ROLE OF WORKING CAPITAL MANAGEMENT ON BUSINESS GROWTH
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ROLE OF WORKING CAPITAL MANAGEMENT ON BUSINESS GROWTH
Chapter one
INTRODUCTION
Introduction
According to Nyamao et al. (2011), working capital management, which aims to maintain an optimal balance between each of the working capital components, namely cash, receivables, inventory, and payables, is a critical component of the overall corporate strategy to create value and an important source of competitive advantage in businesses.
In practice, it has become one of the most important issues in organisations, with many financial executives struggling to identify the basic working capital drivers and the appropriate level of working capital to maintain in order to reduce risk, effectively prepare for uncertainty, and improve overall business performance.
The existence of effective working capital management practices can make a significant difference between an enterprise’s success and failure, and it is especially important to the managers of small-scale enterprises, because it is they who strive for finances, and the opportunity cost of finances is usually higher.
Efficient working capital management is critical to the success and survival of SSEs and must be adopted in order to improve performance and contribute to economic growth.
There is evidence that many small-scale organisations are not very good at managing their working capital, despite their substantial investments in current assets in proportion to their overall assets, which has contributed to their high failure rates when compared to large businesses.
According to him, the majority of small businesses do not have a credit control department, which means that both the experience and information needed to make effective sales decisions may not be available.
They also lack proper debt collection procedures, so they are more likely to experience late payment and default by debtors, which tend to increase when there is an exclusive concern for growth; in this case, small-scale enterprises may be hesitant to extend credit to customers with poor credit risks.
Working capital management is a critical component of corporate finance because it has a direct impact on a company’s liquidity, profitability, and growth. It is also important to the financial health of businesses of all sizes because working capital investments are frequently high in proportion to total assets employed.
It entails planning and controlling current assets and liabilities in a way that avoids the danger of failing to satisfy short-term obligations while avoiding excessive investments in these assets (Lamberson, 1995).
1.1 Statement of Problem
Despite their significant investments in current assets in relation to overall assets, many small-scale organisations struggle to manage their working capital, which is a major reason for their high failure rates when compared to large businesses.
According to him, the majority of small businesses do not have a credit control department, which means that both the experience and information needed to make effective sales decisions may not be available.
They also lack effective debt collection methods, which increases the danger of late payment and default by borrowers, who tend to increase where there is an exclusive focus on expansion.
Given the importance of good working capital management, this research project is being conducted to investigate the influence of working capital management on corporate organisations.
1.2 Objectives Of the Study
The aims of the study are as follows:
To analyse the impact of working capital management on business growth.
To determine the necessity for effective working capital management in corporate organisations.
Determine the relationship between working capital management and business productivity.
1.3 Research Questions.
To meet the aims of the study, the following research questions were developed:
What are the implications of working capital management for business growth?
What is the importance of excellent working capital management in business organisations?
How does working capital management affect corporate productivity?
1.4 Significance of the Study
The study’s significance lies in its capacity to help small and medium-sized businesses comprehend the notion of working capital management and its role in corporate growth and sustainability.
It will highlight the link between effective working capital management and organisational productivity. The research study is particularly significant since it will act as a resource for other researchers seeking information on the issue.
1.5 Scope and limitations of the study
– This study examines the impact of working capital management on business growth through a case study of selected small and medium-sized firms in Akwa Ibom State.
– Three variables, as specified in the research questions.
– Using a questionnaire to obtain data.
– Use descriptive statistics.
– Fifty respondents.
– The research was conducted using a survey design.
The following were the study’s limitations.
Financial factor: Inadequate money influenced data collection because the researcher had to travel vast distances to distribute and retrieve study questionnaire forms.
Time constraint: Because the researcher had fewer than two months to finish the study, the size of the sample used was reduced.
Material Factor: Limitations included a lack of appropriate resources for the literature review, as well as the study’s reliance on information acquired from primary and secondary sources.
1.6 Definition of Terms
Capital is money that can be utilised to develop more wealth.
Working capital refers to the money that a business has accessible for usage.
Management is the organisation and control of the affairs of a business or a division of a business.
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