilities,thefirmisresponsibleforpayingtheseobligationsonatimelybasis.Liquidityfortheongoingfirmisnotreliantontheliquidationvalueofitsassets,butratherontheoperatingcashflowsgeneratedbythoseassets(Soenen,1993).Takentogether,decisionsonthelevelofdifferentworkingcapitalcomponentsbecomefrequent,repetitive,andtimeconsuming.


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WorkingCapitalManagementisaverysensitiveareainthefieldoffinancialmanagement(Joshi,1994).Itinvolvesthedecisionoftheamountandcompositionofcurrentassetsandthefinancingoftheseassets.Currentassetsincludeallthoseassetsthatinthenormalcourseofbusinessreturntotheformofcashwithinashortperiodoftime,ordinarilywithinayearandsuchtemporaryinvestmentasmaybereadilyconvertedintocashuponneed.TheWorkingCapitalManagementofafirminpartaffectsitsprofitability.Theultimateobjectiveofanyfirmistomaximizetheprofit.But,preservingliquidityofthefirmisanimportantobjectivetoo.Theproblemisthatincreasingprofitsatthecostofliquiditycanbringseriousproblemstothefirm.Therefore,theremustbeatradeoffbetweenthesetwoobjectivesofthecompanys.Oneobjectiveshouldnotbeatcostoftheotherbecausebothhavetheirimportance.Ifwedonotcareaboutprofit,wecannotsurviveforalongerperiod.Ontheotherhand,ifwedonotcareaboutliquidity,wemayfacetheproblemofinsolvencyorbankruptcy.Forthesereasonsworkingcapitalmanagementshouldbegivenproperconsiderationandwillultimatelyaffecttheprofitabilityofthefirm.Companysmayhaveanoptimallevelofworkingcapitalthatmaximizestheirvalue.Largeinventoryandageneroustradecreditpolicymayleadtohighsales.Largerinventoryreducestheriskofastock-out.Tradecreditmaystimulatesalesbecauseitallowscustomerstoassessproductqualitybeforepaying(Long,MaltizandRavid,1993,andDeloofandJegers,1996).Anothercomponentofworkingcapitalisaccountspayable.Delayingpaymentstosuppliersallowsafirmtoassessthequalityofboughtproducts,andcanbeaninexpensiveandflexiblesourceoffinancingforthefirm.Ontheotherhand,latepaymentofinvoicescanbeverycostlyifthefirmisoffere

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forearlypayment.ApopularmeasureofWorkingCapitalManagement(WCM)isthecashconversioncycle,i.e.thetimelagbetweentheexpenditureforthepurchasesofrawmaterialsandthecollectionofsalesoffinishedgoods.Thelongerthistimelag,thelargertheinvestmentinworkingcapital(Deloof2003).Alongercashconversioncyclemightincreaseprofitabilitybecauseitleadstohighersales.However,corporateprofitabilitymightalsodecreasewiththecashconversioncycle,ifthecostsofhigherinvestmentinworkingcapitalrisefasterthanthebenefitsofholdingmoreinventoriesand/orgrantingmoretradecredittocustomers.Thisdiscussionoftheimportanceofworkingcapitalmanagement,itsdifferentcomponentsanditseffectsonprofitabilityleadsustotheproblemstatementwhichwewillbeanalyzing.OverviewofthecontextscopeThecityofNairobiislocatedinthesouthernregionofKenyaonthebanksofNairobiRiver.BesideshavingthelargestpopulationinAfrica,Nairobiclaimstobethefourthlargestcityinthecontinent.SomeofthemajorcitiesofKenyathatarelocatednearbyNairobiincludeKileleshwa,Chiromo,andKilimaniEstateinthewestandPanganiinthenorth.StatementoftheproblemDoesWorkingCapitalManagementAffectProfitabilityofmanufacturingCompanys?Toanalyzethisproblemstatement,wehavedevelopedobjectivesofourresearch,whichwillhopefullycontributetowardsaveryimportantaspectoffinancialmanagementknownasworkingcapitalmanagement.Thisresearchisfocusingonworkingcapitalmanagementanditseffectsonprofitabilityforasampleofmanufacturingcompanys.


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ObjectivesofthestudyThemainobjectivesare:

ToestablisharelationshipbetweenWorkingCapitalManagementandProfitability.

Tofindouttheeffectsofdifferentcomponentsofworkingcapitalmanagementonprofitabilityofmanufacturingcompanies.

Toestablisharelationshipbetweenthetwoobjectivesofliquidityandprofitabilityofthemanufacturingcompanies.

Tofindouttherelationshipbetweenprofitabilityandsizeofthemanufacturingcompanies.

TofindouttherelationshipbetweendebtusedbytheManufacturingcompaniesan

ditsprofitability

ToanalyzetheOperatingprofitmarginofmanufacturingindustry.ToanalyzetheWorkingCapitalofmanufacturingindustry.

ToinvestigatetheimpactofWorkingCapitalManagementonprofitabilityofmanufacturingCompanies.

Todrawconclusionaboutrelationshipofworkingcapitalmanagementandprofitab

ilityoftheManufacturingcompanies.

Toachievetheseobjectives,thisstudyisorganizedasfollows:Sectiontworeviewstheliteraturefortherelevanttheoreticalandempiricalworkonworkingcapitalmanagementanditseffectonprofitability.Sectionthreepresentsthemethodologyandframeworkusedintheempiricalanalysis.


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HypothesesTestingSincetheobjectiveofthisstudyistoexaminetherelationshipbetweenprofitabilityandworkingcapitalmanagement,thestudymakesasetoftestablehypothesis{theNullHypothesesH0versustheAlternativeonesHA}.Hypothesis1Thefirsthypothesisofthisstudyisasfollows:H01:Thereisnorelationshipbetweenefficientworkingcapitalmanagementandprofitabilityofmanufacturingcompanies.HA1:Thereisapossiblepositiverelationshipbetweenefficientworkingcapitalmanagementandprofitabilityofmanufacturingcompanies.Companiesmoreefficientinmanagingtheirworkingcapitalisexpectedtoposehighlevelofprofitabilityandviceversa.Hypothesis2Thesecondhypothesisofthestudyisasfollow:H02:Thereisnorelationshipbetweenliquidityandprofitabilityofmanufacturingcompanies.HA2:TheremayexistanegativerelationshipbetweenliquidityofManufacturingcompaniesandprofitability.Companyswithhighlevelofliquidityareexpectedtopostlowlevelofprofitabilityandviceversa.Hypothesis3TheThirdhypothesisofthestudyisasfollow:H03:Thereisnorelationshipbetweensizeofmanufacturingcompaniesandprofitability.


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HA3:Theremayexistsapositiverelationshipbetweenthecompanysizeanditsprofitability.Thismaybeduetotheabilityoflargecompaniestoreduceliquiditylevelsandcashgaps.Hypothesis4TheFourthhypothesisofthestudyisasfollow:H04:Thereisnorelationshipbetweendebtusedbymanufacturingcompaniesandprofitability.HA4:Thereisapossiblenegativerelationshipbetweendebtusedbymanufacturingcompanyandprofitability.Companieswithhighlevelofdebtusageareexpectedtopostlowlevelofprofitabilityandviceversa.ScopeofthestudyThestudyassessedtheworkingcapitalmanagementwithintheselectedmanufacturingcompaniesinNairobifocusingonsmall,MiddlelevelandgiantmanufacturingcompanieswhoseturnoverdonotexceedKshs2billion.SignificanceoftheStudyTheresultsofthisstudyshallbeusefultomanagersinmanufacturingcompaniesinKenya.Informationfromthisstudyshallinformcompaniesontheimportanceofworkingcapitalmanagement.Theresultsshallinformshareholdersonthecurrentpracticeofworkingcapitalmanagement,ontheunderlyingrisksthatcurrentlyexistandwaystheseriskswouldbemitigated.Theresultsofthestudywillalsobeusefultomemberswhoareinterestedtoknowhowsafethereinvestmentareintermofworkingcapitalmanagement,whatpracticeswouldbetheyproposedtoeadoptedbythemanagerstoensurefinancialviabilityoftheseinstitution.


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CHAPTERTWOLITERATUREREVIEWIntroductionThischaptercoversthereviewofrelatedliteratureinregardstoworkingcapitalmanagementconcept,perceptionandpracticesinfinancialinstitution.Italsoportraytheconceptionframeworkthatattemptstoshowtheassetsliquiditymanagementliabilitymeasureofliquidityinformationsystem.Inintentiontodiscovertherelationshipbetweenefficientworkingcapitalmanagementandcompanysprofitability(Shin&Soenen,1998)usednet-tradecycle(NTC)asameasureofworkingcapitalmanagement.NTCisbasicallyequaltotheCCCwherebyallthreecomponentsareexpressedasapercentageofsales.ThereasonbyusingNTCbecauseitcanbeaneasydevicetoestimateforadditionalfinancingneedswithregardtoworkingcapitalexpressedasafunctionoftheprojectedsalesgrowth.Thisrelationshipisexaminedusingcorrelationandregressionanalysis,byindustryandworkingcapitalintensity,inallcases;theyfound,astrongnegativerelationbetweenthelengthofthecompanysnet-tradecycleanditsprofitability.Inaddition,shorterNTCareassociatedwithhigherrisk-adjustedstockreturns.Inotherword,(Shin&Soenen,1998)suggestthatonepossiblewaythefirmtocreateshareholdervalueisbyreducingcompanysNTC.Thestudyof(Shin&Soenen,1998)consistentwithlaterstudyonthesameobjectivethatdoneby(Deloof,2003)byusingsampleof1009largeBelgiannon-financialcompanysfortheperiodof1992-1996.However,(Deloof,2003)usedtradecreditpolicyandinventorypolicyaremeasuredbynumberofdaysaccountsreceivable,accountspayable


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andinventories,andthecashconversioncycleasacomprehensivemeasureofworkingcapitalmanagement.Hefoundsasignificantnegativerelationbetweengrossoperatingincomeandthenumberofdaysaccountsreceivable,inventoriesandaccountspayable.Thus,hesuggeststhatmanagerscancreatevaluefortheirshareholdersbyreducingthenumberofdaysaccountsreceivableandinventoriestoareasonableminimum.Healsosuggeststhatlessprofitablecompanyswaitlongertopaytheirbills.Inotherstudy,(Lyroudi&Lazaridis,2000)usefoodindustryGreektoexaminedthecashconversioncycle(CCC)asaliquidityindicatorofthecompanysandtriestodetermineitsrelationshipwiththecurrentandthequickratios,withitscomponentvariables,andinvestigatestheimplicationsoftheCCCintermsofprofitability,indebtnessandfirmsize.Theresultsoftheirstudyindicatethatthereisasignificantpositiverelationshipbetweenthecashconversioncycleandthetraditionalliquiditymeasuresofcurrentandquickratios.Thecashconversioncyclealsopositivelyrelatedtothereturnonassetsandthenetprofitmarginbuthadnolinearrelationshipwiththeleverageratios.Conversely,thecurrentandquickratioshadnegativerelationshipwiththedebttoequityratio,andapositiveonewiththetimesinterestearnedratio.Finally,thereisnodifferencebetweentheliquidityratiosoflargeandsmallcompanysThemanagementofworkingcapitalisimportanttothefinancialhealthofbusinessesofallsizes.Theamountsinvestedinworkingcapitalareoftenhighinproportiontothetotalassetsemployedandsoitisvitalthattheseamountsareusedinanefficientandeffectiveway.(Padachi,2006)Workingcapitalstarvationisgenerallycreditedasamajorcauseifnotthemajorcauseofsmallbusinessfailureinmanydevelopedanddevelopingcountries(Rafuse,


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1996).Thesuccessofafirmdependsultimately,onitsabilitytogeneratecashreceiptsinexcessofdisbursements.Thecashflowproblemsofmanysmallbusinessesareexacerbatedbypoorfinancialmanagementandinparticularthelackofplanningcashrequirements(Jarvis,1996).Themanagementofworkingcapitalisimportanttothefinancialhealthofbusinessesofallsizes.Theamountsinvestedinworkingcapitalareoftenhighinproportiontothetotalassetsemployedandsoitisvitalthattheseamountsareusedinanefficientandeffectiveway.(Padachi,2006).Workingcapitalstarvationisgenerallycreditedasamajorcauseifnotthemajorcauseofsmallbusinessfailureinmanydevelopedanddevelopingcountries(Rafuse,1996).Thesuccessofafirmdependsultimately,onitsabilitytogeneratecashreceiptsinexcessofdisbursements.Thecashflowproblemsofmanysmallbusinessesareexacerbatedbypoorfinancialmanagementandinparticularthelackofplanningcashrequirements(Jarvis,1996).Despitethefactthatbusinessperformanceisrelyingonefficientworkingcapitalpractices,thisareahasbeenneglectedforresearchforalongtimeperiod.EveninthedevelopedcountrieslikeAlthoughabundantresearchandtheoreticaldevelopmenthasbeendoneintheareaofinvestmentandlong-termfinancebutthisgrayareaofshort-termfinance,inparticularworkingcapitalmanagementhasbeenneglectedforaverylongtime.Suchneglectmighthavebeenacceptable,ifworkingcapitalhadarelativelylittleimportancetothefirm,buteffectiveworkingcapitalmanagementhasacrucialroletoplayinenhancingtheprofitabilityandgrowthofthefirm.Indeed,experienceshowsthatinadequateplanningandcontrolofworkingcapitalisoneofthemorecommoncausesof


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businessfailure.(PassandPike1984).ThisknowledgegaphasledtheresearchertofindoutthathowmanagementofworkingcapitalmanagementingeneralandcashmanagementinparticularisbeingaddressedinNairobikenya.TheconceptofworkingcapitalmanagementTheprincipalactivitiesofmanufacturingcompaniesareproductionandsalesanddistributionofproducts.Basicallymanufacturingcompanieswillbeinterestedinmaintainingagoodworkingcapitalmanagementtoensurethatmanufacturingflowsmoothlythereforefinancialperformanceofmanufacturingcompanieswillbeconcernedwiththerateofcurrentassets/currentliabilities.ConceptualframeworkAllthevariablesstatedbelowhavebeenusedtotestthehypothesesofourstudy.Theyincludedependentandindependentvariables:NetOperatingProfitability(NOP)whichisameasureofProfitabilityofthefirmisusedasdependantvariable.ItisdefinedasOperatingIncomeplusdepreciation,anddividedbytotalassetsminusfinancialassets.AverageCollectionPeriod(ACP)usedasproxyfortheCollectionPolicyisanindependentvariable.Itiscalculatedbydividingaccountreceivablebysalesandmultiplyingtheresultby365(numberofdaysinayear).Inventoryturnoverindays(ITID)usedasproxyfortheInventoryPolicyisalsoanindependentvariable.Itiscalculatedbydividinginventorybycostofgoodssoldandmultiplyingwith365days.


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AveragePaymentPeriod(APP)usedasproxyforthePaymentPolicyisalsoanindependentvariable.Itiscalculatedbydividingaccountspayablebypurchasesandmultiplyingtheresultby365.TheCashConversionCycle(CCC)usedasacomprehensivemeasureofworkingcapitalmanagementisanotherindependentvariable,andismeasuredbyaddingAverageCollectionPeriodwithInventoryTurnoverinDaysanddeductingAveragePaymentPeriod.CurrentRatio(CR)whichisatraditionalmeasureofliquidityiscalculatedbydividingcurrentassetsbycurrentliabilities.

INDPNDNTVARLEEEIABENetprofitabilityAvaragecollectionperiodInventoryTurnoverindaysAvaragepaymentperiodCashConversionCycleCurrentRatioInfluence

DPEEVARLENDNTIABE

FinancialPerformances


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CHAPTERTHREEMETHODOLOGYIntroductionThischaptercoverstheresearchdesign,targetpopulation,samplesize,datacollectionmethod,dataanalysisandpresentation.ThiswasachievedbydevelopingasimilarempiricalframeworkfirstusedbyShinandSoenen(1998)andthesubsequentworkofDeloof(2003).ResearchdesignThemostdifficultissuefacedbytheauthorswastodecideaboutthesampleandthemethodology.AlthoughmanufacturingcompaniesaredispersedinthemaincitiesofKenya,itwasdecidedtotakethedatafromindustrialareacities.Hence,resultscanbegeneralized.Personalinterviewsandtelephonesurveysweredeemedinfeasibleduetohighcostandgeographicaldispersionofthefirms.ItwasdecidedtousethetoolpreviouslyusedbyRicciandVitoin2000intheirpapertoidentifyworkingcapitalmanagementpracticesinNairobi.Whilethismethodallowsforeasieranalysisofthedataduetostandardizedquestions,itslimitationisthatitallowstheresearchertodetermineonlywhattherespondentsaredoing,nothoworwhytheyaredoingit.Againtheresearchershavetriedtoovercomethislimitationbyaddingfewopenendedquestionsinordertogetthepictureclosertothereality.


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SamplingdesignInthisresearchwehaveprovidedtwotypesofdataanalysis;descriptiveandquantitative.DescriptiveAnalysisDescriptiveanalysisisthefirststepinouranalysis;itwillhelpusdescriberelevantaspectsofphenomenaofcashconversioncycleandprovidedetailedinformationabouteachrelevantvariable.Researchhasalreadybeenconductedinourareaofstudyandalotofinformationisalreadyonhand,andSPSSsoftwarehasbeenusedforanalysisofthedifferentvariablesinthisstudy.QuantitativeAnalysisInquantitativeanalysisweappliedtwomethods:First:weusedcorrelationmodels,specificallyPearsoncorrelationtomeasurethedegreeofassociationbetweendifferentvariablesunderconsideration.Second:weusedRegressionanalysistoestimatethecausalrelationshipsbetweenprofitabilityvariable,liquidityandotherchosenvariables.WehaveusedPooledOrdinaryLeastSquaresandGeneralizedLeastSquares(crosssectionweights)methodsforanalysis.Weusedpaneldatainapooledregression,wheretimeseriesandcross-sectionalobservationswerecombinedandestimated.Inotherwords,severalcross-sectionalunitswereobservedoveraperiodoftimeinapaneldatasetting.ForthispurposeofanalysistheE-viewssoftwarewasusedtoanalyzefinancialdataandespeciallyincaseofpooleddata.


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DatacollectionprocessThedatausedinthisstudywasacquiredfrominternetandwebsitesofdifferentcompanies.Theperiodcoveredbythestudyextendstosixyearsstartingfrom2003to2009.Thereasonforrestrictingtothisperiodwasthatthelatestdataforinvestigationwasavailableforthisperiod.Thesampleisbasedonfinancialstatementsofthe20manufacturingcompanies,includingfirmsfromdifferentsectorsofoureconomy.Becauseofthespecificnatureoftheiractivities,companiesinfinancialsector,bankingandfinance,insurance,leasing,businessservices,rentingandotherservicesareexcludedfromthesample.Finally,thefirmwithdataofthenumberofdaysaccountsreceivable,numberofdaysinventories,numberofdaysaccountspayableandoperatingincomeareincludedinsample.DataanalysisandpresentationThefirstpartofdataanalysis,profileoftherespondentsandresultsofopenendedquestionsisbeingdiscussed.Atotalof10responseswerereceivedcomprising83%responserate.Theseresponsesrepresentfourbroadindustriesmainlyservicesector(coveringbanksandfinancialinstitutes,petroleumgas,telecommunicationandserviceproviders).Whenanalyzedthetotalrespondentpoolabouttheworkingcapitaldecisionmaking,itwasrevealedthat65.8%oftherespondentsconfirmeditatthecorporatelevel.ThisresultisclosertotheRicciandVitostudywhohadreporteditas57.3%.Theregionallevelvaluewas32.1%andonly1.6%oftherespondentsweretakingdecisionsatlocallevel.Overall,itmaybeconcludedthatmostofthecompaniestendtomakeitatcorporatelevelwhichshowsthecentralizedapproachformakingworkingcapitaldecisions.Responseratewas76.3%wheninquiredaboutthefirmspercentageof


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overseassales,itwasdiscoveredthat71%oftherespondentsreplieditbetween1-50%.However29%oftherespondentsansweredthatitwasbetween51-100%.Aboutrelationshipwithforeignbanks,theresultsofthesurveyindicatethatalmost68.7%ofthefirmshaverelationshipwith1-20foreignbanks.ThisresultisquiteparallelwithRicciandVitostudywhichshowthat74.1%ofthefirmshaverelationshipwith125foreignbanks.Responserateforthisquestionwas77.3%.71%oftherespondentsclaimedthatoverseasdemanddepositaccountwerebetween1-20.Moresurprisinglyitwasrevealedthat3.2%firmsconfirmedbetweenthenumbers10,000-50,000.LimitationofstudyLikeanyotherstudy,thissurveyisnotwithoutlimitations.First,thescaleusedwasjusttakenasteachermadeinstrumentandwasnotwithoutloopwholes.Forexample,someofthequestionswereansweredbytherespondentsbasedontheirownunderstanding.Second,someconceptsspeciallyrelatedtoforeignexchangeactivitiesarerelativelynovelandtherespondentshadnotenoughknowledgeaboutit.Third,responseratewassomewhatlowforopenendedquestionswhichmightreflectingeneralizingtheresults.Last,butnotleastthereisalackoffundamentalresearchintheareaofworkingcapitalsoenoughliteraturewasnotavailablewhichcouldprovideastrongfoundationforproperresearchdesign


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REFERENCESDeloof,MandJegers,M.1996.Tradecredit,productQuality,andIntraGroupTrade:SomeEuropeanEvidence,FinancialManagement,Vol25No3pp.33-43Eljelly,A.2004.Liquidity-ProfitabilityTradeoff:AnempiricalInvestigationinanEmergingMarket,InternationalJournalofCommerce&Management,Vol14No2pp.48-61Joshi,P.V.1995.WorkingCapitalManagementunderInflation,1stEd.AnmolPublishers,pp.20-93Long,Michael.S,Malitz.Lleen.B,andRavid,S.Abraham,(1993)TradeCredit,QualityGuarantees,andProductMarketabilityFinancialManagement,pp.117127Rao,R.K.S.1989.FundamentalsofFinancialManagement,3rdEd.Macmillanpublishers,pp550-644Ricci,C.andVito,N.D.2000.InternationalWorkingCapitalPracticesintheUK,EuropeanFinancialManagement,Vol6No1pp.69-84Richard,V.D.andLaughlin,E.J.1980.ACashConversionCycleApproachtoLiquidityAnalysis,FinancialManagement,Vol9No1pp.32-38Shin,H.HandSoenen,L.1998.EfficiencyofWorkingCapitalManagementandCorporateProfitability,FinancialPracticeandEducation,Vol8No2,pp37-445Smith,M.Beaumont,Begemann,E.1997MeasuringAssociationSoenen,L.A.1993.Cashconversioncycleandcorporateprofitability,JournalofCashManagement,Vol13No4pp.53-58Eljelly,A.2004.Liquidity-ProfitabilityTradeoff:AnempiricalInvestigationinanEmergingMarket,InternationalJournalofCommerce&Management,Vol14No2pp.4861Long,Michael.S,Malitz.Lleen.B,andRavid,S.Abraham,(1993)TradeCredit,QualityGuarantees,andProductMarketabilityFinancialManagement,pp.117127Rao,R.K.S.1989.FundamentalsofFinancialManagement,3rdEd.Macmillanpublishers,pp550-644Ricci,C.andVito,N.D.2000.InternationalWorkingCapitalPracticesintheUK,EuropeanFinancialManagement,Vol6No1pp.69-84


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Shin,H.HandSoenen,L.1998.EfficiencyofWorkingCapitalManagementandCorporateProfitability,FinancialPracticeandEducation,Vol8No2,pp37-45Smith,M.Beaumont,Begemann,E.1997MeasuringAssociationbetweenWorkingCapitalandReturnonInvestment,SouthAfricanJournalofBusinessManagement,Vol28No1Soenen,L.A.1993.Cashconversioncycleandcorporateprofitability,JournalofCashManagement,Vol13No4pp.53-58VanHorne,J.C.&Wachowicz,J.M.2000.FundamentalsofFinancialManagement,11thEd.PrenticeHallInc


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APENDICESAppendix1;Timeplan

GroundworkLiteraturereviewDefiningMethodsDatacollectionProgressSeminarDataAnalysisWritefirstdraftWriteseconddraftWriteFinaldraftThesisDue

Janxx

Febxxxx

Marxxxx

Aprlxxxx

Mayxxxx

Junxxxx15thxx

Jul

Aug

SeptOctNovDec

xxxxxxxxxxxxxxxxxxxx

xx

xx

xx

xx

xx

xx15th


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Appendix2;Proposalresearchbudget

N1

DescriptionPerdiemallowancesMiscellaneoustravelexpensesInsuranceAccommodationSecurityCommunicationPrinting,stationery,drafting,reproductionofreports2Computersandofficeequipment4LocaltransportandvehiclerunningcostsOfficerunningcosts4

UnitMonth

UnitCost750

Quantity82

USD61,500

23456

TripMonthMonthMonthMonth

150265350022501250

4085363636

6,00022,525126,00081,00045,000

78

MonthLump

500

36

18,00010,000

910

MonthMonth

7501250

14436

108,00045,000

1112TotalCosts

Workshops&seminarsStudyTours

UnitUnit

100020000

123

12,00060,000595,025


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Documents

77758104 Research Project Table 11