CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Ibitoye (2005) stated that over the world, cash is the most liquid asset of any firm or company. All organizations whether large or small receive and pay out certain amount of cash in the process of business transactions. Consequently, for a company to have cash in sufficient amount to meet its transactions obligations, he requires good and sufficient management because cash inflows and cash outflows are differently timed.

Cash requirement tend to rise in a rough proportion to the value of transaction. To ensure that current liabilities are settled at the proper time, sufficient liquid current asset should be maintained. Furthermore, there are other demands upon the company for cash. The payment of interest, dividend, credits for goods purchased and repayment of bank loans etc. How much of those cash and/or marketable securities are to be held at any point in time involves fundamental decisions to be considered in relations to the firms liquidity, its cash and its cash payments. Such decisions can be influenced by the availability of profitable investment opportunities. The opportunity cost of keeping a high level of cash balance is the interest that could have accrued to their firms had they invested the cash.

1.2      Statement of the Problem

According to Pitman (2000) the importance of cash as an asset of a firm cannot be over emphasized. Without cash, that is, where it is short in supply, the normal flows of operations of the co-operative are directly productive, it is sterile. It neither produces goods for sale nor induces customers to buy as it in the case of other assets, fixed assets, inventories and account receivable. As a result of this, the goals in cash management should be to maintain the right amount of cash without paying directly or indirectly for holding it and to excess cash in profitable ventures. The determination of this goal requires accurate timing of cash flows and the amount of cash balance to be closely monitored. 

The problem that faces financial manager is the difficulty in timing of payments and receipts.

Pitman (2000) also stated that the required cash inflows do not always coincide with cash outflows.

Thus, in some periods, cash will flow in then out and at other times, cash flows out than in. If receipts and payment periods could be matched perfectly and forecast with certainty, then a firm would need no cash balance.

Pitman (2000) went further to say that shortage of cash curtail the operations of the firms which usually manifest in the inability of the firm to pay bills when due and the dissipation of assets. Persistence of cash shortage can lead to financial insolvency, which may subsequently lead to liquidation of the firm. If there is too much cash, it is not invested, then the firm is paying directly or indirectly for money that it is not using. The company losses the earnings, interests and run the risks of keeping the liquid fund (cash). The problem that faces management is how to maintain and control optimum cash balances despite the difficulties in cash flows.   

1.3      Research Question

i.            Why do companies hold cash and marketable securities balances?

ii.          What are the objectives of companies with regards to cash management?

iii.        What are the factors that can influence companies level of cash balance?

iv.         How can this proportion of cash balance be arrived at?

v.           What proportion of cash balance should a firm keep? 

1.4      Objective of the Study

The objectives of the study are;

i.            To establish what management must do to grand jealously over its most liquid and importance of research cash.

ii.          How to maintain cash balance while manufacturing and adequate level of liquidity.

iii.        Multinational corporation are associated with spending larger amount of cash for purchasing, salaries and wages, public relations etc. Cash management process planning and control.

Although cash is the most valuable asset of the firm, it is surprising that there is complete lack of the firm, cash management in many firms, while some companies prepare cash budget at the beginning of the financial year walkout any follow up control mechanism and moreover, they are not measured against budget at the close of the financial year. Other relies on the monthly bank reconciliation statement which often prepared later for cash management. Management hardly seek the weakness or breakdown in cash management system until cash problem arises.

Finally, this study is to review the cash management strategy of such companies to understand how they strive the loan period and how surplus cash is utilized during periods of peak sales.    

1.5      Statement of Hypothesis

In a view towards achieving a carefully done research of high standard, the research makes the following hypotheses;

Hypothesis One

HO:   Cash management has not had a positive impact on the organization.

HI:    Cash management has only positive impact on the organization if properly applied.

Hypothesis Two

HO:   Optimum cash balance does not have effect on the profitability and growth of multinational companies.

HI:    Optimum cash balance has effect on the profitability and growth of multinational companies.

1.6      Significance of the Study

This study is aimed at improving the efficiency and effectiveness of cash management and financial performance strategies in Nigeria companies with particular reference to the multination co-operation while using Guinness Nigeria plc as a case study. Cash is the use blood of business. Without cash, the firm dies as many both small and large have done and unhappily will continue to do.

      Therefore it is a risk to be ignorant of the immense benefit of such a study for a firm must survive and attain its objectives. It is hoped that the findings and recommendations will assist companies and the business sector to appreciate the implication and importance of efficient and effective cash management.

More over this study would help to indicate problems in cash management and suggest solutions so that such problem can easily be assessed and checked.

         Guinness Nigeria plc in particular would be in a position to review its cash management strategies and improve its machinery for effective cash management.

1.7      Scope of the Study

Despite opposing problem from various angles effort was made in this study to carry out a thorough research on the management of cash and financial performance of Multination Corporation using Guinness Nigeria plc as a case study. Again this study was carried out under time and financial constraints in addition to the scarcity of textbook on the subject of the study.

1.8   Limitations of the Study

The limitations of the study were encountered in the company under study. First of all attempts to carry out personal interview with management staff proved abortive.

Secondly junior workers who were respondent to the questionnaires were afraid to answer some simple and non personal questions. Thus fear being victimize should management became aware of their action. This happened despite an explanation that the research work was purely for academic purposes and is restricted strictly to the four walls of federal polytechnic Auchi, Edo state.

1.9    Definition of Terms

Cash: Cash is the money which the firm distributed or disburse immediately without any restriction the term cash can include loans currency and it bank accounts.

Cash Budget: This is the statement of changes in financial position in a cash basic usually prepared annually showing sources and uses of cash for the period most often prepared for a past year but sometime for the future years also. That is a future plan which is prepared in quantified monetary fund.

Forecast: A projection of variable both countable and non–countable that ism used in the development of plans and budget.

Liquidity: The relative convertibility of short term assets to cash. Thus marketing securities’ are highly liquid assets while inventorying may not be.

Marketable Securities: These are short term debt instrument such as treasuring bill commercial papers certification. Despite etc which are traded in money market.

Money Nature: In competitive market for security best example of market instrument would be treasury bills commercial papers and negotiable certificate of deposit.

Multination Co-Operation: A firm doing business across national borders is considered multinational enterprise. Some definition require a minimum percentage usually 30% or more for a firm activity to be carried on outside it national borders.

Opportunity Cost: The rate/return that would have been obtained from an alternative investment. if it had been accepted.

Planning: the process of determine objective and goals and the future course of action to them.

Insolvency: technically insolvency occurs when a firm is unable to pay its bills is they fall due. legally insolvency  occurs when the liability of a firm is greater than market value of its assets.

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