CASH MANAGEMENT PRACTICES (A STUDY ON RESIDENTIAL FACILITIES FOR KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY STUDENTS)
This study was conducted to gain information on current cash management practices of the various Halls and Hostels that provide accommodation for Kwame Nkrumah University of Science and Technology (KNUST) Students. Purposive sampling technique was adopted to select the respondents for the study and data was collected mainly through the use of questionnaires. The data collected was analyzed using Statistical Package for Social Sciences (SPSS). The study revealed a worrying situation as unlike the practice in Halls of Residence, majority of the Hostels studied do not adhere to good cash management practices in terms of proper cash planning, control and disbursement. The study also highlighted some factors that pose as a challenge to effective cash management in both facilities which includes inadequate information on avenues to invest cash surplus and finance cash gaps; the seasonal nature of their major cash inflow against all-year-round cash disbursement and the unfavourable economic conditions prevailing in the country. The Researcher recommends a closer partnership between the University and the Hostel facilities by providing training and support on cash management issues for owners and managers.
TABLE OF CONTENTS
TABLE OF CONTENTS vi
LIST OF TABLES ix
LIST OF FIGURES… x
CHAPTER ONE 1
Background of the study1
Statement of the problem.3
Objectives of the study3
Significance of the study4
Scope of the study5
Limitations of the study5
1.9 Organization of the study 5
CHAPTER TWO 6
REVIEW OF RELATED LITERATURE 6
Definition of cash6
Motives for Holding Cash.6
Cash Management Studies in Ghana11
Cash flow statement.13
2.5.3 Sensitivity Analysis. 14
Electronic Fund Transfer.17
Cash Management Models.18
The Baumol Model.19
The Miller-Orr Model.21
Investing surplus cash23
CHAPTER THREE 24
RESEARCH METHODOLOGY AND PROFILE OF STUDY AREA 24
Population of the Study25
Sampling and Sampling Techniques.25
Sources of Data Collection.26
Data Collection Method.27
Profile of the Study Area27
CHAPTER FOUR 29
DATA PRESENTATION ANALYSIS AND DISCUSSION OF FINDINGS 29
Demography and Facility Profile29
Type of facility29
Highest level of educational of respondents.30
Age of Facility30
Facility’s intake in relation total demand.31
Cash Management Practices35
Cash holding Motive.35
Causes of deviations from cash targets.37
Investment of cash surplus.39
Factors considered in selecting a marketable security40
Managing cash flow41
Financing cash shortage43
Level of influence of respondents on cash management issues.44
Challenges to Effective Cash Management46
4.4.1. Relevance of effective cash management on survival and growth of the facility.48
CHAPTER FIVE 50
SUMMARY, CONCLUSIONS AND RECOMMENDATION 50
Summary of findings50
REFERENCES / BIBLIOGRAPHY 56
APPENDIX I 59
LIST OF TABLES
Table 1: What type is this facility? 29
Table 2: What is your highest level of education? 30
Table 3: How old is this facility? 31
Table 4: What is the percentage of students intake in relation to total demand? 32
Table 5: What are the reasons of holding cash? 36
Table 6: Do you prepare any form of cash forecast? 37
Table 7: What mainly account for the deviation from cash targets? 38
Table 8: Do you keep proper accounting records? 39
Table 9: How is idle cash utilized? 40
Table 10: Reason for the choice by facility type 41
Table 11: What mode of payments (Major) is used by the facility? 42
Table 12: How is cash shortage is funded by the facility? 44
Table 13: What is your level of influence on cash management issues in the facility?46 Table 14: Relevance of cash management on survival and growth of the facility 49
LIST OF FIGURES
Figure 1: Cash receipts by facility type 33
Figure 2 : Cash disbursement by facility type 35
Figure 3: Challenges to effective cash management practice by facility type 48
CHAPTER ONE INTRODUCTION
Background of the study.
Cash is seen as the “life blood” of every business organization. Khan and Jain (2013) indicate that, apart from the fact that cash is the most current asset, it is also seen as the common denominator to which all current assets can be reduced. They explain this to mean that all other liquid assets, such as; inventories, receivables and marketable instruments will all be converted to cash eventually.
According to Scherr (1989), “cash management deals with determining the optimal level of cash, the appropriate types and amounts of short-term investments in cash as well as the efficient methods and controls of cash collections and disbursements”. This involves the administration of liquid assets and liabilities, and the raising of funds to finance a business.
As a greater portion of every transaction involves the receipt or disbursement of cash, efficiency in cash control is essential to ensuring that a business remains liquid enough to be able to meet payment obligations when it is due. This is carried out through the management of cash receipts and payments, cash balances and cash transfers between the different departments of the business.
While holding cash has its own benefits to the business, it nonetheless comes with a cost - the opportunity cost of the profits that could be made if the cash was invested elsewhere. It is therefore the duty of the financial manager to balance the firm’s liquidity with its profitability.
A business organization must develop appropriate mechanism to manage and correctly forecast its cash needs in order to make appropriate decisions with respect to borrowing and investment. Proper cash management therefore is an effective way of ensuring that the little cash available to the business is managed well to bring full benefit to the business in question.
Planned acquisition and utilization of cash or near cash resources ensures that businesses are in the position to meet their liquidity requirement while earning reasonable profits on their cash reserves. On the other hand, poor cash management practices can result in cash flow a problem which is characterized by inability to honour financial obligations, inability to put idle funds into profitable ventures and failure to expand.
Unfortunately, studies on this subject matter reveals that availability and proper management of funds remains a major challenge to the survival, growth and expansion of businesses in Ghana. Mbroh (2012) indicated that, although the burden of cash management remains critical in discussions regarding the establishment, operation, successes or failure of the business sector, majority of businesses operating in Ghana are cash-trapped as a result of inadequate cash inflow to meet their operational needs. Logli (1981), on the other hand, identified poor management of funds as a major problem affecting businesses in Ghana.
This study is conducted to provide current understanding on how the various aspect of cash management are carried out in the various Halls of Residence and Hostel Facilities that provide accommodation for the Kwame Nkrumah University of Science and Technology (KNUST) Students.
Statement of the problem.
In recent times, the accommodation issue has been a major challenge faced by KNUST Students. Although accommodation fees continue to be on the rise, these Halls and Hostel facilities have not been able to expand enough to meet the increasing demands for their services.
Notwithstanding the vital role cash management play in every business organization, it is unfortunate that lot of studies in this area is focused on corporate institutions such as the banks.
It is in light of this that this research is conducted to provide current understanding on how the various aspect of cash management are carried out in the various Halls of Residence and Hostel Facilities and provide recommendations where necessary.
Objectives of the study.
This study is aimed at gaining understanding of how cash management practices are carried out by the financial managers of the various residential facilities for students in KNUST.
The study specifically seeks following;
1. To ascertain the major sources of receipts and disbursement of cash for the selected facilities.
2. To identify the organizational practices and procedures in relation to cash management.
3. To identify the challenges faced by the Finance Manager in cash management.
1. What are the major sources of cash receipts and disbursement?
2. How is the various aspect of cash management carried out?
3. What has been the challenge(s) in the management of cash?
These and other research questions will be answers through the research objective.
Significance of the study.
This study will help provide insight to stakeholders and policy markers with regards to issues concerning cash management in residential facilities for the students in KNUST.
It is also the aim of the research to provide recommendations to interested parties on how best cash can be managed efficiently to ensure optimum benefit.
The research will further serve as a reference document to aid in further research in this area of study.
Overall, this study provides useful strategic data to government and its agencies, the businesses community and all stakeholders, in order for them to double their cash management efforts to grow themselves so as to expand this sub-sector of the economy.
Data on the research work was obtained from primary source. Primary data was collected directly from the field administering questionnaires and face-to-face interviews. Collected data from the sample was put into quantitative analysis and Statistical Package for Social Science (SPSS) was employed in the data analysis.
Scope of the study.
With the view of providing an in depth information about the subject matter and also because of time constraint, the focus of the research was limited to five (5) main Halls of Residence of KNUST and fifteen (15) selected hostels in and around the KNUST Campus. The research also centered on both the Bursars of the respective Halls of Residence in KNUST and Managers of the selected Hostel facilities in and around the KNUST Campus.
Limitations of the study.
As part of any research work, the researcher is usually confronted with certain issues that hinder the smooth running of the research work. One of such is time constraint in conducting this research due to the fact that the researcher had to combine both academic and research work, hoping to successfully complete the research on time.
The attitude of some of the respondents posed as a challenge as they were reluctant in giving out certain information because of the fear of victimization.
1.9 Organization of the study.
The first chapter introduces the research study and highlights the general overview of the study. Chapter two focuses on reviewing literature on definition of terms, concepts, publications and scholarly articles on the study. The Chapter three focuses on the methodology the researcher adopted covering the sample size and techniques, methods of data collection, and methods of data analysis (statistical procedures). Chapter four presents the analysis and findings and the final chapter, Chapter five summarizes findings, conclusion and recommendations..