Full Project-A CASH MANAGEMENT IN A SUPERMARKET STORE

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Cash is the most liquid asset of any super market store. All supper market store whether large or small receive and pay out certain amount of cash in the process of business transactions. Consequently, for a company to have enough liquidity to meet its current obligation it requires good and efficient management for the fact the cash inflows and out flows are differently timed. Cash is the basic input and the ultimate output and is made up of currency and demand deposit, the latter being more important for many super market stores. Cash requirement tend to rise in proportion to the volume of transactions to ensure that the current liabilities are settled at the appropriate time, sufficient liquid assets should be maintained. Furthermore, there are other demands upon which the stores demand for cash such as cash payment of interest, dividend, and creditors for good supplied, repayment of the bank loans etc.

The importance of cash management cannot be over emphasized as the determination and maintenance of adequate cash or near – cash items (marketable securities) cannot be treated with indifference of those demand upon the Supermarket for cash are to be met as when due. How much of the cash or marketable securities is to be held at any point in time involve fundamental decisions to be considered in relation to the firm’s liquidity and its cash payment. Such decision can be influenced by the availability of profitable investment opportunity. The opportunity cost of keeping a high level of cash balance is the interest that could have accrued to the firm if the cash has been invested. Conversely, to maintain a low level of cash can force a firm to accept quite consideration constraints upon its freedom of action. What amount of cash balance should a firm keep? How can this amount of cash balance be arrived at? These are more similar questions, which can only be resolved by carefully examining the following issues. Why do companies or Supermarkets hold cash and marketable securities? What are the objectives of Supermarkets, which require cash management policy? What are the factors that can influence Supermarket’s level of cash balance? The study shall provide answers to the above questions and identify the benefits of operating a good cash management.

This study helps the reader to understand the pertinence of the of the study and to appreciate its importance to education. The researcher having observed that cash flow as its name suggest it is movement of money into and out of a business as goods are bought and sold. Therefore, cash flow management was developed in early part of the century, it was considered primarily as part of economics. Cash flow management system involves the system of cash flow statements, which on January 1st 1998; the Nigeria Accounting Standard Board (NASB) issued Statement of Accounting Standard (SAS NO 18). A statement of cash flow presents cash flows according to the activities, which gave use to them. This statement of cash flow includes all cash inflows and outflows of the firm. It should however exclude cash flows arising from the purchase and liquidation of cash equivalents. However, the following are the need for cash flow information. Financial statements usually provide information to help present and potential investors, creditors and other assets to access the profitability, liquidity, financial flexibility and risk of a Supermarket.

a. A statement of cash flows on its own will not provide all the information required by investors to access the profitability, liquidity, financial flexibility and risk of a particular firm. Much of this information will be provided by a combination of the balance sheet, profit and loss account and the statement of cash flows when taken together with related disclosure. b. The profit and loss account will provide information on profitability. Cash flow information adjusted to eliminate the leads and lags created by the allocations associated with accrual accounting, gives an indication of the relationships between earnings and cash flows and therefore of the quality of earnings. c. The balance sheet provides information on the structure of the assets, liabilities and equity of a firm at a point in time. d. Investors and creditors are interested in the ability of a firm to generate sufficient cash flow to pay dividends and interest on its equity and dept respectively on a sustainable basis.

The management is responsible for the inadequate cash flow in an Supermarket. The most important resources needed to establish and effectively run a business concern is cash but there are some obstacles towards it. Therefore, the problem of cash flow management lies on the following points:

a. Inadequate cash needed in a firm to meet its obligations or payment

b. Idle cash not invested to yield interest or income, which will increase profit of the firms.

c. Delay in the provision of cash would disrupt other activities that follow it.

d. Improper marketing of funds and activities would lead to a high cost of a loan is retired and a new one is raised for the same project.

e. Improper evaluation of projects would lead to losses that should be registered.

However, the following are the source of cash inflow in an Supermarket.

i. Profit before tax

ii. Profit on sake of fixed assets

iii. An adjustment not involving the movement of funds or cash

iv. Other sources of cash like proceed from fixed assets, issue of new shares etc.

v. Profit on sake of fixed assets

vi. An adjustment not involving the movement of funds or cash

vii. Other sources of cash like proceed from fixed assets, issue of new shares.

1.2 STATEMENT OF PROBLEM

The problem associated with the cash management in an Supermarket, which motivate the researcher to embark on is that without cash or where it is short supply the normal flow of operation of the cooperation erasure of being disrupted. However, cash is not directly productive, it is sterile. It neither produces goods for sales nor induces customers to buy as it is in the case of other assets like fixed assets, inventories and account receivable. As a result of this, the good cash flow management should maintain the right amount of cash. Without paying directly or indirectly for holing it and to invest excess cash in profitable ventures. Does the determination of these goods required accurate timing of cash flow and the amount of cash balance to be closely monitored? The problem that is also facing the finance manager is the difficult in.

Does the determination of these goods requires accurate timing of cash flow and the amount of cash balance to be closely monitored? The problem that is also facing the finance manager is the difficulty in timing of payment and receipts. The required cash flows do not coincide with cash outflows at other times more cash flows than in it receipts and payment period could be matched perfectly and forecast with certainty, then a firm would need no cash balance. Does shortage of cash contract prevent operations of the company, which usually manifest in the inability of the Supermarket or time to pay bill when due, and the dissipation of assets? Persistence of cash shortage can lead to financial insolvency, which may subsequently lead to liquidation of Supermarket.

Does too much cash that are not invested lead the Supermarket in paying directly or indirectly for the money that is not used? And does the Supermarket lose the opportunity of earning interest and runs and runs the risk of keeping the liquid asset (cash) due to mismanagement of cash flow. Does the determination of these goods requires accurate timing of cash flow and the amount of cash balance to be closely monitored? The problem that is also facing the finance manager is the difficulty in. Does improper evaluation of project lead to loses that would be registered in the Supermarket, which will be difficult to settle? Does the management face problem on how to maintain and control optimum cash balance sufficient to meet all payment despite the difficulties in cash flows throughout the financial period?

1.3 OBJECTIVES OF THE STUDY

Cash flow management is principally concerned like any other management process of planning and control. Although cash is the most vulnerable assets to theft in a firm, it is a surprising that there is completed lack of formalized cash management in many Supermarkets today, while some Supermarkets prepares cash budget at the beginning of their financial year without any following control mechanism and more over actual performance are not corresponding with the budget at the close of the period. Others rely on monthly bank reconciliation statement, which are often prepared late for management and management hardly see the weakness or breakdown in cash management system until cash problem arise. Therefore, the purpose or the intention of the researcher is;

i. To examine the existence of cash management system in a supermarket.

ii. To evaluate the impact of a good cash management system on the profitability of a supermarket.

iii. To determine the influence of cash management system on the growth of a supermarket.

1.4 RESEARCH QUESTIONS

i. Does cash management exist in supermarkets?

ii. To what extent does a good cash management system affect the profitability of a supermarket?

iii. What is the influence of cash management system on the growth of a supermarket?

1.5 RESEARC HYPOTHESES

Hypothesis I

Ho: Cash management does not exist in supermarkets.

Hi: Cash management exist in supermarkets.

Hypothesis II

Ho: There is no significant impact of a good cash management system on the profitability of a supermarket.

Hi: There is a significant impact of a good cash management system on the profitability of a supermarket.

Hypothesis III

Ho: There is no significant influence of cash management system on the growth of a supermarket.

Hi: There is a significant influence of cash management system on the growth of a supermarket.

1.6 SIGNIFICANCE OF THE STUDY

Cash inflows and outflows do not always smoothly over a period of time in a seasonal business cash-inflows be high over period of the year than others while some cash outflow are fairly constant (monthly salaries) while other (dividend taxation etc.) are usually paid in the year. This presents problem as the thing of the inflows and outflows do normally coincide this problem of how a firm can ensure that inflows are available in right amount and at the right time to meet obligatory cash outflows brings us to the significant management. The study is there aimed at improving the efficiency and effectiveness of cash management strategies in Supermarkets with a reference to HMEDIX Supermarket as case study. Cash is the life hold of any business. Without it, the firm dies as a result of this many businesses both small and large are not doing well.

Therefore, it is risks to be ignorant of the immense benefit of such a study if a firm must survive grows, and attain its objects. Also, the need for adequate cash for the firm is to enable the firm to maintain credit rating, take trade discount, and meet emergencies and take advantage of business opportunities. It is hoped that the findings and recommendations will assist Supermarkets and the business sector to appreciate the implementation and importance of efficient and effective cash management. Moreover, this study would help to indicate problems in cash management and suggest solutions so that such problem can be easily assessed and checked. HMEDIX Supermarket in particular would be in position to review its cash flow management strategy and improve its machinery for a more effective cash flow management.

1.7 SCOPE/DELIIMITATION OF THE STUDY

The study covers or concentrate on the information concerning the movement of cash or cash flows in Supermarket reference to HMEDIX Supermarket in FCT, Abuja. The main focus of the study is proper management of cash inflow and outflow over a particular period of time. The study can be generalized to other related companies for investment in their cash flow management.

1.8 LIMITATION OF THE STUDY.

In human endeavor, there must be some elements of which would deter him from accomplishing his or her set goals the accomplishment of the research is what GOD has ordained in spite of opposing problems from various angles. Effort was made in this study to carry out through research on the management of cash flows of Supermarkets especially HMEDIX Supermarket in FCT, Abuja. But the company official were reluctant to respond to interviews and questionnaire, therefore it is regarded as one of the constraint. Another constraint is time the research work was carried out alongside with the normal academic work, hence there was no enough time to make the research.

1.9 DEFINITION OF TERMS

For the purpose of clarity and understanding it is demanded to improve and to define some technical terms used in this project work.

CASH: This comprises of cash in hand and demand deposits dominated in Naira and foreign currencies.

CASH FLOW: this includes inflows and outflows of cash and cash equivalent.

CASH EQUIVALENT: are short term, highly liquid investments that are readily convertible to know amount of cash and, which are subject to an insignificant risk of changes on value. Generally, they are within three months for maturity (SAS 18).

MANAGEMENT: according to afford dictionary is the control and making of decisions in a business or similar organization.

CASH FLOWS STATEMENT: a statement that summarized the effect on cash of the operating, investing and financing activities of a company for a period” (Hermanson, Edward, and Rayburn, 1991 page 723).

BUDGETING: this is the process of using budget for planning and control A budget for planning and control. A budget, according to Hornigem et al (1987 page 39). Is a quantitative expression of plan of action and an aid to coordination and implementation

CASH BUDGET: according to (Abohi, 2001, page 29), is the quantization of a plan of expected receipts and payments of cash a period of time.

CONTROL: this is management action to ensure conformity wit plan or budget.

LIQUIDITY: this is the state of owing things of value that can easily be converted in to cash.

MARKETABLE SECURITIES: these are short – term debts instruments such as treasure bills, commercial certificate of deposit etc. which are easily convertible to cash.

MONEY MARKET: this is the completive market for securities with maturity of one yes or less.

OPPORTUNITY COST: rate of returns that would have been obtained from an alternative investment if it been accepted.

WORKING CAPITAL: this is different between current assets and current liability of a firm sometime it’s called net working capital.

INSOLVENCY: technically, insolvency occurs when a firm is unable to pay its bills as they fall due, legally insolvency occur when.

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