Research Proposal for Mba Thesis

Published on January 2017 | Categories: Documents | Downloads: 37 | Comments: 0 | Views: 305
of 41
Download PDF   Embed   Report

Comments

Content

TABLE OF CONTENTS

TABLE OF CONTENTS.........................................................................................i CHAPTER ONE:.........................................................................1 INTRODUCTION.....................................................................................................................................1 General Introduction................................................................................................1 Background to the study.........................................................................................1 The Statement of the Problem.................................................................................2 Purpose of the Study...............................................................................................3 Objectives of the study............................................................................................3 Hypothesis of the Study..........................................................................................3 Scope of the study...................................................................................................3 Significance of the Study.........................................................................................3 Operational definitions of terms..............................................................................4 CHAPTER TWO:......................................................................................5 LITERATURE REVIEW..................................................................5 2.1: Review of related studies ................................................................................6 2.2. Conceptual Framework...................................................................................7 CHAPTER THREE:...............................................................................................................................21 METHODOLOGY..................................................................................................................................21 3.1. Introduction....................................................................................................21 3.2. Research design ................................................................................................................................22 3.3. Population.........................................................................................................................................22 3.4. Sample...............................................................................................................................................22 3.5 Research Instruments and Methods of data collection..................................23 Research procedures.............................................................................................24 Techniques of data analysis..................................................................................25 Limitations of the Study........................................................................................25 RESEARCH BUDGET EXPENSES......................................................................29 REFERENCES........................................................................................................................................30 WEBSITES..............................................................................................................................................32 ...................................................................................................................................34 ........................................................................................................................34 i

APPENDICES......................................................................................................................34 .................................................................................................................................................................34 ..........................................................................................................................................34

ii

CHAPTER ONE: INTRODUCTION

General Introduction In this chapter we present background to the study, statement of the problem, Research Purpose and objectives of the study, Hypothesis of the study, significant of the study, scope of the study and organization of the study. Background to the study Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the company. It deals with current assets and current liabilities. Working capital management is important due to many reasons. First of all, the current assets of a typical manufacturing firm accounts for over half of its total assets. For a distribution company, they account for even more. Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations on the one hand and avoid excessive investment in these assets on the other hand( Eljelly, 2004). Van Horne and wachowicz (2004) point out that excessive level of current assets may have a negative effect of a firm’s profitability, whereas a low level of current assets may lead to lowers of liquidity and stock out, resulting in difficulties in maintaining smooth operations. The ultimate objective of any firm is to maximize the profit. But, preserving liquidity of the firm is another important objective. The problem is that increasing profits at the cost of liquidity can bring serious problems to the firm. Therefore, there must be a tradeoff between these two objectives of the firms. Because the importance of profit and liquidity are the same so, one objective should not be at cost of the other. If we ignore about profit, we cannot survive for a long period. Conversely, if we do not care about liquidity, we may face the problem of insolvency. These reasons justify why working capital management should be given proper consideration and will ultimately affect the profitability of the firm. Lamberson (1995) showed that working capital management has become one of the most important issues in organization, where many

1

financial managers are finding it difficult to identify the important drivers of working capital and the optimum level of working capital. As a result, companies can minimize risk and improve their overall performance if they can understand the role and determinants of working capital. Keeping an optimal balance among each of the working capital components is the main objective of working capital management. Manufacturing industries sector is an important ingredient to Economic growth and development in Rwanda. This is being helpful in the way these companies produce for both home and foreign markets and this reduce trade imbalances. However, the performance of manufacturing sector in Rwanda is still at lower level due to many problems such as poor techniques of manufacturing, inefficient working capital management and poor demand for local market. As far as Sulfo Rwanda Industries sa is concerned, it has been realized that Rwandan manufacturing companies are still weak in the management of working capital due to lack of skills on how it should be managed in order to yield enough profits for their businesses. This weakness can occur due to the surplus or shortage working capital and in case one of the mentioned events takes place it results in poor performance. As a consequence, the firm fails to meet its obligations such as paying creditors on time, purchasing of raw materials for production among others. This discussion about the importance of working capital management, its different components and its effects on profitability in addition to the problems that face manufacturing sector in Rwanda leads us to the problem statement which we will be analyzing. The Statement of the Problem (Pass & Hike, 2007) elucidated that it is not enough with high profitability to be a successful company but an effective managed working capital is also important to success. A neglected managed working capital management can, in worst case lead to the downfall of a company even if it has a high profitability. Despite the importance of working capital management and its effects on the profitability of firms, there are not pervious empirical studies regarding financial management in Rwandan Manufacturing and commercial firms that have been interested in Working capital management and profitability. Keeping this in view and the wider recognition of the potential contribution of manufacturing sector to the economy of developing countries, this study attempts to analyze the relevance of working capital management on the profitability of manufacturing companies in Rwanda specifically in Sulfo Rwanda Industries sa. We expect that our work would make a contribution by providing empirical evidence regarding the management of working capital management and it relevance to the profitability of manufacturing firms in Rwanda.

2

Purpose of the Study This study is focusing on working capital management and its relevance on the profitability of manufacturing companies in Rwanda, specifically Sulfo Rwanda Industries sa. Objectives of the study In line with the purpose of the study, following objectives were identified:
 To establish the relevance of efficient working capital management on corporate

profitability over a period of 3 years.
 To find out the relationship between the two objectives of liquidity and profitability.

Hypothesis of the Study As the objective of this research is to examine the relevance of working capital management on the profitability, the study makes a set of testable hypothesis (the null hypotheses Ho versus the alternative hypotheses H1). Hypothesis 1: H0: There is a possible positive relevance between working Capital management and profitability of manufacturing firms. H1: There is no relevance between efficient working Capital management and profitability of manufacturing firms. Scope of the study The study is about the relevance of working capital management on the corporate profitability and focuses exclusively on the manufacturing companies in Rwanda, precisely Sulfo Rwanda Industries S.A. The study will cover 87 individuals which make a sample and It will cover the period of 3 years. That is, from 2007 to 2009. Significance of the Study The findings from this study will contribute to the body of knowledge by identifying how manufacturing companies in Rwanda manage their working capital and the impact it has on the profitability. To the researcher, the study is first of all in line with the requirements for the award of Master’s degree in Business administration. Also, this study will provide a general
3

framework to other researchers, policy makers, professionals to guide future researches, reappraise current business practices, and provide basic guidelines for policy makers in business environment in Rwanda. To business managers, the results of this study would provide them better insights on how to create efficient working capital management that have ability to maximize firm’s value. As a result, it will build up confidence in investor to invest in that firm. Further, the confidence of investors to invest in Rwanda will influence the economic growth. The results of this study would also assist policy-makers to implement new sets of policies regarding the working capital management to ensure continuous economic growth. Operational definitions of terms Working Capital Working capital refers to that part of firm’s capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories (Middleton,1998). In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise. It also refers to the difference between current assets and current liabilities. Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. Current Assets Current assets are the resources which are in cash or will soon be converted into cash in the course of business. They consist of liquidity (cash and bank deposits), inventories, debtors, receivables and markets securities. Current Liabilities A company’s debts or obligations that are due within one year. They are commitments which will soon require cash settlement in the ordinary course of business. They consist of creditors and payables, bank overdraft, and other short term liabilities. Working capital management Chandra P (2002), defined working capital management as “ all aspects of the administration of both current assets and current liabilities”. Decisions relating to working capital and short term financing are referred to as working capital management. The main objective of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses (http:// en.wickipedia.org/wiki/working capital).
4

Cash conversion cycle It is a popular measure of working capital management and it refers to the length of time between the expenditure for the purchase of raw materials and the collection of accounts receivable generated in the sale of the final product. The longer this time lag, the larger the investment in working capital (Deloof 2003). A longer cash conversion cycle might increase profitability because it leads to higher sales. Liquidity Liquidity refers to solvency and the ability of a business to convert assets into cash. Eljelly, (2004), elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations and avoids excessive investment in these assets. Account receivables Receivables are assets accounts representing amounts owed to the firm as a result of sale of goods or services in the ordinary course of business. Management of account receivable is the process of weighing the benefits as well as costs of investments in accounts receivables and taking such steps as regards investments in account receivables which results in maximum results or benefits to the firm. Account payables The account payables or creditors are the obligations of the firm towards the suppliers that result from purchase on credit. The objectives of account payables management includes making every effort to negotiate the best payment terms possible from suppliers. Inventory Inventory refers to the stock that a business keeps to meet its future requirements of production and sales. It include stock of raw materials to be consumed in the production of goods for sales, work in progress held in the production process of finished goods for sales, and stock of finished goods held for sales in the ordinary course of the business.

CHAPTER TWO: LITERATURE REVIEW

In this chapter of literature review we present the review of related studies highlighting the theories and findings of different researchers as well as conceptual frame work regarding
5

working capital management and its components, measurement of working capital and the relationship between working capital management and profitability. 2.1: Review of related studies Many researchers have studied working capital management from different views and in different environments. Following theories are the one that were deemed very interesting and useful for our study: (Eljelly, 2004) elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash conversion cycle on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash conversion cycle in the Saudi sample examined. Second, the study also revealed that there was great variation among industries with respect to the significant measure of liquidity. (Deloof, 2003) discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days’ accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay their bills. (Shin and Soenen, 1998) highlighted that efficient Working Capital Management (WCM) was very important for creating value for the shareholders. The way working capital was managed had a significant impact on both profitability and liquidity. The relationship between the length of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined using correlation and regression analysis, by industry and capital intensity. They found a strong negative relationship between lengths of the firm’s net trading Cycle and its profitability. In addition, shorter net trade cycles were associated with higher risk adjusted stock returns. (Smith and Begemann 1997) emphasized that those who promoted working capital theory shared that profitability and liquidity comprised the salient goals of working capital management. The
6

problem arose because the maximization of the firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article evaluated the association between traditional and alternative working capital measures and return on investment (ROI), specifically in industrial firms listed on the Johannesburg Stock Exchange (JSE). The problem under investigation was to establish whether the more recently developed alternative working capital concepts showed improved association with return on investment to that of traditional working capital ratios or not. Results indicated that there were no significant differences amongst the years with respect to the independent variables. The results of their stepwise regression corroborated that total current liabilities divided by funds flow accounted for most of the variability in Return on Investment (ROI). The statistical test results showed that a traditional working capital leverage ratio, current liabilities divided by funds flow, displayed the greatest associations with return on investment. Well known liquidity concepts such as the current and quick ratios registered insignificant associations whilst only one of the newer working capital concepts, the comprehensive liquidity index, indicated significant associations with return on investment. All the above studies provide us a solid base and give us idea regarding working capital management and its components. They also give us the results and conclusions of those researches already conducted on the same area for different countries and environment from different aspects. On basis of these researches done in different countries, we have been inspired to conduct a such study in Rwanda manufacturing companies in examining the relevance of working capital management on the profitability of corporate firms.

2.2. Conceptual Framework 2.2.1. Working capital Working capital management has lately become a better known concept as more and more managers are starting to realize the benefits that a well managed working capital can bring. In literature, authors generally refer to the concept of working capital as, working capital or net working capital. Arnold, (2008), defines working capital as, “the difference between current assets and current liabilities”. Working Capital (WC) is the flow of ready funds necessary for the working of a concern. It comprises funds invested in Current Assets (CA), which in the ordinary course of business can be turned into cash within a short period without undergoing diminishing in value and without disruption of the organization. Current Liabilities (CL) are those which are intended to be paid in the ordinary course of business within a short time. Current Assets consist of capital tied up in cash, short term financial investments, inventories, account receivables and other current assets (Brealey, Myers &Allen, 2006). Current assets can

7

be defined as assets used in companies’ daily operations with the expectation to provide companies cash in return within a period no longer than approximately a year. The current liabilities include short term loans, the debts to supplies as account payables, accrued income taxes, and interest payments on long-term debts, dividends and other current liabilities ( Pass&Pike, 2007). 2.2.2. Positive and negative working capital Net working capital is given by calculating the difference between current assets and liabilities and this measurement demonstrates how well companies can manage their short-term commitments. The optimum situation for most companies is when they manage financing of both expected and unexpected upcoming events without experience any financial distress (Maness & Zietlow, 2005, p. 28). Companies with positive net working capital have more current assets than liabilities and can use the surplus of current assets to fulfill their financial commitments and obligations to shareholders which is a vital aspect for the continuing growth of any company (Lantz, 2008, p. 113). The advantages of having a positive net working capital are clear, but there are also disadvantages to consider and they occur when companies have to high level of capital tied up in their current assets. Tied up capital, is capital that do not generate companies any additional value and would do more good in new investments that could bring the company further return (Lantz, 2008). When current liabilities exceed current assets, the net working capital is negative which means the company does not have enough own capital for financing its short-term debts. Most companies suffer badly when their net working capital is negative and this is a condition that also profitable companies can end up in if they do not manage their working capital efficiently. Profitability is great but it is not enough to become a successful company as a well managed working capital is equally as important. In order to facilitate the managing of working capital, corporate managers use different measures to help them keep track on which level their working capital withhold. One of the more common used measures for this purpose is the cash conversion cycle. 2.2.3. Working capital management According to van Horne (1977), working capital management is the administration of current assets in the name of cash, marketable securities, receivables, and inventories. Working capital management concerns companies’ management of their short-term capital. The short-term capital refers to the capital that companies use in their daily operations and it consists of companies’ current assets and current liabilities. A well managed working capital promotes a
8

company’s well being on the market in terms of liquidity and it also acts in favor for the growth of shareholders value (Jeng-Ren, et al., 2006). Osisioma (1997) 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. He demonstrated that good working capital management must ensure an acceptable relationship between the different components of a firm’s working capital so as to make an efficient mix, which guarantee capital adequacy. Thus, WCM should make sure that the desirable quantities of each component of the working capital are available for management. However the question is “What determines the necessary components of a firm’s working capital and how much of such necessary components can be regarded as adequate or desirable?” The necessary components of an organization’s working capital, basically, depend on the type of business and industry. Cash, debtors, receivables, inventories, marketable securities, and redeemable futures can be recognized as the common components of organization’s working capital. However, the question is to recognize the factors that determine the adequacy of working capital based on growth, size, operating cash flow, etc. The inability to understand the determining factors and measurement of adequate amounts of working capital will lead an Organization to bankruptcy. 2.2.4. Measurement of working capital management There are three different concepts that are all affected by the choices that companies make regarding their working capital policies. The three concepts are solvency, liquidity and financial flexibility. Two typical solvency measures are the current ratio and the net working capital which both measure the relation between the current assets and the current liabilities to assess the company ability to pay their short-term debts. The net working capital, here defined as “the difference between current assets and current liabilities”, is an absolute measure that demonstrates how well companies can manage their short-term commitments. Common liquidity measures are; cash flow from operations, cash conversion efficiency and the cash conversion cycle. The first measure, taken from companies’ cash flow statement is calculated by taking the net profit plus depreciation, long-term deferrals, and amortization. This is somewhat a more useful measure when making comparison over several years, rather than over just one year. This is because a one-year result could be misleading due to possible fluctuations on the market or situations out of the ordinary that affect the measure. The second measure, the cash conversion efficiency, is gained by dividing cash flow from operations with sales. This measure is beneficial for companies as it reveals how efficiently they manage their business in terms of liquidity and profits. The measure tends to follow the company’s profit levels and gives a percentage that indicates how fast companies manage to
9

transform their sales into cash. A high percentage indicate an efficient managed working capital equally a short cash flow cycle, which is desirable. Continuing with the cash conversion cycle, this is a measure that provides the number of days it takes in average for capital, tied up in working capital, to convert into cash in the cycle (Maness & Zietlow, 2005) One of the benefits with this measure is that in difference to the first measure, the cash flow from operations, takes the time aspect in account. This is an advantage that will provide managers a more complete and useful liquidity measure as they get information of how efficiency their short-term capital is managed (Richards & Laughlin, 1972). The cash conversion cycle includes the average number of day’s inventory, the average number of days accounts receivable and the average number of days accounts payable and a short cash conversion cycle is desirable as it indicates an effective working capital management. The drawback with this measure is that it neglects the handling with in and out payments that most company has and which might add some days in the cycle. The third and last concept is the financial flexibility which reveals how realistic companies’ financial policies are compared with their actual ability to grow. The measurement to determine a company’s growth is called the sustainable growth rate and is simplified an equation of the return on shareholders’ equity and the companies’ net profit. The sustainable growth rate determines a company’s ability to grow and make investments without getting into liquidity problems. A high growth rate indicates that a company has enough profits to both manage its obligations as well as making new investments, a more preferable state than a low sustainable growth rate which indicates that a company has too little incoming cash flow to cover its obligations. The downside with this measure is that it does not consider the demand on the market which is a vital aspect for a company growth. A company could have a high sustainable growth rate but if the company is missing a market to expand in the sustainable growth rate is worthless as a measure. The strength with the sustainable growth rate measure is that it points out the relationship between profits and growth, how they reflect each other (Maness & Zietlow 2005). In our study, we have chosen the cash conversion cycle, as a measure of working capital management. The cash conversion cycle presents the time lag between the company’s cash disbursement to suppliers and its collection from customers which reflect from the company policies on inventory, accounts receivable and accounts payable. Moreover, the cash conversion cycle measures a company’s liquidity from the going concern perspective. Therefore, we found it to be appropriate and relevant for our study. The cash conversion cycle The cash conversion cycle is used to measure working capital management and it measures companies’ liquid situation and how effective the working capital is managed (Deloof, 2003).
10

The cash conversion cycle has been widely used as a major component represents working capital. Lazaridis and Tryfonidis (2006) investigated the relationship between corporate profitability and working capital management for 131firms listed at Athens Stock Exchange (ASE) for the period of 2001-2004. They reported that there is statistically significant relationship between profitability measured through gross operating profit, and the cash conversion cycle. Furthermore, studies found significant negative correlation between cash conversion cycle and profitability as well as between cash conversion cycle and firm size. A shorter conversion cycle with a low or even negative number of days is preferable for profit as the need for external financing is reduced (Moss & Stine, 1993). The formula below shows that the cash conversion cycle period is determined by the inventory and accounts receivable period minus the accounts payables period (Uya, 2009) Cash conversion cycle = (Average number of days accounts receivable+ Average number of days Inventory) - Average number of days accounts payable).

Figure 1: The operating and cash conversion Cycle. Source: Uya (2009), the relationship of cash conversion cycle with firm size and profitability: Empirical Investigation in Turkey. Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.
11

Average number of day’s inventory The average number of day’s inventories represents the period that inventories are held by the companies before they are sold. In order to help shorten the cash conversion cycle, a lower number of days are better. The average amount of inventory is received by taking the sum of the beginning and ending balance of inventory for a year, and divide with two, to get the average. The average amount of inventory is then divided with the cost of goods sold to see how big part of cost goods sold that comes from the inventory. In order to get the outcome of the cash conversion cycle in days the amount given is multiplied with the average amount of days a year, 365 (Lantz, 2008, p. 115). Average number of days inventory= Average Inventory × 365 Cost of goods sold Deloof (2003) found a significant negative relation between gross operating income and number of days inventories. This explains that an increase of the inventories is an effect from a decrease in sales which leads to lower profit for the companies. Another research conducted Boisjoly (2009) found an increase of inventory turnover over a period of fifteen years indicates that companies have improved their inventory management. To manage inventory, there are several manufacturing operating managements to apply, such as; just-in-time procedures, make-to-order procedures, lean manufacturing initiatives to improve their operating processes, quality programs to reduce number of parts and supplier rationalization to reduce number of suppliers Average number of days accounts receivable The average number of days accounts receivable is used as a measure of accounts receivable policy. It represents the average number of days that the company uses to collect payments from its customer. This metric is received by dividing the sum of the opening and ending balance of account receivables with two and divide this with the net sales and then multiply the outcome with the average number of days in a year. Similar to the inventory, a low number of days is desirable to keep the cash conversion cycle short (Lantz, 2008, p. 115). Average number of days accounts receivable = Average Account receivable ×365 Net Sales Deloof (2003) found the significant negative relation between the average number of days accounts receivable and gross operating income as a measure of profitability. Boisjoly (2009) provide the evidence that companies have focused on improving the management of accounts receivable as their accounts receivable turnover increase over the 15 year time period for 199012

2004. Several techniques can be applied such as strengthen their collection procedures, offer cash discount and trade credit. Average number of days accounts payable The average number of days account payable is used as a measure of account payable policy. It represents the average number of days the company takes to pay its suppliers. While the two previous metrics is preferred to keep short, more number of days accounts payable is considered better for shorter cash conversion period (Lantz, 2008, p.116). Average number of days accounts payable = Average Account payable× 365 Cost of goods sold The study of Deloof (2003) shows a negative relation between average number of days accounts payable and profitability which indicates that profitability has an effect on accounts payable policy as a company with less profit takes longer payment period. He further indicated that the case for Belgian companies, suppliers offer their customers substantial discount for the cash payment customer which lead to increasing profit of the company. In the study of Boisjoly (2009), the result shows an increase in account payable turnover over the 15 year time period which is contrary to expectation as large companies have extended their payment period to suppliers from 45 to 60 days or 60 to 90 days. The explanations are that only few companies succeeded in increasing their payment terms, increasing in amount of accounts payable or decreasing in fund for working capital.

2.2.5. Efficient working capital management 2.2.5.1. The cash conversion cycle Managers can keep track of how effective their working capital is managed in their operating cycle by applying the cash conversion cycle. The cash conversion cycle starts from the time companies purchase resources and proceed until cash is received from products sold. By calculating the average time it takes for capital to travel between the start and finishing point of the cash conversion cycle managers can estimate the approximate time it takes to release capital that is tied up in the short-term assets (Gentry, Vaidyanathan & Hei, 2001).
13

If cash is tied up in different activities for too long the company has a non-effective cash flow in the cycle and this cost money (Larsson, 2005, p. 21). In general, most companies benefit from having a short cash conversion cycle since that will generate more value in the long run. The benefits, that a reduced or even zeroed net working capital can provide, are better liquidity due to a more effective operating cycle and increased earnings due to the faster routines and therefore less tied up capital. More and more companies are taking into account the significance of a well managed working capital and the benefits that it brings and this awareness have increased the trend for a net working capital close to zero (Maness & Zietlow, 2005, p. 15).

Figure 2: The cash Conversion Cycle Soure: http://www.loanuniverse.com/cashcycle.html(retrieved on 10th March 2011). The challenge with the cash conversion cycle is to arrange a suitable capital flow between the four working capital accounts so that not all commitments coincide and causes financial suffering for the company. An undesirable situation would be if a large payment has a maturity date before the company received enough receivables that could cover the payment. This could be the case if customers are late with paying or it could be a result of bad planning from the company’s side. The company would be forced to wait with the payment and risk having to pay unnecessary costs as fees because of the delay (Larsson, 2005, p. 28). The objective for managers who work with working capital is as mentioned, to find a good balance between the current assets and liabilities, a balance that is in favor for their particular company and that will provide this company the most value (Maness &Zietlow, 2005, p. 6).
14

A well adapted balance will promote both a company’s profitability and liquidity which is a desirable outcome for most companies. Implementing a management that will promote both profitability and liquidity is difficulty as a good liquidity in general does not favor the growth of profits and vice versa. Having a high liquidity means that lots of capital is tied up in short-term assets which can be reassuring in terms of being able to pay debts and other obligations in time but this is also capital that could be used for investments to increase profitability. A company’s managers all have different interests to meet, for example, production managers would like to stock more inventory to avoid disruptions due to lack of materials, an approach that goes against the working capital managers goal for a more efficient managed working capital. The challenge for companies and their working capital managers is to get a company’s all department managers to strive after the same goals and see the bigger picture (Pass & Pike, 2007). By avoiding unnecessary interruptions and costs in order to pursue an effective working capital management, the matter of timing is of great importance. In theory, the optimal state would be if the companies are paying their account payables at maturity, receive payments from the customers as quickly as possible and keep the level of the inventory to a minimum. This way the companies will benefit most value. 2.2.5.2. Inventory management The composition of an inventory differs depending on what kind of production or business companies are involved in. The five different assets an inventory can consist of are; raw materials, work in progress materials, finished goods, extra material and consumption materials. Most companies have an inventory that they more or less depend on in their operation. The manufacturing companies can hold an inventory that consist of all five different materials and for them keeping an inventory is essential for their production. For most companies the inventory can be seen as an unavoidable cost (Lantz, 2008, p. 306). The management of inventory is one of the more challenging tasks for working capital managers who, if they could decide, would like to minimize the inventory as much as possible in order to shorten the cash conversion cycle and reduce costs. The risk of minimizing an inventory down to a level close to zero is that it increases the possibility of running out of materials needed in the production or running short of finished goods during a high demand. Such situation would be costly for any company due to the revenues they would lose (Maness & Zietlow, 2005) The just-in-time approach is a strategy for effective inventory management and help keeping inventory levels on a lower level. The strategy aims to make the orders of material, produce and deliver just in time when it is required and not before (Brealey, Myers & Allen, p. 820).

15

2.2.5.3. Accounts receivable management Companies depend more or less on their account receivables to finance some if not all of their payables and they should therefore attempt to reduce their credit time to customers as much as possible. The credit time runs from the invoice date until the due date of the invoice (Larsson & Hammarlund, 2009, p. 23-24). The reason for shortening the credit period is due to the fact that longer credit time to customers includes the unfavourable effect that it keeps companies from benefiting from the capital inflow that they are expecting from sales. By allowing customers to keep the money during a credit time companies are exposing themselves to a higher risk of ending up in an unstable financial situation. This is where the importance of timing comes in and where it becomes apparent which companies manage their working capital efficient and which companies do not (William & McAfee, 2009). Tools for management of account receivables  Effective control of account receivables can be ensured through certain techniques or tools. The important tools for the control of account receivables are:  Formulation of suitable credit and collection period  Computation of debtor’s turnover ratio and average collection period  Classifying receivables into different categories according to the length of payment. It helps in identifying the long-pending account receivables, and in taking appropriate action for the control of account receivables.

2.2.5.4. Accounts payable management The management of accounts payable is as much important as management of debtors. The general guidelines for optimizing the managing of account payables involve the timing of payments. Companies should try extending the time of payment as long as possible as they can use the advantage of their suppliers financing their investments until payment has been made. Another argument for prolonging the time for payment is that the producing companies, for example, need some time to convert their purchased raw material into products they can get sold and get cash in return (Maness & Zietlow, 2005)

16

Some suppliers offer their customers discount rates as an attempt to get them to pay their receivables before maturity date which may sound tempting but this is not always the most profitable option. To avoid being misled by theses discounts offers, companies should carefully consider every discount offer they get to see that it is beneficial in terms of their conditions. For a discount to be beneficial for the buyer the discount rate should be higher than the interest rate the company would have to pay for a loan over the same period as the discount period (Maness & Zietlow, 2005). If there is no discount offer given companies should use the whole credit period and pay their payables on due date. Paying after due date should always be avoided unless the company has fallen in financial difficulties and there is no other choice. The reason for this is that delayed payments can result in unnecessary costs as late fees (Dolfe & Koritz, 2000, p. 49) 2.2.5.4. Cash management The management of account payables and receivables that has been described above goes under the term of cash management. Cash include coins, currency notes, cheques held by a firm and demand deposits held in by banks. It also includes near-cash assets such as marketable securities and time deposits with banks. Torre (1997) defines cash management as a set of techniques that act on the short-term liquidity of a company, and at the same time affect those factors and processes that translate immediately into cash, with the ultimate aim of increasing the profitability of the company and improving working capital management. According to (Lantz, 2008) Following paragraphs summarizes what cash management engage in order to shorten the cash conversion cycle:  Extend the credit time for account payables  Shorten the credit time for account receivables  Incorporate more efficient methods for the management of account payables and receivables, internet banking for example  Improve the procurement of capital surplus and deficits. Despite the ambition to minimize the cash conversion time and therefore the costs in the conversion cycle, the companies can not escape all costs since they have their own obligations to consider. Taking into the account these responsibilities companies must keep some cash for expected as well as unexpected expenditures that occur in their everyday business. Motives for holding cash Lantz have mentioned about these three motives why companies should hold cash (Lantz, 2008):

17

The transaction motive: the company must be able to manage their own obligations like payments to suppliers. They should not be dependable on customers paying in time since they can be late and pay after due date which will involve extra costs. The speculative motive: the market is unpredictable and opportunities could turn up at any time and when they do, companies should see to that they have money available if they would like to invest. The precautionary motive: as well as the market is unpredictable so are the activities in the business. Unexpected events like; machines breaking down, a suddenly increase or decrease of the demand and more, can occur and could have a very negative influence for the whole company if not taken care of (Lantz, 2008). Objectives of cash management In managing cash, the firm has two main objectives:  To meet the cash disbursement needs as per the payment schedule.  To minimize the amount locked up as cash balance. The finance manager should try to have an optimum cash of balance which is neither higher nor lower. 2.2.6. Working capital management and firm profitability The previous study conducted by Deloof (2003) investigated the relationship between working capital management and its impact on the company’s profitability in 1,009 large Belgian non financial companies for the period from 1992 to 1996. The results form analysis showed that there was a negative relationship between profitability that was measured by gross operating income and cash conversion cycle as well number of days of accounts receivable, number of days of inventories and number of days of account payable. Managers can increase corporate profitability by reducing the number of days of accounts receivables and inventories. Less profitable firms wait longer to pay their bills. In the study of Ganesan (2007) he depicted that working capital management efficiency was negatively associated to the profitability and liquidity. The study revealed that when the working capital efficiency was improved by decreasing days of working capital management, there was improvement in profitability of the firms in telecommunication firms in terms of profit margin. Padachi ( 2006) examined the trend of working capital needs and the profitability of firms to identify the causes for any significant differences between the industries. The results showed that high investment in inventories and receivables was associated with lower profitability. The finds also revealed that an increasing trend in short- term component of working capital financing.
18

In the study of Raheman and Nasr (2007) they studied the effect of working capital management on liquidity as well on profitability of the firm. The results showed that there was a negative relationship between variables of the working capital management and profitability of the firm. Further the study also found that there was a negative relationship between liquidity and profitability and a positive relationship between size of the firm and its profitability and negative relationship between debt used by the firm and its profitability. Singh and Pandey (2008) had an attempt to study the working capital components and the impact of WCM on profitability of Hondalco Industries Limited for period from 1990 to 2007. Results of the study showed that current ration, liquid ratio, receivables turnover ratio and working capital to total assets ratio had statistically significant impact on the profitability of Hindalco Industries Limited. Hyun-Han and Soenen (1998) conducted the study to investigate the relationship between the efficiency of working capital management and its profitability using 58,985samples in eight industries for the period from 1975 to 1994. They use the net trade cycle as a measure of working capital management efficiency. Return on assets and return on sales have been used to measure profitability. Result from regression analysis shows the significant negative association between the net trade cycle and profitability which is explained that a company with the short length of the net trade cycle is more profitable and has a higher risk-adjusted stock return. Raheman and Nasr (2007) investigated the relationship between working capital management and profitability of 94 Pakistani listed companies for the six-year period from 1999 to 2004. Net operating profitability is used to measure profitability. Average collection period, inventory turnover in days, average payment period, cash conversion cycle and current ratio on the net operating profitability include in the study. Results from descriptive analysis show that average cash conversion cycle is 73 days in Pakistani companies. Results from regression analysis show that there is a positive relation between company size and profitability. Further, the results report that profitability has significant negative relations with accounts receivable as a measure of liquidity, debt ratio, inventory turnover in days, average payment period and cash conversion cycle. Eljelly (2004) conduct the study to examine the relationship between profitability and liquidity on 29 joint stock companies in Saudi Arabia for the period from 1996 to 2000 within three industries: agriculture, industrial and services. The regression result show the significant negative relationship between companies’ profitability and liquidity which is measured by current ratio and cash conversion cycle. Then, companies are divided into two groups according to number of cash conversion cycle days. The regression results show the significant negative relationship between liquidity level measured by current ratio and their profitability in larger cash conversion cycle companies, while there is negative relation at insignificant level in shorter
19

cash conversion cycle companies. The result indicate that the liquidity level become more important and has impact to profitability when cash conversion cycle is long. Samiloglu and Demirgunes (2008) conduct the study to examine the effect of working capital management on company profitability of listed manufacturing companies in Istanbul Stock Exchange for the period from 1998 to 2007. Cash conversion cycle, accounts receivable period and inventory period are used to measure the effects of working capital management; return on assets is used as a profitability measure. Results from regression analysis show that profitability has a significant positive relation with firm growth and significant negative relations with accounts receivable period inventory period and leverage. Lazaridis and Tryfonidis (2006) investigate the relationship between working capital management and company’s profitability measured by gross operating profit on 131 companies listed in the Athens Stock Exchange for the period from 2001 to 2004. Regression result shows the negative relationship between cash conversion cycle and profitability. In others equations, researchers substitute the components of cash conversion cycle: number of days accounts payables, number of days accounts receivable and number of days inventories for cash conversion cycle. The researchers explain significant positive relationship between gross operating profit and number of days accounts payable as a company delays its payment which affects the higher level of working capital and use to increase its profitability which less-profit companies would make use of this to delay their payment. The significant negative relationship between gross operating profit and number of days accounts receivables is demonstrated that companies can increase their profitability by decreasing credit term giving to their customers. At last, the researchers find the negative relationship between number of days inventories and gross operating profit but it is not in significant level. They suggest that by handling cash conversion cycle and maintain accounts receivable, accounts payable and inventories at an optimal level the manager can create profit to their company. Working capital management is important because of its effects on the firms’ profitability and risk, and consequently its value (Smith, 1980). The greater the investment in current assets, the lower the risk, but also the lower the profitability obtained. 2.2.7. Financial Ratios Analysis of working Capital According to Pandey Iam (2001) financial analysis is the process of identifying the strength and weakness of the firm by properly establishing relationship between items of the balance sheet and the profit and loss account. A ratio is defined as “the relationship between two or more things”. In financial analysis, a ratio is used as the benchmark for evaluating the financial position and performance of the firm. The main purposes of working capital ratios analysis are:
 To indicate working capital management performance 20

 To assist in identifying areas requiring closer management. 2.2.7.1. Current ratio and quick ratio Current ratio and quick ratio are common financial ratios. Current ratio is the ratio of current assets to current liabilities. Quick ratio is similar to current ratio, except inventory is excluded from the amount of total current assets. These two ratios are used as solvency measures to determine whether the company has enough current assets to cover its current liabilities. They show the company’s working capital position at the period of time, for instance the date as of balance sheet date. However, these two measures have been argued that they present only the coverage level of current assets over current liabilities and they do not reflect a company’s going concern (Maness & Zietlow, 2005). High value of current ratio and quick ratio indicate that the company is solvent which should lead to the better liquidity, shorter cash conversion cycle and efficient working capital management. However, it may not be the case. The study conducted by Moss and Stine (1993) reports that cash conversion period has the significant positive relationship with the current and quick ratio. The company with longer cash conversion period needs to reserve more cash and short term investment for their operation which create higher current and quick ratio (Moss & Stine, 1993). 2.2.7.2. Debt ratio Debt ratio shows the proportion of company’s total liabilities to its total assets. High debt ratio can interpret that the company has low internal funds and have to find external funds to finance its operations and this company tend to have less capacity to raise money through its working capital (Jeng-Ren, et al., 2006). The company with high debt ratio tends to need more cash flow from operation in order to repay its debt or renew it (Nwaeze et al., 2006). The study of Jeng-Ren, et al., (2006) demonstrates the significant negative relation between debt ratio and working capital management measured by net liquid balance which is interpreted that when companies have low working capital, they will finance their operations with external funds which make companies’ debt ratio higher.

CHAPTER THREE: METHODOLOGY

3.1. Introduction

21

The purpose of this research is to contribute to a very important aspect of financial management known as working capital management with reference Rwanda and most precisely to Sulfo Rwanda Industries SA. The study will show the relevance of working capital management on the profitability of manufacturing firms. This chapter of the research deals with the area, population and sample of Study; sample size and sampling technique, data collection techniques, research design, research instruments, research procedures, Data analysis technique and last but not least limitations of the study. 3.2. Research design Design is a logical task undertaken to ensure that the evidence collected enables us to answer questions or to test theories as unambiguously as possible. Research design is a plan for collecting and utilising data so that desired information can be obtained with sufficient precision in to test a hypothesis properly. The research is to be conducted in Sulfo Rwanda Industries SA, the entire staff is referred to as Population of Study. From the population a sample will selected using cluster and judgmental sampling techniques. The data will be collected using different instruments such as questionnaire, interviews, and document review (financial statement review), internet sources, books as secondary data source. The analysis of data will be done through analyzing financial statements by ratios analysis, correlation and regression analysis between working capital components and profitability among others. Hypothesis will be tested and the conclusion will be drawn from the findings and by comparing with the previous researchers’ findings. 3.3. Population Population can be defined as a collection or set of interest items in research and it represents a group that you wish to infer/ draw conclusion regarding your findings from a sample selected in that population. The entire staff of Sulfo Rwanda Industries SA is 661 and they include senior, middle and junior staff. They form the population of the study. 3.4. Sample 3.4.1. Meaning of a sample A sample is defined as a part of the population, subject units, which is provided by the same process or other usually by deliberate with the object of investigating the properties of the close relative population or set. It is difficult and often impossible to study the whole population due to constraints such as time frame, financial and material resources, etc. It is in this regards that in our study we choose to use sample as our study unit and then after the results we get from the sample will be inferred to the whole population.
22

3.4.2. The sample size Kothari. C (2008) defines Sample size as the number of items to be selected from the universe to constitute a sample. Sulfo Rwanda has a population of 661 staff working in different departments. It is not easy if not possible to collect the data from the entire staff due to various constraints mainly time and financial constraint. In this regard, the sample size is to be selected from 661 populations using the following formula of Yamane (1967). n= N 1+N (e) 2 n is the Sample Size N is the Population e is error term

Where

Population (N) is 661 staff We have taken the confidence level of 90% which is considered to be reliable. This means that the error term (e) is equal to 10%. Therefore the sample size is computed as follows: n= 661 = 87 2 1+ 661(0.1)

Our Sample will be composed by 87 staff. This means that the primary data will be collected among 87 staff using questionnaires and/or interviews and these will mainly be the staff from senior management, Finance and accounting departments, production and sales departments.

3.4.3. The sampling Technique In line with the objective our study, the judgment and cluster sampling techniques will be used in the selection of samples. The staff will be divided into clusters on the basis of their working departments. Judgment sampling will be used so as to select the staff that will provide information regarding working capital management and profitability of company. 3.5 Research Instruments and Methods of data collection

Various tools will be used in the collection of data from primary and secondary sources. We will use questionnaires and interviews to gather fist hand information while documentation reviews, internet sources will be used to collect the existing information.
23

3.5.1. Document Review This research will be conducted by reviewing different document report mainly of financial types such as annual financial statements (statement of comprehensive income, statement of financial position and cash flow statement). 3.5.2. Questionnaire This a well design instrument used to collected information from the respondents by answering the structured questions indicated on the questionnaire. I will distribute questionnaire among the staff of different level targeted in the sample and they will have to fill themselves. 3.5.3. Interviews An interview is an oral conversation between that takes place at least between two people. That is the Interviewer and the interviewee where questions are asked by the interviewer to obtain information from the interviewee. This technique will be used to collect information mainly from leaders and heads of different departments within the firms. Research procedures After collecting data, they will be processed, analyzed and interpreted and to facilitate these tasks, editing and tabulation will be used to provide comprehensive and understandable picture of data.

3.5.4. Data processing Data Processing is a process of converting raw data into useful information and it can also convert information into a data (http://www.articlesbase.com/outsourcing-articles/definition-ofdata-processing). Data processing consists of editing; coding and validation of data. The data collected will be transformed into meaningful information so as to easy analysis and interpretation by use of tables and graphs. The components of working capital management will be grouped into different categories to easy analysis and computation of ratios analysis in relation to working capital and profitability. 3.5.5. Tabulation Tabulation is a technique of displaying information in a systematic format so that thorough analysis can be done. This involves the use of tables or putting the data collected in the form of
24

tables so that data gathered can be easily visible, analyzed and interpreted. During the study tables will be used to illustrate the elements of working capital, and ratios computations. Techniques of data analysis These will include the methods or techniques of analyzing data collected and statistical measures which will be applied. We will use descriptive analysis, as well as quantitative analysis. More precisely, the ratios analysis will be used for diagnosing the financial health of Sulfo Rwanda Industries on the basis of its financial statements. We will mainly use liquidity ratios, activity ratios and profitability ratios that are related to working capital management Trend analysis will be used to disclose the changes in components of working capital, profitability and by which amount over the period of the study. This will help to find out whether there was a decrease or increase in working capital and profit as well; Use Qi-squere Correlation analysis is used to measure the direction of the linear relationship between two variables as well as to measure the strength of association between variables (Tabachnick & Fidell, 2007, p.56-57).The correlation analysis will be done to analyze the association of working capital management components and profitability and finally we will use regression analysis to investigate the relevance of working capital management on corporate profitability. Limitations of the Study The main limitations of this study will be the constraints due to time and financial support, access to data from accounting and finance may take a long process. Also the respondents may be unwilling to respond or provide good answers to questions asked. The above limitations can be minimized by organizing the research more effectively. CHAPTER 4: DATA PRESENTATION, ANALYSIS AND INTERPRETATION This chapter analyses and interprets the data collected in order to draw conclusion in line with the study. The data are presented in form of tables so as to facilitate the analysis and interpretation. While analyzing the working capital management and its relevance to the profitability, the following techniques have been used: Ratios and Qai-squaire. SULFO RWANDA WORKING CAPITAL DATA ANAYSIS 4.1. Theoretical Background Working capital also known as operating capital is a financial metric which represents operating liquidity available to a business but when combined with fixed assets such as plant and equipments, working capital is considered as a part of total capital. In terms of calculation, it is the difference between current assets and current liabilities therefore the
25

company has a working capital deficiency. It is also called working capital deficit. The firm can be gifted with assets and having profitability and also having shortage of liquidity if its assets cannot directly be converted into cash. A situation of positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short term debt and upcoming operational expenses. The management of working capital involves management of inventories, account receivables ad account payables including cash (in hand and at bank). The above view makes us think about the required current assets and current liabilities for a manufacturing company. It is

26

27

28

RESEARCH BUDGET EXPENSES Price unit/Frw 3, 1 2 Papers Pens ream Pcs
29

No

Description of items Office Supplies

Units

Quantity 2 2

Total cost( Frw) 7,000

500

100 3 4 5 Photocopies
Typing Binding Subtotal Field Visits cost

200 20,000
6 0,000 2 8,000 11 5,200 4

pages
pages book

800
100 8

25
600 3,500

6 7 8

Lunch Drinks( Fanta or mineral water) Transport Subtotal Trips to kabale

plate a bottle times

15 25 15

3,000 500 10,000

5,000 1 2,500 15 0,000 20 7,500 24

9 10 11 12

Transport from Rwanda to Kabale Accomodation Meal(lunch,Dinner&break fast). Local transportation around kabale Universiry Subtotal

times Nights times times

16 22 22 25

15,000 8,500 8,000 2,000

0,000 18 7,000 17 6,000 5 0,000 65 3,000 7

13 14

Communication Intenet Subtotal GENERAL TOTAL

Airtime days

15 15

5,000 1500

5,000 22,500 9 7,500 1,073 ,200

REFERENCES

Alnold, RA, et al( 2008), Corporate financial management, 4th edition. Harlow: Financial Times Prentice Hall. Deloof, M (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3) 573-587. Lazaridis, I & Tryfonidis,D(2006). Relationship between working capital Management
30

and profitability of listed companies in the Athens Stock Exchange. Journal of Financial management and analysis,19(1), 26-35 Eljelly, A.M.A.(2004). Liquidity –profitability trade off: Empirical investigation in an emerging market. International Journal of commerce and Management, 14(2) 48-60. Raheman, A., & Nasr, M (2007).Working capital management and profitability- case of Pakistan firms. International review of Business research Papers,3(1),279-300. Uyar, A(2009). The relationship of cash conversion cycle with firm Size and profitability An Empirical Investigation in Turkey, International Research Journal of Finance and Economics, 24, 186-192. Yung- Jang,W.(2002). Liquidity management, operating performance, and corporate Value: evidence from Japan and Taiwan. Journal of Multinational Financial Management, 12(2002), 159-169. Samiloglu, F., & Demirgunes, K. (2008). The effect of working capital management on firm profitability: Evidence from Turkey. The International Journal of Applied Economics and Finance, 2(1), 44-50. Jose, M.L., Lancaster, C., & Stevens, J.L. (1996). Corporate returns and cash conversion cycles. Journal of Economics and Finance, 20(1), 33-46. Chiou JR and Cheng (2006), The determinants of Working Capital Management, Journal Of American Academy of Business, 10(1) 149-155. Padachi, Kesseven,(2006).Trend in working capital management and its impact on Firm’s performance: An analysis of Mauritian Small manufacturing Firms, International review of Business Research Paper 2(2), 45-58.

31

WEBSITES

www.bizresearchpapers.com/Kesseven.pdf www.bizresearchpapers.com/Paper 2019.pdf www.eurojournals.com/irjfe_49_05.pdf www.astonjournals.com/manuscripts/Vol2010/BEJ-10_Vol2010.pdf www.ccsenet.org/journal/index.php/ijbm/article/download/8066/6095 www.docstoc.com/.../effect-of-working-capital-management-on-profitability-of-firms
32

www.essays.se/.../research onWorking capital management on profitability www.fm.upr.si/zalozba/ISSN/1581-6311/7_061-074. www.bai2009.org/file/Pages/submissions/isfa2009_submission_13.doc

33

APPENDICES

34

Appendix 1: QUESTIONNAIRE FOR THE STAFF OF SULFO RWANDA INDUSTRIES SA. My name is MYASIRO Elie, a Post graduate Student at Kabale University in the Republic of Uganda and I am doing my final research Paper in partial fulfillment of the requirements the award of a Masters Degree in Business Administration. My research topic is “The relevance of Working Capital Management on Corporate profitability of Manufacturing Firms in Rwanda. A Case Study of Sulfo Rwanda Industries sa. It is in this regard that I’m humbly requesting your support in answering the questions here below and I assure you that all information provided will be treated confidentially and will not be use for any other purpose than academic. Thanking you in advance for your cooperation, time, and efforts. Yours Faithfully, Elie Myasiro SECTION A: Identification of the respondent

Job Title:

Department/Division:

Working Experience in that department/ division:

35

SECTION B Questions relating to Working Capital Management and Profitability 1. Define the word “ Working Capital” …………………………………………………………………………………………… …………………………………………………………………………………………… …. 2. State the main components of working capital …………………………………………………………………………………………… …………………………………………………………………………………………… …..
3. How do you understand the word “working Capital management”?

…………………………………………………………………………………………… …………………………………………………………………………………………… …… 4. Give the difference between Profitability and liquidity …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ……… 5. Is there any relevance/usefulness of working capital management on the profitability of Sulfo Rwanda Industries sa? Yes No If yes, briefly explain how: ……………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ……………

36

6. How do you understand the term “cash management”? What is the impact does it have to the profitability of firms. …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ……. Appendix 2: QUESTIONNAIRE FOR THE MANAGEMENT OF SULFO RWANDA
INDUSTRIES SA.

My name is MYASIRO Elie, a Post Graduate Student at Kabale University in the Republic of Uganda and I am doing my final research Paper in partial fulfillment of the requirements the award of a Masters Degree in Business Administration. My research topic is “The relevance of Working Capital Management on Corporate profitability of Manufacturing Firms in Rwanda. A Case Study of Sulfo Rwanda Industries sa. It is in this regard that I’m humbly requesting your support in answering the questions here below and I assure you that all information provided will be treated confidentially and will not be use for any other purpose than academic. Thanking you in advance for your cooperation, time, and efforts.

Yours Faithfully, Elie Myasiro

SECTION A: Identification of the respondent

Job Title:

Department/Division:

37

Working Experience in that department/ division:

SETION B: Questions relating to Working Capital Management and Profitability 1. What do you understand by the term ‘Working Capital management”? ………………………………………………………………………………………………… ………………………………………………………………………………………………… 2. What do you consider as the component of working capital management in Sulfo Rwanda Industries sa. …………………………………………………………………………………………… …………………………………………………………………………………………… …… 3. What is the optimum level of working capital components in your Organization? …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ……… 4. How does working capital management influence profitability of Sulfo Rwanda Industries sa. …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ………
5. Have ever had the problem of over investment or under investment current assets for the

past three years (2007-2009)? Yes No

If yes , what the effects did they have on the profitability? ……………………………………………………………………....................................
38

…………………………………………………………………………………………… …………………………………………………………………………………………… If no, how did you manage to overcome that problem? …………………………………………………………………………………………..... …………………………………………………………………………………………… ……………………………………………………………………………………………..

39

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close