Chapter 1 : Introduction to the Study
General
Background:
The process of collecting, managing and
investing (short-term) cash is the key component of ensuring a company's
financial stability and solvency. Frequently corporate treasurers or a
business manager is responsible for overall cash management. Successful cash
management involves not only avoiding insolvency (and therefore bankruptcy),
but also reducing days in account receivables (AR), increasing collection
rates, selecting appropriate short-term investment vehicles, and increasing
days cash on hand all in order to improve a company's overall financial
profitability. Successfully managing cash is an essential skill for small
business developers because they typically have less access to affordable
credit and have a significant amount of upfront costs they need to manage while
waiting for receivables. Wisely managing cash enables a company to meet
unexpected expenses in addition to handling regularly-occurring events like
payroll.
Cash management is the management of the
cash balances of a concern in such a manner as to maximize the availability of
cash not invested in fixed assets or inventories and to avoid the risk of
insolvency. According to Keynes there are three motives for holding cash: the
transactions motive, the precautionary motive, and the speculative motive. The
most useful technique of cash management is the cash budget.
According to Kojo Menyah (2005) recent
developments in computer communications technology, especially the internet,
globalization of banking, reduction in regulatory barriers in the major
economies, and the marketing of innovative products by global and niche banks
appear to have made an impact on the practice of international cash management.
This paper reviews developments in the theory and practice of international
cash management. From the theoretical angle, we out line models for the
determination of optimal cash balances in a multi-national setting as well as
models of optimal multi-lateral netting and international funds transfer and
their implications for short- term borrowing, investment and hedging decisions.
We then analyze changes in the practice of international cash management
through the review of survey re -search and case studies. To this end, we high
light how developments in telecommunications and computer technology, the
globalization of banking, product development, reduction in regulatory barriers
and the introduction of the single European currency have changed and continue
to change regional and global cash management. The paper ends with suggestions
for future research.
Davidson (1992) defined cash management as a
term which refers to the collection concentration and disbursement of cash. It
encompasses a company’s level of liquidity, management of cash balance and
short term strategies. Pindado (2004) also defines cash management as part of
working capital that makes up the optimal level needed by a company. Bort
(2004) noted that, cash management is of importance for both new and growing
businesses. Companies may suffer from cash flow problems because of lack of
margin of safety in case of anticipated expenses such that they experience
problems in finding the funds for innovation or expansion. Weak cash flow makes
it difficult to hire and retain good employees (Beranek, 2000). Ross (2000)
says that, it is only natural that major business expenses are incurred in the
production of goods or the provision of services. In most cases, a business
incurs such expenses before the corresponding payment is received from
customers. In addition, employee salaries and other expenses drain considerable
funds from most business. These make effective cash management an essential
part of the business financial planning. According to Bort (2004) cash is the
lifeblood of the business. The key to successful cash management lies in
tabulating realistic projections, monitoring collections and disbursements,
establishing effective billing and collection measures, and adhering to
budgetary parameters because cash flow can be a problem to the business
organization.
Cash collection systems aim to reduce the time it takes to
collect the cash that is owed to a firm. Some of the sources of time delays are
mail float, processing float, and bank float. Obviously, an envelope mailed
by a customer containing payment to a supplier firm does not arrive at its
destination instantly. Likewise, the payment is not processed and deposited
into a bank account the moment it is received by the supplier firm. And
finally, when the payment is deposited in the bank account oftentimes the
bank does not give immediate availability to the funds. These three
"floats" are time delays that add up quickly, and they can force
struggling or new firms to find other sources of cash to pay their bills.
Cash management attempts, among other things, to decrease the
length and impact of these "float" periods. A collection receipt point
closer to the customer—perhaps with an outside third-party vendor to receive,
process, and deposit the payment (check) is one way to speed up the collection.
The effectiveness of this method depends on the location of the customer; the
size and schedule of their payments; the firm's method of collecting payment;
the costs of processing payments; the time delays involved for mail,
processing, and banking; and the prevailing interest rate that can be
earned on excess funds. The most important element in ensuring good cash flow
from customers, however, is establishing strong billing and collection
practices.
Once the money has been collected, most firms then proceed to
concentrate the cash into one center. The rationale for such a move is to have
complete control of the cash and to provide greater investment opportunities
with larger sums of money available as surplus. There are numerous mechanisms
that can be employed to concentrate the cash, such as wire transfers,
automated clearing house (ACH) transfers, and checks. The tradeoff is
between cost and time.
Another aspect of cash management knows a company's optimal
cash balance. There are a number of methods that try to determine this magical
cash balance, which is the precise amount needed to minimize costs yet provide
adequate liquidity to ensure bills are paid on time (hopefully with
something left over for emergency purposes). One of the first steps in managing
the cash balance is measuring liquidity, or the amount of money on hand to meet
current obligations. There are numerous ways to measure this, including: the
Cash to Total Assets ratio, the Current ratio (current assets divided by
current liabilities), the Quick ratio (current assets less inventory, divided
by current liabilities), and the Net Liquid Balance (cash plus marketable
securities less short-term notes payable, divided by total assets). The higher
the number generated by the liquidity measure, the greater the liquidity and
vice versa. However, there is a tradeoff between liquidity and
profitability which discourages firms from having excessive liquidity.
Statement of
the Problem
Inefficient cash
management can be very harmful to business. More often than not, it is the
improper management of cash that has caused businesses to fail. Effective cash
management is therefore a necessity for businesses. Companies heavily rely on
knowing their cash position to manage working capital requirements such as
ordering inventory, raw material, or acquisitions/expansion program, for which they
need a clear idea of how much cash is required, and when. This is enabled by
efficient cash management.
Holland et. al. (1994) investigated cash
management practices in Motorola and found that the company had meshed part of
its organization and information systems with that of Citi bank to strengthen
Motorola’s cash management system. Also, Cowan (2000) observes that both the US
and European companies are now using Shared Service Centers (SSC) to
rationalize their cash management functions. The author provided General
Electric and Siemens as some of the Western companies that have adopted the SSC
to facilitate the management of cash. Dimitriadis (2000) presented the case of
AstraZeneca to illustrate how the cash management netting system has been
enhanced through information technology.
It is widely
acknowledging that sufficient amount of cash collection doesn't secure the
sound status of any institution. Similarly, positive cash flow doesn't indicate
the profitability and vice-versa. Nepalese enterprises have been
identified as a basic tool for rural development. They have taken a turn for the better sense
in the past decades. The prospect for
this decade and subsequence decade are bright.
To achieve this depends solely on the proper management of Nepalese
enterprises, taking up to the challenge from internal sourcing of solution. Therefore, in
order to carry out this study titled “Cash Management Practices in Nepalese Enterprises”
attempts the following research questions:-
i.
What is the structure and utilization position of cash
in the selected enterprises?
ii. Which variables/factors are
responsible for the determination of cash holdings in Nepalese Enterprises?
iii.
What is the practice of cash management in the Nepalese
enterprises regarding cash, inventory and receivables?
iv. What are the effects of
poor cash management in Nepalese enterprises?
v. What is the
effect of cash management in the performance of Nepalese Enterprises?
Significance of the study
It is expected that this study would be of vital
benefit to a member of entrepreneurs, businessmen and organizations in the
following ways:-
i.
This study should provide its numerous readers with a clear
insight into the cash management practices in Nepalese enterprises.
ii. This study shall create
awareness of the importance of proper cash management among Nepalese
enterprises.
iii. It equally provides a basis
for further studies into other aspect of cash utilization in Nepalese
enterprises.
iv. The study will benefit the
businessmen, entrepreneurs and organizations in particular since it would
expose them to the possible aid techniques of cash management.
v. It is also expected that
business consultants would benefit from this study. Since it would give them a clear insight into
the efficient utilization of limited resources of Nepalese enterprises.
Objectives of
the Study
The major objective of this study is to
examine the cash management practices in Nepalese enterprises. The specific
objectives are as follows:
·
To analyze the effect of cash management on the
corporate profitability.
·
To examine the status of corporate cash
management and ascertain the factors affecting thereof.
·
To compare the performance of cash management in
the public and private sector enterprises.
·
To determine the cash management practices of
Nepalese enterprises.
·
To develop and recommend cash management model
suitable for Nepalese enterprises.
Statement
of Hypotheses
From
the theoretical framework mentioned above, the following null hypotheses will
be proposed to be tested in this research work:
·
The corporate profitability of Nepalese firms is
affected by size of investment in cash.
·
The size of cash holdings is affected by growth
opportunities, size of the firm, opportunity cost (interest), cash flow, long
term debt, leverage, financial distress and bank debt.
Limitation of
the Study
Although efforts will be made to make the study more realistic,
practicable and informational for all the people, the study will be suffered
from number of limitations. Some of the limitations will be as follows:
- This study is mainly based on secondary data, which are collected from various sources. The data may or may not far from limitations because the official provides an audited data but they may hide the original data to keep secrecy.
- Limited
resources are another limitation to make the thesis practicable and
realistic.
- This
study covers only ten years data from 2001/02 to 2011/12.
- All
the financial data are in round figure.
- This
study mainly has focused the cash management aspects of Nepalese
enterprises.
- The
study has given main emphasis to the financial section but there may be
weaknesses in other field too.
- The
conclusion and recommendations of the study quite relevant in Nepalese
context however, it may or may not be applicable in terms of universal
contex.
Chapter
2 : Literature Review
A
review of the literature is an essential part of any academic research project.
The review is a careful examination of a body of literature pointing toward the
answer to your research question. Literature reviewed typically includes
scholarly journals, scholarly books, authoritative databases and primary
sources. Sometimes it includes newspapers, magazines, other books, films, and
audio and video tapes, and other secondary sources.
Primary
sources are the origin of information under study, fundamental documents
relating to a particular subject or idea. Often they are firsthand accounts
written by a witness or researcher at the time of an event or discovery. These
may be accessible as physical publications, as publications in electronic
databases, or on the Internet.
Secondary
sources are documents or recordings that relate to or discuss information
originally presented elsewhere. These, too may be accessible as physical
objects or electronically in databases or on the Internet. All good research
and writing is guided by a review of the relevant literature. Literature review
will be the mechanism by which the particular research is viewed as a
cumulative process. That makes it an integral component of the scientific
process.
According
to (Davidson et. al, 1999), cash is any medium of exchange, which is
immediately negotiable. It must be free of restriction for any business
purpose. Cash has to meet the prime requirements of general acceptability and
availability for instant use in purchasing and payment of debt. Acceptability
to a bank for deposit is a common test applied to cash items. This is a process
of Planning, controlling, and accounting for cash transactions and cash
balances. It is channeling available cash into expenditures that enhance
productivity directly or indirectly.
In
addition, Cash is ready money in the bank or in the business. It is not
inventory, it is not accounts receivable (what you are owed), and it is not a property.
These might be converted to cash at some point in time, but it takes cash on
hand or in the bank to pay suppliers, to pay the rent, and to meet the payroll.
Profit growth does not necessarily mean more cash. (Davidson et al, 1999)
Cash
is the money which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm, and balances
in its bank accounts. Sometimes near-cash items, such as marketable securities
or bank time's deposits, are also included in cash. The basic characteristic of
near-cash assets is that they can readily be converted into cash. Generally,
when a firm has excess cash, it invests it in marketable securities. This kind
of investment contributes some profit to the firm. (Hampton , 2001)
Objectives of Cash Management
Cash
plays a crucial role in a company’s operation. It is used to pay wages and
salaries, trade debts, taxes and dividends. It not only enables the company to
promptly pay its creditors and suppliers so as to foster good relations but
also lets the company take advantage of favorable business opportunities. Most
importantly, it keeps the company liquid and prevents it from insolvency or
bankruptcy.
It
is said in an academic literature that companies hold cash for the following
three motives:
(i) Transaction
motive: As mentioned earlier, cash is used to pay bills, especially when
disbursements are greater than cash receipts from business. This is the most
important reason for keeping cash.
(ii) Precautionary
motive: Cash is used for safety reasons as a financial reserve to meet
unexpected demand, for example, an unexpected delay in collection of accounts
receivable or a sudden increase in costs of materials.
(iii) Speculative
motive: There may be unexpected profitable opportunities when doing businesses,
like speculative interest rate movements. If a company has excess cash on hand,
it may take advantage of such opportunities.
The
objectives of cash management are therefore two-fold: (i) to have sufficient
cash for operation in order to maintain liquidity; and (ii) to invest excess
cash for a return. Cash management is not easy. Cash inflows from receipts do
not perfectly coincide with the cash outflows for disbursements. Further, some
businesses are seasonable in nature so that cash inflows and outflows fluctuate
throughout the year. The company therefore needs to manage its cash properly.
One of the tools it can use to do this is, to prepare a cash budget.
Cash Budget
A
cash budget is a statement showing the estimated cash inflows and outflows over
the planning horizon. Companies can prepare a cash budget on a quarterly,
monthly, weekly or even daily basis. The ultimate purpose is to identify the
net cash position of the company in the future, that is, whether there is any
cash surplus or deficit. Preparation of a cash budget is an indication of good
planning. If such a budget is not prepared, the company runs the risk that if
unfortunately it is in sudden need of cash, there may be insufficient time for
the company to search for alternative source of financing, forcing it to accept
funding which is more expensive. After identifying the net cash position of the
company in the future, the next question is then how the company manages its
cash surplus or deficit.
Cash
Management Models
According
to (Davidson et. al, 1992) Cash management has four major functions; determination
of minimum cash balances, effective borrowing, advantageous investment of
excess cash, and acceleration of cash flow. The minimum cash balance is
established by taking into consideration the basic safety cushion needed,
minimum bank balance requirements, and the rate of daily cash collections and
disbursements. Cash balances should be maintained at the lowest practical
minimum because excess cash earns nothing and loses purchasing power in period
of rising prices (Davidson et al, 1992). The minimum cash balance should be the
basic liquidity cushion needed taking into consideration the rate of daily cash
collections and disbursements. The average cash balance (size of demand
deposit) tentatively determined can be tested against industry standard by use
of the ration of the average cash balance to total operating expenditures for
the year. (Davidson et. al, 1992). Cash management has four major functions;
determination of minimum cash balances, effective borrowing, advantageous
investment of excess cash, and acceleration of cash flow.
According
to Davidson (1992:13-12), The minimum cash balance is established by taking
into consideration the basic safety cushion needed, minimum bank balance
requirements, and the rate of daily cash collections and disbursements. Cash
balances should be maintained at the lowest practical minimum because excess
cash earns nothing and loses purchasing power in period of rising prices.
Miller-Orr Model
In
1966 Metron Miller and Daniel Orr developed a cash management model that solves
for optimal target cash balance about which the cash balance fluctuates until
it reaches an upper or lower limit. If the upper limit is reached investment
securities are bought bringing the cash balance down to the target again. If
the lower limit is reached investment securities are sold bringing the cash
balance up to the target (Gallagher and Andrew, (2003).
In
order to manage its cash balance, the company can employ a mathematical model,
one of which is the Miller-Orr model. The Miller-Orr model helps the company to
meet its cash requirements at the lowest possible cost by placing upper and
lower limits on cash balances. The operation of the model is as follows:
(i) A
company should have its desired cash level, an upper limit and lower limit on
cash balances.
(ii) When
the cash balance reaches the upper limit, the company has too much cash. It
then should use its cash to buy marketable securities in order to bring the
cash balance back to its desired cash level.
(iii) When
the cash balance hits the lower limit, the company lacks cash. It then sells
its securities in order to bring the cash balance back to its desired cash
level.
(iv) If the
cash balance lies between the upper and lower limits, there will be no
transaction in securities.
The
Miller-Orr model increases its practicability by incorporating an assumption
that cash balances randomly fluctuate and therefore are uncertain. The formula
in determining the desired cash level is as follows:
Z = 
Where
Z = Target cash balance
b = Transaction cost of buying or selling short-term
investment securities
σ2 = Variance of net daily cash flows
i = Daily rate of return on short – term investment
securities
L = Lower limit to be maintained in the cash account
If
the transaction cost is higher or cash flows show greater fluctuations, then
the upper limit and lower limit will be far off each other. As the interest
rate increases, the limits will come closer. There is an inverse relation
between Z and the interest rate. The upper control limit is three times above
the lower control limits and the return point lies between the upper and lower
limits. Hence,
Upper Limit = 3Z – 2L
Average Cash Balance =
However,
though these are commonly available models their practical efficacy is still
questionable due to the number of assumptions involved in each model.
Baumol Model
Baumol
model is an economic model that determines the optimal cash balance by using
economic order quantity concepts of inventory management. Baumol makes two
major assumptions regarding the behavior of cash balances;
·
Expenditures occur continuously.
·
Receipts, or cash in-flows, come in lump sums at
periodic intervals.
The purpose of this model is to determine the minimum cost amount of cash
obtain by converting securities to cash. The total cost has two elements
namely.
Conversion
cost (b) : It is the cost of converting marketable securities into cash. It
includes the fixed cost of placing and receiving an order for cash in the
amount conversion size. It includes the cost of communication the necessity to
transfer funds to the cash account, associated paperwork costs, and a cost of
any follow up action.
Mathematically,
the optimal conversion size (C) which minimizes total cost can be found from
the following equation:
C = 
Where,
C = Optimal size of the cash transfer
T = Total cash usage for the period of time involved
b = Cost of transaction in the purchase or sale of marketable
securities.
i = Interest rate on marketable securities.
Cash
Management Concepts
Waltson
and Head (2007) explained Cash management as the concept which is concerned
with optimizing the amount of cash available, maximizing the interest earned by
spare funds not required immediately and reducing losses caused by delays in
the transmission of funds.
According
to Zimmerer et. al. (2008) cash management is the process of forecasting,
collecting, disbursing, investing, and planning for cash a company needs to
operate smoothly. They further added that cash management is a vital task
because it is the most important yet least productive asset that a small
business owns. A business must have enough cash to meet its obligations or it
will be declared bankrupt. Creditors, employees and lenders expect to be paid
on time and cash is the required medium of exchange.
However,
some firm retain an excessive amount of cash to meet any unexpected
circumstances that might arise. These dormant cash have an income-earning
potential that owners are ignoring and this restricts a firm’s growth and
lowers its profitability. Investing cash, even for a short time, can add to
company’s earning. Proper cash management permits the owner to adequately meet
cash demands of the business, avoid retaining unnecessarily large cash balances
and stretch the profit generating power of each dollar the business owns
(Zimmerer et. al, 2008).
Cash
management is particularly important for new and growing businesses. (Jeffrey
P. Davidson et. al, 1992) indicated in their book that cash flow can be a
problem even when a small business has numerous clients, offers a superior
product to its customers, and enjoys a sterling reputation in its industry.
Companies
suffering from cash flow problems have no margin of safety in case of
unanticipated expenses. They also may experience trouble in finding the funds
for innovation or expansion. Finally, poor cash flow makes it difficult to hire
and retain good employees.
Westerfield
et. al, 1999 noted that it is important to distinguish between true cash
management and a more general subject of liquidity management. The distinction
is a source of confusion because the word cash is used in practice in two
different ways.
First,
it has its literal meanings, actual cash on hand. However, financial managers
frequently use the word to describe a firm's holdings of cash along with its
marketable securities, and marketable securities are sometimes called cash
equivalents or near cash. In our distinction between liquidity management and
cash management is straightforward, they added.
Liquidity
management concerns the optima quantity for liquid asset management policies.
Cash management is much more closely related to optimizing mechanisms for
collecting and disbursing cash, and it's this subject that we primarily focus
on this chapter.
Empirical
evidence (Early study 1980 – 1999)
In
late 1980s authors played a great contribution in the concept of cash
management. Ross et al (1988:619) explained that cash management involves three
steps;
·
Determining the appropriate target cash balance
·
Collecting and disbursing cash efficiently
·
Investing “excess cash ‘in marketable securities
Determining
the appropriate cash target balance involves an assessment of the tradeoff
between the benefits and cost of liquidity. The benefit of holding cash is the
convenience it gives the firm. A firm should increase its holding cash until
its present value from doing so is zero. The incremental liquid value of cash
should decline as more of it is held.
After
the optimal amount of liquidity is determined, the firm must establish
procedures so that collections and disbursement of cash are done so efficiently
as possible. This usually reduces the dictum, “collect early and pay late’.
Firms
must invest temporarily ideal cash in short-term marketable securities. These
securities can be bought and sold in the ‘Money market’. Money market
securities have very little default risk and are highly marketable. In this
part some related research and articles that was conducted during the period of
1980 to 1999.
Key indicators in cash
management
Without
adequate cash flow, a firm can become technically insolvent even though assets
far out way the liabilities. To reduce the chances for a firm becoming
technically insolvent, the following parameters have been recommended to be
employed in evaluating the effectiveness of a cash management system. This
includes:
·
Cash conversion cycle
·
Operation cash flows
·
Increase of decrease in cash
·
Liquidity flow index
Cash Conversion Cycle
This
is the time interval between actual cash payment/expenditure for the purchase
of productive/operational resources and the ultimate collection of cash from
the sales of products/services. The cash conversion cycle (CCC) provides a
valid alternative for measuring company liquidity. The longer the time taken to
get back the money paid out, the more the likely hood the organization is to
face technical insolvency and vice versa.
Operational Cash Flows
Cash
flows from operations are the amount of cash a firm generates in a measured
time from its operation. Various methods are used to determine the amount of
operating cash flow. The prevalent methods use the income statement and the
balance sheet to prepare the cash flow statement (also called statement of
sources and application of funds). (Kasilo, 1997).
Positive
cash flows indicate how much cash the organization has generated from
operations during the financial year. Negative cash flows indicate how much
additional cash has been used to support the operations during the same period.
Usually, a firm with negative cash flow from operations is unable to finance
its operations. De facto, it is consuming cash flows rather than generating
them. It becomes prone to technical insolvency problems and it may go
bankruptcy. (Kasilo op cit: 30, Vause and Woodward op cit: 99)
Increase or Decrease in Cash
A
corporation’s cash flow statement shows whether the firm has increase or
decreases its cash during the period for which the statement refers. Cautiously
a decrease can be indicative of how unsatisfactory the firms operations have
been during the year and vice versa. Since profits are not cash, a firm may
realize profits but still be technically insolvent (Kasilo, op cit: 31, Vause
and Woodward, op cit: 95).
If
cash flows are generated a firm may remain in business for several years while
still making losses. Usually, with meticulously handled double entry account
system, the decrease or increase in cash is simply the difference between
opening cash balance and the closing balance.
Liquidity Flow Index (LFI)
The
LIF indicates the relationship between the amount of cash that will be
available for meeting the obligations and the amount of cash required to meet
such obligation during the same period. It is cash budget’s ratio of operating
cash influence to the required cash outflows for a particular period.
Maintaining
liquidity may add value to a firm. A firm that faces variable demand can add
value by maintaining liquidity to permit it operating flexibly since changes in
operating levels can be more expensive than changes in liquidity or working
capital.
Empirical evidence (Recent study 2000 – 2012)
Though
in late 1990s some development and discussions had been advanced, yet
contributions kept on increasing from that era then. In this research some
research and articles that was conducted during the period of 2000 to 2012.
Public Sector Cash
Management
Governments
are accountable for the efficient, effective and ethical use and management of
public resources. Good cash management is an important and integral component
of this accountability function and is an established business practice in all
successful, high performance organizations.
According
to study conducted by Amani (2005) on the causes of collapse of Public
Corporations in Tanzania, fact findings revealed that finance (cash) Management
in Tanzania had been regulated through the Exchequer and Audit Ordnance of 1961
and provisions set out in Chapter 7 of the Constitution. The provisions
outlined Financial Orders which form the basis for financial regulation and
administrative procedures. Financial Orders had been issued by the Accountant
General's Office and Financial Procedures had been issued by the Central
Ministries. In this research five public enterprises will be an area of further
discussion.
Research
Gap
Cash
plays a crucial role in a company’s operation. Motives for holding cash is not
only the transactions motive, the precautionary motive, and the speculative
motive but also it is used to pay wages and salaries, trade debts, taxes and
dividends. However it enables the company to prompt pay its creditors and
suppliers so as to foster good relations but also lets the company take
advantage of favorable business opportunities. Most importantly, it keeps the
company liquid and prevents it from insolvency or bankruptcy.
There
have been a number of researches and studies conducted on cash management
practices on various fields. Mauchi, N.N. (2011), Tsaminyi, M. & Skliarova,
D. (2005), Menyah, K. (2005), Capstaff, J. (2005), Wellington, T.A. (2001),
Tenent, J. (1996), Lawrence, J. Gitman and Thomas M. Cook (1993), Dotsey, M.
(1984), Lawrence J. Gitman, E. A. (1979), H.
G. Daellenbach. (1974), William J. Baumol. (1952) etc. have conducted
researches and studies on cash management practices on respective fields.
However
there are no concrete reasons suggested to manage in public enterprises as well
as private sector. More specifically, insufficient of the studies has been found
conducted on the cash management practices in Nepalese enterprises in this research
period. There are some loopholes in terms of further research. This is the
sincere attempt to fill the loopholes to link the cash management practices
research in Nepalese enterprises with the international research.
Chapter 3 : Research Methodology
Research methodology refers to the various sequential steps to be adopted
by researcher in studying a problem with the certain subject/object in view. The
major contents of research methodology followed in course of this study are as
follows:
Research
Design
A
research design is the arrangement of conditions for collection and analysis of
data in a manner that aims to combine relevance to the research purpose, with
economy in procedure (Kothary,1988). Descriptive and comparative research
design will be adopted in this study.
Nature and
Sources of Data
Both
the primary and secondary data will be relevant to this study. However, most of
the data in this study will be gathered specially from the secondary sources.
But primary data is also used when secondary data are inadequate or as per
requirement of the study. Primary data will be collected through the discussion
with concerned experts and subject, observation and structure questionnaires as
well as unstructured interview. The secondary data including information will
be collected from following source: Balance sheet, financial statement,
operational reporting of particular organization. Similarly bulletins,
articles, journals, central library, CBS, CEDA library, Economic survey and
plans different websites etc will also be used.
Population and
Sample
The
word population is used in statistics denotes the aggregate from which the
sample is to be taken. Under the population survey method, data are collected
for each and every unit of the population or universe, which is the complete
set of items, which are of interest in any particular situation. There are
various private organizations and 36 public enterprises operating in Nepal . There
are 176 listed companies in the operation, up to October 1, 2010 according to
NEPSE. Out of them, only seven from
public enterprises and 18 from listed companies are under manufacturing sector
in Nepal .
These are the population of the study. Five public and five private
organizations will be selected as sample using judgmental basis.
Research Variables
Sales,
current assets, leverage, cash flow, debt, financial distress, profit and loss,
feedback and supervision as control variables will be analyzed in proposed
research.
Tools Used in
Research
Data
will be managed and analyzed in proper table, with formats, interpretations and
explanations made. To analyze the collected data, financial tool i.e., ratio
analysis, financial distress, statistical tools like mean, standard deviation,
coefficient of variation and coefficient of correlation, regression, T-test , F
test and Chi-square test will be used. Some diagrams will also be used for
effective analysis.
Organization of the Study
The whole study is organized into five chapters in the following order.
Chapter I: Introduction
This chapter includes Overview, statement of the problem, objectives of
the study, need of the study, the limitation of the study and scheme of the
study.
Chapter II: Review of Literature
The second chapter reviews the pertinent literature related to this
study: It includes the review of published books, Journals, Articles, thesis
and dissertation. Besides this, the laws, act polices rules and regulation
relating to cash management would also be reviewed under the study.
Chapter III: Research Methodology
This chapter consists of introduction, research design sources and nature
of data, population and sample, method of data collection and analysis of data.
Chapter IV: Presentation and
Analysis of Data
The fourth chapter deals with systematic presentation and analysis of
data where various analytical tools and techniques are used to analyze and
interpret the data. This chapter also deals with the descriptive procedure
where analytical tools cannot be used. This chapter is a key chapter for the
present study and findings from the analysis are mentioned.
Chapter V: Summary Conclusion and
Recommendation
The final fifth chapter is devoted to summarize the whole study. Recommendations
based on findings are made for future improvement in recommendation, statement
suggestions and problem solving suggestions are included. And based on
findings, summary and conclusion are drawn.
Reliability
Generally
speaking, reliability indicates the accuracy in terms of measures, tools and
procedure. If we get the same result frequently, it is considered reliable.
Fundamentally reliability of the questionnaire will be looked into go this formalize
data.
Kirk and Miller identify
three types of reliability referred to in quantitative research which relates
to:
·
The
degree to which a measurement, given repeatedly, remains the same.
·
The
stability of a measurement over time; and
·
The
similarity of measurements within a given time period. (Kirk & Miller,
1986).
Validity
Validity
represents any study that accurately depicts the particular conception or idea
that the researcher is trying to measure. Validity is one of the strengths of
qualitative research and it is based on determining whether the findings are
accurate from the standpoint of the researcher, the participant, or the readers
of and account (Creswell, 2009). There are four types of validity. They are
given below (Creswell, 2009):
·
Statistical conclusion validity: It
refers to the appropriate use of statistics (e.g., violating statistical
assumptions, restricted range on a variable, low power) to infer whether the
presumed independent and dependent variables covary (discoverable) in the
experiment.
·
Construct validity: It means the validity
of inferences about the constructs (or variables) in the study.
·
Internal validity: It relates to the validity of inferences drawn
about the cause and effect relationship between the independent and dependent
variables.
·
External validity: It refers to the
validity of the cause-and-effect relationship being generalizable to other
persons, settings, treatment variables, and measures.
Above validity will be
checked in the research to make it more valid and realistic. Proper attention
will be given to the reliability and for credibility, dependability of the
study. The precise care and attention will be given to select the tools,
techniques, model respondents for instance.
Ethical Principles
Ethic is the set of principles
of right and wrong that are accepted by an individual or a social group. It is a standard of rules and regulation.
Ethics, as we understand a method, process and perspective for evaluating
complex problems and issues. It is a prominent part of research.
The following is a general summary
of some ethical principles that various codes address (Shamoo & Resnik,
2009):
·
Honesty: Honest reporting of data,
results, methods and procedures, and publication status.
·
Objectivity: Unbiased and imperial
explanation of research design, data interpretation, peer review, and so on.
·
Integrity: Act with sincerity and strive
for consistency of thought and action.
·
Carefulness: Keep good records of
research activities and avoid careless errors and negligence.
·
Legality: Know and obey relevant laws and
institutional and governmental policies.
·
Non-Discrimination: Avoid discrimination
against anybody on the basis of sex, race, ethnicity, language, or other
factors.
·
Confidentiality: Protect confidential
communications, such as personnel records, correspondence, trade secrets and
patient records.
·
Respect for intellectual property: Honour
patents, copyrights, and other forms of intellectual property. Do not use data
and other documents without permission. Give credit where credit is due.
As a researcher, I will pay
deep homage and respect to all the philosophical thoughts and principles while
carrying out all the research activity. Besides this, I am devoted to give
special attention to all ethical disciplines.
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