EFFECTS OF WORKING CAPITAL MANAGEMENT ON COOPERATIVE EFFICIENCY

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EFFECTS OF WORKING CAPITAL MANAGEMENT ON COOPERATIVE EFFICIENCY

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Working capital management in cooperative business is concerned with the management of the enterprise current account which encompasses current asset and current liabilities. The management of Working Capital in Cooperatives is one of the most special aspects of industrial overall financial management. If the cooperative enterprise cannot maintain a satisfactory level of working capital, it is likely to become bankrupt. The current asset of the cooperative enterprise should be large enough to cover its current liabilities in order to maintain a reasonable margin of financial safety. Working capital management in Cooperative deals with actual management of current asset and current liabilities in the enterprise.

Working Capital can be defined as the excess of current asset over current liabilities. Onuoha(2009). Basically, there are four conventional class of current asset which are cash, inventories, marketable securities and account recurable while current liability entail account payable, accruals and taxes working capital is used to finance production to invert in stock and to provide credit to customers. A deeper understanding of the importance of working capital by a cooperative society and it’s satisfactory management can lead not only to efficiency of capital management but also assist in fulfilling the ultimate aim of the cooperative business such as increasing surpluses, maximizing cost and return on cooperative investment.

Consequently, the extent to which working capital management affect cooperative efficiency is the thrust of this study.

Statement of the Problem

Working capital is the live wire of any enterprise which means that its management is quite crucial to the business. Cooperative societies of whatever type survive with efficient working capital management. The capital of the cooperative enterprise has to be effectively managed for the benefit of the cooperative business so that stated objectives can be achieved. Given every stage and level of cooperative activities, finance tends to play a significant role in the efficiency of the enterprise.

Many cooperative businesses may have adequate finance but could lack proper efficient working capital management. It is disheartening to discover that several cooperative societies seem not be performing up to expectation even in the light of apparent effective and efficient working capital management on cooperative efficiency so that informed measures could be taken to facilitate efficient working capital management in cooperatives in such a way that the cooperative business can effectively achieve stated objectives for the benefit of the members. Consequently, how working capital management affects cooperative efficiency and the modalities that could ensure effective working capital management to promote cooperative business is the thrust of the study.

Objectives of the Study

The objectives of this study are to:

Find out how working capital management affects cooperative efficiency.
Determine the extent of member’s participation in working capital management in cooperatives.
Find out the modalities in ensuring effective working capital management by cooperative organizations.
To identify the problems affecting efficient working capital management in cooperatives.

1.4 Research Questions

The research questions of this study are:

What are the effects of working capital management on cooperative efficiency?
What is the extent of member’s participation in working capital management in cooperatives?
What are the modalities in ensuring effective working capital management by cooperative organizations?
What are the problems affecting working capital management in cooperative?

1.5 Significance of the Study

This study examines the effects of working capital management on cooperative efficiency. No doubt, this study is significant to government cooperative departments, cooperative societies and of course incoming students.

It is hoped that at the end of this research work, the findings will reveal which pattern of working capital management will be ideal for any cooperative society. The society will be able to appreciate what is capital composition will be for effective and efficient running of the society towards attaining her aims and objectives. Hence, the significance of this study can be said to be enormous.

To the government cooperative department, the result of this study will be a pointer for evaluating problems hindering the development of cooperative societies in the country with reference to working capital management. Besides, the government cooperative department can also use the research findings to protect cooperative from exploitative by some individual, groups, private business and other cooperative organization and other researchers may use this study as a reference material for their own study by referring to the research methodology, data presentation modalities and the pattern of statistical analysis.

Scope and Delimitations of the study

This study finds out the effects of working capital management on the efficiency of cooperatives, an examination of the extent of member’s participation in working capital management by cooperative organizations fall within the ambit of the study. Included in the scope is a critical assessment of the problems affecting working capital management by cooperatives so that possible solutions could be proffered.

1.7 Definition of Terms

The following terms are contextually defined:

Account Payment: This is the receipt of inventories and payment for it.
Account Receivable: These are all payments made to an organization for the sale of its inventories and collection or receivable.
Accruals: These are liabilities not paid for but postponed to the following financial years.
Bankruptcy: The inability to pay debt in full and the asst of the business confiscated and distributed to the business creditors.
Business: Any legal activities which individual, group cooperative bodies etc. engage themselves in doing to provide satisfying goods and services with the ultimate aim of making profit.
Current Liabilities: These are liabilities that can be payable within the next accounting year and operational circle and which can be incurred in the ordinary course of business. These will consist of money owned to suppliers, tax and all other current expenses that will be incurred by the cooperative enterprises.
Inventories: Inventories are stocked goods which include raw materials, spare part, tools, component, assembles, semi finished goods, finished goods.
Management: The effective and efficient utilization of human and material to achieve organizational goal and objective i.e ability to get things done through other people.
Working capital: This is simply current asset minus current liability. Current assets are the assets that will be turned over in the normal course of the business. They include stock of goods, debtors and cash at hand etc.