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ASSESSMENT
OF WORKING CAPITAL MANAGEMENT PRACTICES
ABSTRACT
The main aim
of this study is to assess the working capital practices of Orange Group
Limited and determine whether such practices conform to the conventional
working capital practices; which offer competitive advantage, as expounded in
other literatures on this same topic. The study is purely qualitative in nature
so the descriptive and exploratory designs were used. The case study research
strategy was used in this study. The sample for the study comprises six (6) top
officers of the company who were sampled using the purposive or judgemental
sampling technique. The semi-structured interview was used to gather the data
for this study which were subsequently categorised into sub-groups with similar
themes. The themes were linked and inferences drawn to arrive at the
conclusions made in this study. The results from the study highlighted that the
kind of working capital policies adopted for an entity depends on the nature of
business of that entity. As a result different policies were in place for the
different Divisions of the company. The findings from the study show that
working capital management practices at Orange Group Limited in many aspects
conformed to the conventional working capital management.
CHAPTER ONE
GENERAL
INTRODUCTION
1.1
Background of the Study
Most studies
found in the literature of corporate finance are conventionally dealing with
the financial decisions that are long-term oriented. The most of such studies
examined structure of the capital, investment decisions, and dividend valuation
decisions related to the company. According to Sanger in Bagchi and Kharmrui
(2012, p. 1), working capital has always been ignored in financial
decision-making because it involves investment and financing in short-term
period and also acts as a restrain in financial performance, since it does not
contribute to Return on Equity (ROE). Most managers of business organisations
are inclined to focus more on long-term investment since those investments take
a chunk of the cash resources of their organisations.
In as much
as long-term goals provide focus and purpose for every business, these goals
must be broken down into short-term operational, workable and achievable
objectives for the organization to attain its mission. Short term financial
decisions relating to current assets and current liabilities should also be
equally important and should be analyzed carefully. The success of every
long-term investment heavily depends on how effectively that investment is
managed in the short-term.
Most of the
operations of a firm in the short run deal with the management of current
assets and current liabilities of the firm. Van Horn (2000) indicates that
working capital management involves the administration of current assets and
the financing (especially current liabilities) needed to support current
assets. Atril (2006. p. 386) also asserts that working capital represents a net
investment in short-term assets. These assets are continually flowing into and
out of the business, and are essential for day-to-day
operations.
Working capital is thus seen as the lifeblood of the business, the fuel that
funds the daily operations and ability to pursue near-term growth opportunities
for the business. Working capital is also defined as money tied up in the
business and used to finance its day to day needs, such as buying raw
materials.
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