A CASH MANAGEMENT IN A SUPPER MARKET STORE
ABSTRACT
The most important resource needed to established and effectively run a business certain cash. A company’s cash requirement are planted out in the form of cash flow statement cash flow statement provides information about cash receipt and cash payments of an enterprise over a given period of time. It indicates the pattern of cash generation and utilization. It reveals how cash is generated from operation and how payment are made such as taxes, dividends and debts. The knowledge go a way in determine the financial strength of that enterprise. The work of others had done research textbooks, journals, hand-outs, seminar, workshops and conference were reviewed in course of this project. The research instrument used in respect of this study is questionnaire and interview question are design on close ended format to enable the respondent provides answers to questionnaire easily and to make it very easy for the researcher to control and analyze responses. It was also observed that with cash management strategies such as cash planning managing cash flow, investing surplus cash of idle cash and keeping optimal cash balance etc contributes effectively in cash flow management.
CHAPTER ONE
INTRODUCTION
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 industry 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 industries hold cash and marketable securities?. What are the objectives of industries, which require cash management policy?. What are the factors that can influence industry’s level of cash balance? The study shall provide answers to the above questions and identify the benefits of operating a good cash management.
1.1 BACKGROUND OF THE STUDY
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 an industry.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 industry. 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 industry.
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 industry, 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 ne 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 industry 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 industry.
Does too much cash that are not invested lead the industry in paying directly or indirectly for the money that is not used? And does the industry 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 looses that would be registered in the industry, 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.
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