THE IMPACT OF INTERNAL AUDIT ON MANAGEMENT DECISION (A CASE STUDY OF NASARAWA LOCAL GOVERNMENT COUNCIL)
ABSTRACT
ABSTRACT
For the successful working of
any business organization like Dangote Flour Mills Plc, fixed and current asset
play a vital role. Management of working
capital is essential as it has direct impact on organizational performance. An
attempt has been made in this research work to study the working capital
components and the effects of working capital management on organizational
performance of Dangote Flour Mills Plc. The research also makes an attempt to
study the correlation between the assets of the organization and their
organizational performance. The study is based on a secondary data collected
from annual reports of Dangote Flour Mills Plc for the study period of 2002 –
2004. The ratio analysis, percentages method and coefficient of correlate have
been used to analyze the data.
CHAPTER ONE
1.1
BACKGROUND OF THE STUDY
Working capital
is an important issue during financial decision making since it has being part
of the investment in asset that requires appropriate finance in investment.
However, working capital always being this regard in financing decision making
since it involve investment and financing short term period. Also organization
cannot over-rule the indispensability of an orderly organized system needed to
account for their activities of the organization. Suitable systems for each
organization are therefore designed in accordance with the outlined or tasted
goals and objectives.
However, the
basis for choice and decision making which is invariably a function of
organizational performance could be narrowed down to the provisions of working
capital management. Furthermore it could be divulged in time past that the structure
of working capital developed was a response to the natural demands of Dangote
Flour Mills Plc in Nigeria the crucial part in managing working capital
management is required, maintaining its liquidity in day to day operation to
ensure its smooth running and meets its obligation (levelly 2004) yet this is
not a simple task since managers must make sure that business operations is
running in efficient and profitable manner. There are the possibilities of
mis-match of current asset and current liability during the process. If this happens
and firm’s managers cannot manage it properly then it will affect firm’s growth
and profitability. This will further lead to financial distress and finally
firms can go bankrupt. The performance of an organization could really be seen
from its communicated information juxtapose with the highlighted aims and
objectives. This communicated information is a conclusion of a working capital
management which serves as a basis in the collection, processing and reporting
of data. The relevance of information generated is very essential as this
serves as pivotal factor in organizational performance.
According to
Van Horne (1977) working capital management is the administration of current
assets in the name of can marketable securities, receivable and inventories.
Osisioma (1977) described working capital management as the regulation,
adjustment and control of the balance of current assets and current liabilities
of a firm such that maturing obligations are met, and the fixed assets are
properly served in order to manage working capital effectively, there must
exist two elements as necessary component and desirable qualities. The
maintenance of excessive level of current can easily result in a substandard
return on a firm’s investments. Current assets may insure shortages and have
difficult in smoothly maintaining day to day operations (Horne and Chowiez 2000)
efficient working capital management
involves planning and controlling current assets and current liabilities in a
manner that eliminates the risks of inability to meet to short term obligations
in their assets on the other hand (Eljelly 2004). Many existing research
studies have found that management spend a considerable time on day to day
working of capital decisions since current asset are short lived investments
that are continually being converted into other assets types (RAO 1989). In the
case of current liabilities the firm is responsible for paying obligations
mentioned under current liability on timely basis liquidity for the on-going
firm is reliant rather on the operating cash flows generated by the firms
assets (Soremen 1983). As a result, working capital management of a company is
very sensitive are in the field of financial management (John 1994). It invoices
the decision about the amount and composition of current assets and the
financing of those assets. In conclusion the working capital management used by
Dangote Flour Mills Plc on the performance of the entity.
1.2
STATEMENT OF THE PROBLEM
Organizations
are faced with difficulties in the control of financial resources; they try in
reducing fraud theft and his representation that may occur likewise. The value
of work, been performed affect calculation. The miscalculation thereby gives
different picture and interpretation to the performance of the organization.
Any understatement or overstatement in the financial report distorts the true
and fairness of such report. Furthermore problem could also be traceable to the
skills, experience, knowledge, academic amplification of the employees in the
organization. The trained workers are few compared to untrained ones. It is
common among the manufacturing organizations that instead of employing five
graduates in an organization, they prefer to employ ten or twenty of
non-graduates to work; hence those graduates are paid less.
Once more
lower delegation of power could be another problem. The work that should be
done by expertise are delegated to their junior staffs which results in low
productivity.
1.3
OBJECTIVES OF THE STUDY
The objectives
of the study include:
a. To examine the effort of
management in the formation of working capital.
b. To examine the effect of
working capital management on profitability of the organization.
c.
To identify the cause of effectiveness and efficient management
of working capital in an organization.
1.4
RESEARCH QUESTION
These project
work intend to provide answers to the following questions
i.
Does the working capital have any significant effect on the
going concern of the organization?
ii.
Does management performance have any significant effect on
the working capital of the organization?
1.5
STATEMENT OF HYPOTHESIS
For the
purpose of this research work the following hypothesis is formulated:
HYPOTHESIS 1
Ho: Working
capital management has no significant effect on the ongoing concern of the
organization.
Hi: Working
capital management has significant effect on the ongoing concern of the
organization.
HYPOTHESIS 2
Ho: Working
capital management has no significant effect on organizational performance
Hi: Working
capital management has significant effect on organizational performance
1.6
SIGNIFICANCE OF THE STUDY
The veracity
of working capital management in an organization is so much essential to be
greatly understood and applied as it is important for successful achievement in
an organization.
1.7
SCOPE OF THE STUDY
The research
work would have been wide in nature however, it has restricted itself on three
major variables; return capital employed (ROCE) leverage and fixed assets
financing. It goes along way to review the financial statement of the company
for the period between 2002 – 2004.
1.8
DEFINITION OF TERMS
1. WORKING CAPITAL: This is the excess of the current asset over the
current liabilities that is current asset - current liabilities = working
capital (A – CL = WC)
2. CAPITAL: This is the owner’s interest in the assets of the business.
It can be referred to as owner’s equity or proprietorship.
3. LIQUIDITY: It is that state of owing finance of value that can easily
be exchanged for cash.
4. PROFITABILITY: This is the equity of affording gain or benefit or
profit.
5. ORGANIZATION: A collection of persons bound together by a formal
relation for the purpose of attaining certain specified goals.
6. PROCEDURE: A formal or official order or way of doing things. It is
series of actions that needs to be completed in order to achieve something.
7. LIABILITIES: It can be defined as the indebtedness of the business to
outsiders. It is the claim on assets of the company. It can be classified into
current and long term liabilities.
8. ASSETS: It is a thing of value that can be used to settle debts. It
can be classified into fixed, current, fictitious, intangible liquid, wasting
assets. It can also be applied to all from properly and possession which the
business hold.
9. PERFORMANCE: This is any recognized accomplishment.
10.
MANAGEMENT: This is the direction of
an enterprise through planning, organizing, coordinating of human and material
resources towards achievement of predetermined goals and objectives both
effectively and efficiently.
11.
ORGANIZATIONAL PERFORMANCE: The input and the effect
of such output produce by an organization in the conduct of its activities
towards achieving its mission.
Management
need to know much of the factors that affect their organization’s performance
either positively or other wise. Functional offices and department managers as
well need to be dearly oriented and exposed to the reasons for the existence of
their reactions or department as a contributor or to the achievement of
organizational goals.
The study
however is greatly essential for business owners (sole proprietorship and any
other form of business owners). Management cost and financial accountants,
managers and other users of information communicated by the organization. The
study is also significantly essential to auditors because practically to form
the preparation of the accounts have been kept, working capital management is
needed.
The research
is made so as to make future organization and industrial sector with economy is
an off shot of sound working capital with value and complex research programme,
organization can borrow a leaf from this complex with a good protection of
working capital management.
Researchers
also benefit from the study as it can serve as a point or means of enlighten
into further study of the effects of working capital management or organizational
performance.
CHAPTER TWO
LITERATURE REVIEW
2.0
INTRODUCTION
As working
capital is a financial metric which represents operating liquidity available to
a business, it is also the excess of the current assets over the current
liabilities that is current asset - current liabilities. The working capital
management is going to be evaluated, every research taken on working capital
management will be evaluated on. Also the conceptual frame work empirical
studies on working capital is going to be emphasized on, further, performance
of industrial sector in Nigeria, major constraints in the industrial sectors
and the theoretical frame work will be evaluated below.
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