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CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
Every organization or firm requires some level of financing. This applies to businesses already in
operation and those planning to start new businesses. Financing is a major area to be considered by
stakeholders (government, entrepreneurs, creditors etc among others).
It has become a foundation which all forms of businesses and organizations such as banks thrive on
for survival.
Financing is generally categorised as either equity or debt, due to its nature, I was more interested in
the type of equity capital called working capital.
Working capital is the money or capital available for the day to day operations of the business. It is
the money used to buy materials or goods for manufacturing or for resale. This is in direct contrast
with fixed capital, which is the money used to buy fixed assets such as buildings, plants, motor
vehicles etc. Working capital is usually defined as the net current assets consisting of stock, debtors
and cash minus current liabilities mainly trade creditors. The main sources of working capital are the
current assets as these are the short term finance that a firm can use to generate cash. However, firms
also have some obligation to fulfill and as such, careful consideration must be given to working
capital management.
It is vital for a business to have sufficient working capital to meet all its requirements. Most
businesses are not doing well as a result of poor working capital management. For businesses to
grow, it needs to be careful with how they manage their finances, especially the working capital.
Since an organization must have a sufficient amount of cash, debtors and stock, management must
give attention to working capital management.




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1.1 STATEMENT OF THE PROBLEM
The main driving force behind this research is to establish the practicality of running a business or an
organization with respect to the management of working capital of the business or the organization.
This research also seeks to enquire into how management professionally handles the issues of
working capital management in business organizations in Ghana.

1.2 HYPOTHESIS
It has been noted that the improper methods of bookkeeping have resulted in the folding up of many
businesses in the Ghanaian economy. Effective management of working capital will mean that
proper accounts will be kept by businesses or organizations which go a long way to have a positive
impact on working capital. This will help sustain business organizations to achieve their
organizational goals.

1.3 OBJECTIVE OF THE STUDY
The study is aimed at identifying the effectiveness of the management of working capital in Ghana.
The course of this study is to find ways to deal with proper working capital cycle within businesses
in Ghana which will help organizational growth.

1.4 THE SCOPE AND LIMITATION OF THE STUDY
The delicate nature of an organization working capital disclosure to Individual or group of people
who may have less or no interest in the business organization made it difficult for many thriving
businesses to release information that concern their working capital, so that I can form an opinion on
their working capital and its operation. Due to this reluctance, we focused on businesses such as
Banks and other Financial Institutions set up by individuals or group of people who were more
willing to help me to carry out this research study on working capital. The study covered present

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methods of managing working capital and the probable problems associated with working capital in
these organizations.
The limitations to this research include the limited time within which we were supposed to come up
with a credible study. There was also a financial constraint in gathering data and in-depth audit of
information given to ascertain its credibility.

1.5 SIGNIFICANCE OF THE STUDY
The project will help improve the working capital management of businesses not even banks only
but other financial institutions in Ghana by identifying the most suitable ways of managing working
capital. The research will help to determine and maintain the appropriate level of working capital
that maximizes profit by preventing excess or idle working capital and the shortage of working
capital. This will go a long way to improve the financial position of businesses in Ghana and also to
take proper management decisions. The project will also help individuals or group of people who
will do research on working capital management in future.

1.6 METHODOLOGY
There are different methods which were used in gathering the relevant information for the project.
These include;
Literature review and documentary research
Personal interviews
Submitted questionnaires
Published literature and financial reports was used for the study and background information as
guidance. In addition, a careful study of published reports and magazines of businesses was
reviewed for relevant information.
Other journals and brochures were obtained from the small scale businesses which were used as a
case study. Apart from the above, some relevant information and facts from the financial magazines,

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journals, The National Board for Small Scale Industries and the Ghana Stock Exchange was
consulted. Questionnaires were submitted to Adansi Rural Bank ltd and their management.
The facts gathered from documentary sources and responses received from interviews and submitted
questionnaires were collected to form the basis of this project.

1.7 ORGANIZATION OF THE STUDY
The study is structured or organized into five main chapters.
Chapter one shall mainly be concerned with a briefing about the study that is introducing the
research, statement of the problem, hypothesis, objectives of the study as well as the limitations and
the methodology.
Chapter two shall be devoted to reviewing past literature on earlier researches conducted by
individuals or group of people on working capital management.
Chapter three: In chapter three the population in the business organization shall be sampled to
obtain data based on the methodology being used which shall be analyzed to suit our research.
Chapter four: In this chapter we shall be concerned with evaluating the data at hand.
Chapter five: This is the stage where we draw our conclusion using the results obtained from these
business organizations in comparism with how theoretical the working capital of an organization
needs to be managed to ascertain how professionally these businesses are managing their working
capital.






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CHAPTER TWO
2.0 INTRODUCTION
The purpose of this literature review is to report on the previous work that others have done in the
area of the study which also focuses on relevant articles, journals and other relevant materials.
The review has been put under these sub headings:
Management of stock
Management of debtor
Cash management
Creditors control
Management of bank overdraft
According to Artill and Maclanuey (1994), the size and composition of working capital varies
between industries. For some businesses, the investment in working capital can be substantial, for
example a manufacturing company as compared with a retail business.

2.1 OPERATING CYCLE
The operating cycle is the length of time between the company outlay of raw materials, wages and
other expenditure and the inflow of cash from the sale of the goods. It is also known as the working
capital cycle which is the length of time that elapses between a business paying for its raw materials
and the business receiving payments from its customers for the goods made from the raw materials.
Nyarkoh K.O (in press).



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2.2 WORKING CAPITAL CYCLE OF A MANUFACTURER
A firm buys raw materials on credit. The raw materials will be held for some time in stores before
being issued to the production department and turned into finished products. The finished goods
must be kept in a warehouse for sometime before they are sold to customers. By this time, the firm
will have paid for the raw materials purchased. If customers buy goods on credit, it will take some
time before the cash from the sale is realized. Each activity takes some time. The time taken by each
activity is an element of working capital cycle. Nyarkoh K.O (in press)

2.3 MANAGEMENT OF STOCK
A firm needs a continuous supply of materials to ensure that production and sale of goods goes on
every day in order to maximize profit. Holding higher levels of stocks will enable the company to be
more flexible in supplying customers, even when there is an abnormal demand. More customers will
receive immediate delivery rather than waiting for new goods to be produced. There might be a
smaller chance of sales being delayed through interruptions in production. On the other hand,
keeping a high level of stocks brings in additional cost of financing in keeping stocks.
Stock management may be defined as keeping the optimum or the appropriate level of stocks that
will maximize the benefit of holding and minimize the cost of holding stock.
It is also the process of determining and keeping the appropriate level which will minimize the cost
of storing and also ensure that the firm does not run out of stock in other to maximize profit.
Keeping a minimum level of stock will release cash for future investment. Nyarkoh K.O (in press)

2.3.1 BUDGETS FOR FUTURE DEMAND
The best way a business can ensure that there is stock available to meet future sales, is to prepare an
appropriate budget. This budget should include each product that the business deals in. It is
important to make every attempt to ensure the accuracy of those budgets as they will decide future
ordering and production level. The budget may be driven in various ways. The budget may be

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developed using statistical techniques such as time series analysis or may be based on the judgment
of the sales and the marketing staff.


2.3.2 FINANCIAL RATIOS
The ratio that can be used to monitor stocks is the stock turnover period. This ratio is calculated as;
Stock turnover period = Average stock 365 days
Cost of sales

This will provide the basis to know the average period for which stocks are held and can be useful as
a basis for comparison. It is possible to calculate the stock turnover period for individual product
lines as well as for stocks as a whole. Shorter stock turnover period indicates how effective
management has worked hard to earn profit.

2.3.3 RECORDING AND REODERING SYSTEM
The management of stock requires a sound system of recording stock movement. There must be a
proper procedure for recording purchases. Periodic stock checks may be required to ensure that the
amount of physical stock held is consistent with the stock records. The authorization of both
purchases and the issue of stocks should be confined to a few senior staff which will help reduce
pilfering. To determine the point at which stock should be reordered, the information concerning the
lead- time (time between the placing an order and the receipt of the goods) and the likely level of
demand will be required.

2.3.4 STOCK MANAGEMENT MODELS
It is possible to use decision models to help manage stocks. The economic order quantity (EOQ) is
concerned with answering the question, how much stocks should be ordered. In its simplest form, the
EOQ models assumes that demand is constant so that stocks will be depleted evenly overtime and

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will be replenished just at the point that stocks runs out. The most used method of stock
management is;
JUST IN TIME (JIT) STOCK MANAGEMENT
In recent years, some manufacturing industries have tried to eliminate the need to hold stock by
adopting just in time stock management. This method was first used by the US defense industry
during World War II and in more recent times. It has been widely used by the Japanese business
men. The essence of JIT is, as the name suggests, to have suppliers delivered to a business just in
time for them to be used in the production process. By adopting this approach, the stock holding
problems rest with the suppliers rather than the business itself. For this approach to be successful, it
is important that the business inform suppliers of its production plans and in turn deliver materials of
the right quantity at the agreed time. Failure to do so could lead to a dislocation of production and
could be very costly. Thus, a close relationship between a business and its suppliers is required.
Though a business will not have to hold stock, there may be certain cost associated with JIT
approach. Finally, the close relationship is necessary between the business and its suppliers may
prevent the business from taking advantage of cheaper source of supply if they become available.
The philosophy underlining this method is concerned with eliminating waste, and striving to deliver
goods. There will be no expectation that the production process will operate at maximum efficiency.
This means that there will be no production breakdowns. Whiles these expectations may be
impossible to achieve, they do help to create a management culture that is dedicated to quality
service.

2.4 MANAGEMENT OF DEBTORS
Debtors come about when an organization decides to sell goods on credit to customers. Selling
goods on credit results in, cost accruing to the business in the form of bad debt, opportunity foregone
in realizing cash promptly and others.
When a business decides to sell goods and provides services on credit, it must have clear policies
concerning;
1. Type of customers to sell goods on credit to.
2. Setting credit limit

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3. Conditions attached to sales
4. Means of cash collection to be adopted.
It is important to note that cash flow is very significant especially when collected at a faster rate. It is
also important for every business to know their debtors, how much is involved and for how long it is
standing in the books.
2.4.1 RELATIONSHIP BETWEEN PROFIT AND LATE RECEIPT OF CASH
Late receipt of cash as a result of offering credit sales has a crippling effect of rendering a business
cash trapped. This is much felt among industries whose sources of finance are not strong, thereby
uncontrollably, allowing the business to be managed according to the inflow of cash as it occurs. In
business finance, it is advisable to manage debtors of the business. The following measures could be
adopted in dealing with trade debtors;
1. Set up credit limit for each customer.
2. Ensure that the credit sales are within the set limit.
3. Immediately after credit sales prepare a sales invoice.
4. Send a reminder at frequent intervals
5. Threaten difficult customers with court action
6. Take court action if persuasion fails
7. Factor the debt after invoicing
Factoring as an alternative to debt retrieval, is the sale of debt or the amount owed by a debtor to a
third party called the factor at a discount in return for prompt cash (immediate payment). In
factoring, there can be a factor with a recourse where the supplier bears the risk of bad debt for debt
not been paid or a factor without recourse in this case the factor or the third party bears the risk of
bad debt. Nyarkoh K.O (in press)




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2.4.2 DETERMINING RELIABLE CUSTOMERS
An organization which cannot erode selling on credit must plan efficiently and effectively on how
to retrieve monies owed from debtors. It is important to take the following factors into
consideration;

CAPITAL STRUCTURE
When a business is considering proposals from a customer to sell on credit, it is important to access
the capital base of this customer to be sure of how sound they are financially. It is advisable to
access the profitability and liquidity of the customer. In addition any major financial commitments
of the customer must be taken into consideration (standing orders, etc)
CAPACITY
The customer must have the capacity of paying their debt. Where possible, the credit record of the
customers must be examined. If the customer is already in operation, looking at the physical and
operational resources of the business will be relevant for forming a justifiable opinion about the
business.
COLLATERAL
It is more relieving to have a form of security for goods supplied on credit. When this occurs, the
business is convinced that the customer is reliable and as such goods can be sold on credit to
customers without fear of being deprived of their money. It also gives the assurance of doing away
with bad debt.
CREDIT WORTHINESS OF A CUSTOMER
It is important to access the credit worthiness of a customer with reference to past dealings of the
customer with your organization or your competitors. Once the customer is considered to have a
good record, then goods can be supplied to the customer without any fear.
CREDIT PERIOD
The business must determine the credit period it is prepared to offer to its customers. The duration
of credit offered can vary significantly between businesses and is influenced by factors such as:

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1. The degree of competition within the industry
2. The bargaining power of a particular customer
3. The risk of non- payment
4. The capacity of the business to offer credit, and others.

CASH DISCOUNT AND INTEREST ON DEBT
The organization can decide to offer cash discount as a means of encouraging prompt payment from
its customers. The amount of cash discount given can influence whether to purchase on credit or not,
from the organizations point of view it is important to weigh the cost of offering discount against the
likely benefit derived from financing debtors.
Charging interest on overdue debts can also be a stringent measure to collect cash from debtors, but
it is also important to note that, this is mostly possible when the organization sells a peculiar product
in the area to avoid loss of customers

2.5 DEBT COLLECTION POLICY
The organization offering credit must ensure that the amount owing is collected as quickly and
efficiently as possible. An efficient collection policy requires an efficient accounting system.
Management can monitor the effectiveness of cash collection policies in a number of ways. One
method that is commonly used in most businesses is the determination of the debtors collection
period. It is calculated as;
Debtors collection periods = Trade debtors 365days
Credit sales

This ratio is useful but not 100% reliable since it gives the average days within which debt will be
realized useful in budgeting.



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2.6 MANAGEMENT OF CASH
Cash management is concerned with optimizing the amount of cash available to the entity or the
company and maximizing the interest on any spare or idle funds not required immediately by the
company.
In other words cash management involves making sure that business always has enough cash on
hand to meet its bills expenses and other day-to-day activities and also invest surplus cash for profit
and interest. There are three motives of holding cash. These are;


2.6.1 TRANSACTIONARY MOTIVE
To meet the day-to-day commitments, a business requires a certain amount of cash that will take
care of their daily transactions. Cash has been described as the life blood upon which most
businesses thrives on.

2.6.2 PRECAUTIONARY MOTIVE
Future uncertainty of regular cash flow is a factor to consider in cash management. To curtail any
incidental spending, it is advisable to hold a cash balance on hand as a precautionary measure.

2.6.3 SPECULATIVE MOTIVE
A business may decide to hold cash in order to be in a position to exploit profitable opportunities as
and when they arise, by holding cash a business may be able to enter into a new market that open up,
which may require an immediate entry. Ray Powell (1989)




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2.7 CONTROLLING CASH BALANCE
Several models have been proposed to help control the cash balance of a business. One of such
models proposed the use of upper and lower control limits for cash balances and the use of a target
cash balance. The model assumes that the business invest in businesses that can easily be turned into
cash. The business proposes two limits thus the upper and the lower. If the business exceeds the
outer limit then management decide whether the cash balance is likely to return over the following
few days to a point within the inner control limit set. If this seems likely, then no action is required.
If on the other hand this seems unlikely then management must change the cash position of the
business by buying or selling marketable securities or simply by borrowing or lending.


Y

80 outer limit
Higher
60
(%)
40
Lower
20 inner limit

0 1 2 3 4 5 6 7 8 x
The graph depicts a model for controlling the cash balance that relies on the use of inner and outer
control limits. Where outer control limits are breached and there is no prospect of an early return to a

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point within these limits, management must take action. A breach of a higher limit will involve
buying marketable securities (to ensure that cash is not lying idle) a breach of the lower limit will
involve selling marketable securities to ensure there is sufficient cash to meet obligation.
There are other models that do not rely on management judgment and we use quantitative techniques
to determine an optimal cash balance.




2.7.1CASH BUDGET
To manage cash effectively, it is important for business to prepare a cash budget. Cash budget is a
statement which shows the expected cash to be received and paid as well as the expected cash
balance for each day, month or in future. Cash budget is a very important cost control mechanism for
both planning and control purposes. It is worth repeating the point that cash budget enable managers
to see the expected outcome of planned events. The cash budget will identify periods when cash
surpluses are expected.

2.7.2 THE OPERATING CYCLE
When managing cash, it is important to be aware of the operating cash cycle of the business. This
may be defined as the time period between the outlay of cash necessary for the purchase of stock and
the ultimate receipt of cash from the sale of goods. The operating cash cycle of a business that
purchase goods on credit for subsequent resale are shown diagrammatically:






Purchase of
goods on credit

Payment for
goods
Sale of goods on
credit

Cash received
from debtors
Stock holding
period

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The diagram shows that goods purchased on credit will be paid for at a later date and so no
immediate cash outflow will occur. Similarly, credit sales will not lead to an immediate inflow of
cash. The operating cash cycle is the period between the payments made to the supplier and the cash
received from the customer. The operating cash cycle is important because it has a significant
influence on the financial requirements of the business. The longer the cash cycle, the greater the
financial requirements of the business and the greater the financial risk. For this reason, the business
is likely to reduce the operating cash cycle to the minimum possible period.
2.7.3 MANAGEMENT OF TRADE CREDITORS
Running an organization on credit terms has its own advantages and disadvantages. Trade credit is
an important source of finance for most businesses. Buying on credit helps delay the payment of
cash thereby allowing the organization to invest cash in other sectors of the economy to attract
interest before paying out. In a situation where demand exceeds supply, trade creditors are given less
attention as compared to those who pay prompt cash. In addition customers who buy goods on credit
are less favored in terms of payment periods. Sometimes the goods or services may be more costly if
credit is required. However, in most businesses trade credit is the norm and as a result, credit
facilities are sometimes abused by customers leading to bad debts.

2.7.4 MANAGEMENT OF BANK OVERDRAFTS
Bank overdraft is short term finance whereby the business is allowed to withdraw money more than
what is in its bank account. It is a flexible form of borrowing and is cheap relative to other sources or
finance. Although in theory, bank overdraft is a short term source of finance, in practice it can
extend over a long period of time. This is because many businesses continually renew their overdraft
facility with their banks. Though renewal may not be a problem there is always the danger that the
bank will demand repayment at a short notice as it has the right to do so.
If the business is highly dependent on bank overdraft, other alternative sources of short term
finance, this could raise several problems. When considering whether to have a bank overdraft, the
Operating cash
cycle

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business should first consider the purpose of the borrowing. Overdraft is most suitable for
overcoming short term funding problems (for example increase in stockholding requirement owing
to seasonal fluctuations). To determine the amount of overdraft facility, the business should produce
a cash budget. There should also be regular reporting of cash flows overtime to ensure that the
overdraft limit is not exceeded.







CHAPTER THREE
METHODOLOGY AND COMPANY PROFILE
3.0 INTRODUCTION
This chapter describes the method employed in the conduct of the research. It contains research
framework, data collection instruments and methods of data analysis. The study was designed to
investigate how small scale businesses manage their working capital.

3.1 RESEARCH FRAMEWORK
The research was conducted using a case study approach.
A case study is a type of research which gives an opportunity on one aspect of a problem to be
studied in-depth.





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3.2 DATA COLLECTION INSTRUMENT
The research was conducted using a self constructed questionnaire in collecting the data needed for
the study. The questionnaire was used because people were able to express their opinion objectively
and the cost involved was low. It also allowed the respondents enough time to answer the questions.

3.3 DATA COLLECTION METHOD
The questionnaire were collected back and compiled together for in-depth assessment. Attention was
given to the organization of study to allow management suggests possible corrections that must be
done to enable the provision of a credible report of the organization.
Due to this, alternative questionnaire was design to meet the correct format needed to establish the
true report attained from the answers.
The questionnaire covers areas like the financial inflows and outflows of cash, how deficits are
financed and how revenue is generated from excess funds.

3.4 METHODS OF DATA ANALYSIS
The researcher used descriptive statistics in analyzing the data collected. The responses were
analyzed and presented mainly in narrative form. However, some quantitative tools such as
percentages and averages were used in the analysis. The findings were illustrated by the use of tables
and charts.

3.5 SAMPLING PROCEDURE
A purposive sampling and snowballing was used and with a population size of sixty. The views
concerning working capital management were sought and used in the analyses of the study.



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3.6 PROFILE OF ADANSI RURAL BANK LTD
Britak steel complex was incorporated in 5th April, 1998 and a certificate to commence business on
29
th
October, 1998. They manufacture all kinds of Prepainted and Plain Aluzinc, Galvanised
Chromadex, Aluminium Roofing Sheets and Wire Nails. Britak steel complex is located at krapa
near Ejisu off Kumasi Accra road. Britak steel complex is among one of the best providers of
building materials in the Kumasi metropolis and beyond.






3.7 ORGANIZATIONAL CHART OF BRITAK STEEL COMLEX










Managing
Director
Production
Manager
Finance &
Administration
Sales &
Marketing
Manager
Human Resource
Manager
Head Quality
Surveyor
Accountant
Account Clerk
Cashier
Production Staff
Factory
Supervisor
Sales Staff Estimators

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Source: Secondary-Researchers Fieldwork







CHAPTER FOUR
WORKING CAPITAL MANAGEMENT AND ITS IMPACT ON THE SOURCES OF
FINANCE IN GHANA
4.0 INTRODUCTION
The study was designed to investigate how small scale businesses manage their working capital and
its impact on the sources of finance. The research was conducted in the Ashanti Region of Ghana. A
total number of sixty (60) respondents were interviewed. The purposive sampling and snowballing
techniques were adopted to obtain responses.
4.1 BACKGROUND OF RESPONDENTS





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4.1.1 Gender
Table 4.0 Gender of Respondents

Frequency Percentage
Male 39 65
Female 21 35
Total 60 100
Source: Field Survey, 2009
Table 4.0 above depicts that there were more males interviewed than females. Out of the total
sample size chosen (that is 60 respondents), 65% of the respondents were males with females taking
up the remaining 35%.4.1.2 Age Range
Out the total respondents, thirty-six (36) were between the ages of 18-39, twenty-three (23) of them
between the ages of 40-59 and the remaining one (1) above 60 years as evidenced in table 4.1 below.
Table 4.1 Age Range of Respondents

Frequency Percentage
18-39 36 60
40-59 23 38.3
60 and above 1 1.7
Total 60 100
Source: Field Survey, 2009
4.1.3 Educational Background of Respondents
Since education has now become a prerequisite for jobs, all of the respondents had some level of
education. 30% of the respondents had a degree, 38.3% had HNDs, 20% of the respondents were
SSS leavers, and 1.7% of the respondents had their masters degree.



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Table 4.2 Educational Backgrounds of Respondents

Frequency Percentage
SSS 12 20
HND 23 38.3
Degree 18 30
Masters 1 1.7
not applicable 6 10
Total 60 100
Source: Field Survey, 2009



4.1.4 Occupational Breakdown of Respondents
Most of the respondents were in the following departments in their companies; management,
finance and sales departments, twenty-four (24) of the respondents were found at the management
level, twenty-one (21) respondents were in the finance department, and the remaining fifteen (15)
respondents were found in the sales department. The respondents were taken from different
departments in other to have divergent views from the respondents. This is better illustrated in
figure 4.0 below.

Figure 4.0 Occupations of Respondents

Source: Field Survey, 2012
The respondents held various positions such as; managerial which made up 45% of the respondents
whose main duties at their work places were administrative; 30% of the respondents were sales
assistants tasked mainly with selling of their companies products and services; 15% were cashiers,
who were mainly responsible for receiving and paying monies and the remaining 10% were

22

accountants also assuming administrative and monitoring roles in their various departments as
shown in table 4.3 below.







Table 4.3 Positions of Respondents In Their Organizations

Frequency Percentage
Managerial 27 45
sales assistant 18 30
Accountant 6 10
Cashier 9 15
Total 60 100
Source: Field Survey, 2009
All of the respondents claimed that, their institution have a finance department as evidenced in figure
4.1 below. This showed that almost all respondents worked in a well structured institution.

Figure 4.1 Presences of Finance Departments In Institution




Source: Field Survey, 2012

4.1.5 Respondents Views about Working Capital Management

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The respondents when asked how they would define working capital management came out with the
following definitions; twentyseven (27) of respondents defined working capital management as
managing invested capital to yield expected results; twenty-four (24) of the respondents defined it as
proper management capital invested, debts incurred, and profit accrued; the remaining nine (9)
respondents defined it as managing finances in the company.
Source: Field Survey, 2012
Out of the total respondents, 70% were of the view that working capital management was necessary.
The remaining 30% of the respondents were of the view that working capital management was not
very necessary as shown in table 4.4 below.
Table 4.4 Is Working Capital Management Necessary

Frequency Percentage
Yes 42 70
No 18 30
Total 60 100
Source: Field Survey, 2009
Some of the reasons given by the respondents for asserting that working capital management is
necessary are;
i. It helps in selling the products faster and easier.
ii. Helps in ascertaining profit and loss in the business.
iii. It helps in managing stocks.
iv. It is the basis for growth of companies.
v. It helps the company meet set objectives.
Out of the total respondents, 60% claimed that trade credit was the main form of financing that their
organizations operated. They claimed that it was the simplest and easiest form of financing, 20%
stated that their organizations operated on short-term securities whiles the remaining 20% asserted
that their organization operated on long-term securities as evidenced in figure 4.3 below.
Figure 4.4 Financing Options of organization

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Source: Field Survey, 2012
Most of the respondents claimed that the means by which their organizations acquire fixed assets
was through real cash. 50 % of the respondents were of that view. The main reason they gave was
that the company did not want to owe any other organization. 35% of the respondents claimed that
their organization acquired fixed assets through credit, 10% of the respondents claimed their
organization acquired assets through leasing as shown in Table 4.5 below.
Table 4.5 Means of Acquiring Assets

Frequency Percentage
Credit 21 35
Cash 30 50
Hire purchase 3 5
Leasing 6 10
Total 60 100
Source: Field Survey, 2012

Out of the total respondents, 75% of them claimed that their organizations sold on credit to their
clients twenty-four (24) respondents claimed that when they sell on credit to customers, they are paid
back within less than one (1) month; eighteen (18) of the respondents claimed that their debtors paid
back between 1-3 months; three (3) respondents claimed that even given them the benefit of the
doubt there is still non-payment from the customers as shown in figure 4.5 below.
Figure 4.5 Length of Debtors Pay Back

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Source: Field Survey, 2012
Out of the total respondents, 40% of the respondents claimed that the credit limit for their customer
was less than a month; 30% of the respondents claimed that the credit limit for their clients was
between two-three months and the remaining 30% between four-six months as shown in table 4.6
below.
Table 4.6 Customer Credit Limit

Frequency Percentage
less than a month 24 40
2-3 months 18 30
4-6 months 18 30
Total 60 100
Source: Field Survey, 2012
The remaining 25% of the respondents claimed that their organization did not sell on credit to
customers. They claimed that they did not sell on credit to their clients because most of their clients
0
5
10
15
20
25
30
less than 1 month 1-3 months non payments not applicable

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refused to pay up. All the respondents claimed that records of customers and creditors were kept in
their organization.
Out of the respondents, 75% asserted that their organizations permitted advance payment from the
customers. 10% out of the 75% respondents stated that the advance payments received from the
customers enabled their organizations have enough circulating funds which helps the company run
better, the remaining 15% claimed that the advance payments they received from the customers
helped made their business run easier.

The remaining 25% claimed that their organizations did not accept advance payments although no
reason was given for that.
When asked about the means through which overdue debt was collected, 55% of the respondents
claimed that the debtors were issued with a debit note from their organization stating the amount
they owe and when they are to pay the amount, 15% claimed that their outfit wrote formal letters to
their debtors indicating their debt, another 15% stated that they wrote to their debtors through their
lawyers and the remaining 15% asserted that they gave their debtors enough time to come and pay
their debt as indicated in figure 4.6 below.
Figure 4.6 Mode of Collecting Overdue Debt



Source: Field Survey, 2012
45% of the respondents stated that their outfits receives stock from their creditors monthly and their
creditors or suppliers are also paid monthly, 25% of the respondents claimed that their companies

27

receive stock weekly and their suppliers are also paid monthly, 30% of the respondents claimed that
they were supplied by their creditors daily.

Out of the total respondents, 55% claimed that their companies were not listed on the stock market
with the remaining 45% of the respondents claiming that their institutions were listed on the stock
market with their organization dealing in shares.
Out of the 60 respondents, 42 of the respondents claimed that their institutions had access to bank
loans, this they claimed was possible because of the good relations their institutions had with their
bankers, with only 18 respondents asserting that their institutions did not have access to bank loans
as shown in figure 4.7 below.

Figure 4.7 Access to Bank Loans









Source:
Field
Survey,
2012
Only 20% of the respondents asserted that their organizations disposed off assets for cash when they
were really in dire need for money, whiles the remaining 80% claimed that their company did not
dispose assets for cash as shown in figure 4.8 below.
0
5
10
15
20
25
30
35
40
45
Yes No

28





Figure 4.8 Disposals of Fixed Assets





Source: Field Survey, 2012

In respect to organizations being able to meet their budget, only 5% of the respondents claimed that
their company could not reach their budget. The remaining 95% of the respondents affirmed that
their institution were able to meet their budget as shown in table 4.7 below.
Table 4.7 Ability to Meet Budget

Frequency Percentage
Yes
57 95
No 3 5
Total 60 100
Source: Field Survey, 2012

The following reasons were given by the respondents for their companys ability to meet their
budget;
i) The company is objective oriented.
ii) The institutions have determined workers.

29

iii) Determination
iv) The institutions are customer oriented.
All sixty (60) respondents representing 100% asserted that their organizations were able to generate
profit from their respective business fields. 40% of the respondents claimed that their companies
ploughed back into the business, 25% of the respondents asserted that their companies invested their
profit in the stock market, 20% of the respondents claimed that their organization purchased fixed
assets with their profit and the remaining 15% of the respondents declared that the profit from their
organizations are invested in other companies, as shown in table 4.8 below.
Table 4.8 Management of Profit

Frequency Percent
Plough back profit 24 40
Invested in other businesses 9 15
Invest in stock market 15 25
Purchase fixed assets
12 20
Total
60 100
Source: Field Survey, 2012
65% of the respondents claimed that their outfits had access to bank overdraft which bails the
companies out when ready cash is needed. Out of the 65%, nine (9) of the respondents claimed that
their companies overdraft limit ranged between 5,000-19,000 Ghana cedis; three (3) claiming
overdraft limit above 40,000 Ghana cedis and only one (1) asserting overdraft limit ranging between
30,000-39,000 Ghana cedis as shown in figure 4.9 below:


Figure 4.9 Overdraft Limits of Organizations

30


Source: Field Survey, 2012
When asked how the respondents companies financed deficits, it was revealed that;
i) Dividends received from investments were used to finance deficits.
ii) Some respondents claimed that their institutions took loans to help clear deficits.
iii) Bank overdrafts were identified as another method used by some institutions to clear their
deficits.
iv) Four of the respondents also claimed that in times of serious deficits, the owner of the
company cleared the deficit through his own means.







CHAPTER FIVE
0
5
10
15
20
25
30
5,000-19,000
Ghana cedis
30,000-39,000
Ghana cedis
above 40,000
Ghana cedis
not applicable

31

CONCLUSION AND RECOMMENDATION
5.0 INTRODUCTION
All business organizations face some level of financial problems. It is for this reason that these
businesses must be more concerned about the management of their working capital. This chapter
focuses on conclusion and recommendation on the working capital problems of Adansi Rural Bank
Limited to know the path to take when managing their working capital.

5.1 CONCLUSION
The management of working capital has been a major constraint to most business organizations in
Ghana and Adansi Rural Bank is no exception. Most business has collapsed due to the misuse of
working capital. Conclusions of this work were based on questionnaires, interviews and personal
observations of all activities concerned with the management of working capital in Adansi Rural
Bank. Although Adansi Rural Bank has qualified personnel who manage the activities of the
company, investigations revealed the following areas which require much attention with respect to
working capital management.
Field survey (2012) page 27 of this work revealed that Adansi Rural Bank Limited bank
borrowings of 20% exceed the companys personal savings of 10%. This explains the
companys means of financing their deficit, which affect the working capital of the company.
The over dependency on bank borrowings as a major source of finance for Britak Steel
complex will affect their working capital management. The company does not save enough
to attract interest for some period of time. The banks will be reluctant to grant them loans
which must be paid with interest at some time to come or institute very stringent policies in
acquiring loans by the company.
It was revealed through personal observation that low level management of Britak Steel
Complex Limited keeps singleentry records of bookkeeping. This will adversely affect the
working capital of the company because the amount of working capital needed at a time will
not be known accurately.

32

There is no separation between finance and administration in the organizational structure of
Britak Steel Complex Limited (Fieldwork, page 18 of this work). Vital information relating
to either finance or administration can be easily leaked to wrong hands.

5.2 RECOMMENDATION
Working capital represent a net investment in short term assets. These assets are continually
flowing in and out of a business and are essential for the day-to-day operations. The various
elements of working capital are interrelated and can be seen as a short-term cycle which is an
essential part of a business short-term process. Management must decide how much of each element
of the working capital should be held. Management must be aware of these costs in order to manage
effectively. Management must also be aware that there may be other more profitable uses for the
funds of the business. Hence, the potential benefit must be weighed against the likely cost in order
to achieve the optimum investment. The working capital in a particular business is likely to change
overtime because of changes in the commercial environment.
This means that working capital decisions are rarely one-off decisions. Management must ensure
that, the level of investment in working capital is appropriate.
In conclusion, there is the need for commitment by the management of Britak Steel Complex
Limited in their approach to manage working capital effectively. Management of Britak Steel
Complex Limited (especially the finance and administration department) must be willing to put in
place measures that will help prevent loss of funds to the company.
In line with this, these recommendations were provided by the researcher but not limited to the
following:

Britak Steel Complex Limited must separate its finance department from the administration.
These two departments perform different tasks and must not be merged. The separation will
help the departments to focus on matters of finance and administration respectively.
Information relating to either finance or administration will not fall into the wrong hands.

33

Britak Steel Complex Limited must endeavour to keep double entry records in the lower
management level. Since the company has professionals at the middle level which lower
level management report to, the middle management (particularly the finance department)
must be willing to aid the lower management to keep double entry records.
Britak Steel Complex Limited must establish institute an internal audit department to serve as
a watch dog on the finance department. This will help in proper accountability and
transparency with respect to working capital of the business. External auditors who mostly
rely on internal auditors will obtain the right information about finance to form their opinion.
Britak Steel Complex Limited over relies in bank borrowing. The company must strengthen
the other alternative sources of finance available to them. This means that when banks are
unable to fulfill their borrowing requirements, there will still be other sources available to
meet their financial needs particularly their working capital.











REFERNCE

34

Artill, Peter, Maclaneuy and Eddie; 1994. Management for Non-Specialist, 3
rd

Edition, Prentice Hall, Page 345.
Nyarkoh K.O; Business Finance for students (in press).
Powell R; 1989. Economics for Professional and business studies, 1
st
Edition.
London: DP Publication Ltd.
















APPENDIX
QUESTIONNAIRE

35

TOPIC: MANAGEMENT OF WORKING CAPITAL IN BUSINESS ORGANIZATIONS
AND ITS IMPACT ON THE SOURCES OF FINANCE IN GHANA
NOTE: This research is purely for academic purposes and information given will be treated with the
necessary confidentiality. Please tick as applicable and provide relevant explanation where
appropriate.
1. Sex male [ ] female [ ]

2. Age 18 39 [ ] 40 59 [ ] 60 and above [ ]

3. Level of qualification:
SSS [ ] HND [ ] DEGREE [ ] MASTERS [ ]
If any other, please specify
.

4. What department do you work under?
..................................................................................................

5. What is your current position in the organization?
..

6. What role do you play in your department?
......



7. Does your organization have a finance department?
YES [ ] NO [ ]

36

If no to question (7), which department deals with financial matters in the organization?
..

8. In your view, what do you think is the meaning of working capital management?
..................................................................................................................................................................

9. Do you think working capital management is necessary in your organization? YES [ ] NO [ ]

10. Please give reasons to question (9)

11. What form of financing does your organization operate?
Trade credit [ ]
Short -term securities [ ]
Long-term securities [ ]
If any other, please specify

12. What is the means of acquiring assets in the organization?
Credit [ ] Cash [ ] Hire purchase [ ] Leasing [ ]
If any other, please specify ................................
13. Do you sell on credit? YES [ ] NO [ ]
If yes, how long does it take for debtors to pay back?

37

1-6 days [ ] 1 week [ ] 2 weeks [ ]
1 month [ ] 2 months [ ]
If any other, please specify.

14. Do you keep records of customers and creditors?
YES [ ] NO [ ]

15. What is the customers credit limit? .................................................................................................


16. Do you permit advance payments from customers?
YES [ ] NO [ ]
If yes, what benefit do you derive? ...

17. What means do you adopt in collecting overdue debts?
.
.



18. How often do you receive stock from your creditors?
Daily [ ] Weekly [ ] Monthly [ ]

38

If any other, please specify................................

19. How long does it take to pay your creditors?
Days [ ] Weeks [ ] Months [ ]
If any other, please specify ...

20. Is your company listed on the stock market?
YES [ ] NO [ ]
If yes, what do they deal in?
Shares [ ] Debentures [ ] Government bonds [ ]
If any other, please specify ..

21. Does your organization have access to bank loan at all times?
YES [ ] NO [ ]

22. Does the organization dispose of fixed assets for cash?
YES [ ] NO [ ]


23. Is the organization able to meet its budget?
YES [ ] NO [ ]

39

Give reasons................................

24. Are you able to generate profit? YES [ ] NO [ ]
If yes, how does the organization manage profit? ................................


25. Does the organization have access to bank overdraft?
YES [ ] NO [ ]
If yes, what is the limit? .....................................................................................................................

26. How do you finance your deficit?
..
..

27. Does the organization factor debt?
YES [ ] NO [ ]
If yes, is it; re-course [ ]
Or non recourse [ ]