LIQUIDITY MANAGEMENT IN MANUFACTURING INDUSTRIES
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Liquidity management is the basic input needed to keep the business running on a continuous basis. it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash neither more or less, shortage will disrupt the firms manufacturing operation, While excessive idle without contributing anything towards the firms profitability.
Liquidity management involves initially, the provision of sufficient cash to meet the organizations obligations, the aim of this project is to explain in simple and clear language what management must do to have effective control over its most liquidly and important asset cash. Thus a major assignment of the financial manager is to maintain a sound cash position. Effective management and control of cash is very important to the firm because cash represent instantly available purchasing power and nearly every transaction ultimately involved the exchange of cash.
An integral part of cash administration is concerned with the effective utilization of corporate fund. The planning and control of this activities is made necessary by the fact that business is cyclical in nature and a considerable amount of time, during which raw material must be purchased and wages and over head paid collapse between the receipt of an order its shipment and banking of cash. An investment in cash assets is required in order to meet the company’s operational need, the uneven flow in the receipt and disbursement of funds, seasonal fluctuations and so on. Moreover, the receipt and disbursement of fund is varies on a daily bases and within the month, with a heavy cash receipt accruing at a particular time. Sophisticated cash management models recognize the uncertainty inherent in forecasting both cash inflows and outflows.
1.2 STATEMENT OF THE PROBLEMS
Liquidity constitution a substantial part of current assets of many companies particularly in Nigeria. An effective cash management is necessary for the overall performance of organization, one is surprised at the complete lack of formalized cash management system in many organization in Nigeria. While some companies prepare cash budget at the beginning of the financial year. Without any follow up control process, others just have cash. Management to the monthly bank reconciliation statements, which are often prepared in arrears, unfortunately, it is only when cash problem arises that the management starts to look for solution.
1.3 OBJECTIVE OF THE STUDY
In every business organization effective liquidity management plays a vital role in assisting the business attain certain goals. Among this basic purpose of the study are;
a) To determine the part which effective liquidity management plays in organizations in attaining its objectives.
b) To verify from practicing accountants and financial executives the consequences of not having effective liquidity management in manufacturing organization.
c) To relate how effective liquidity management can assist business to attain their predetermine profitability by increasing net returns on asset investment.
d) To determine whether inefficient liquidity management has any impact in manufacturing investment.
e) To ascertain how a company can optimize liquidity position by adequate cash management.
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