THE SIGNIFICANCE OF CASH MANAGEMENT ON PROFITABILITY OF A

BUSINESS ORGANIZATION (A CASE STUDY SELECTED SMES IN KITGUM

MUNICIPAL)

BY

OTEMA SUNDAY

A RESEARCH REPORT SUBMITTED

TO THE FACULTY OF BUSINESS AND MANAGEMENT IN PARTIAL

FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF A
BACHELOR OF BUSINESS ADMINISTRATION DEGREE OF KAMPALA
INTERNATIONAL UNIVERSITY.

SEPTEMBER 2018

DECLARATION
 I here declare that this research work is my original work, not duplication from

any source

Name: OTEMA SUNDAY

Signature…………………………
 APPROVAL

This work study was done by Otema Sunday entitled “The significance of cash

management on the profitability of business organization’’. Case study selected SMEs in

Kitgum munispality has been under my supervision it’s ready for examination.

Sign……………………………………
 Mr EBONG CHARLES

Date………………………………………

DEDICATION
ACKNOWLEDGEMENT
 ABSTRACT
This study was all about “the significance of cash management on profitability of a
business organization”, a case study of selected SMES in Kitgum Municipal. The study
was guided by the following Objectives; to establish the effectiveness of cash
management policies adopted by SMES, to assess the level of profitability of SMES, to
establish the relationship between cash management and profitably of SMES. The study
was both qualitative and quantitative approaches. The sample size comprises of 50
respondents which was arrived at through the use of KREJCIE and Morgan (1970), both
purposive and sample random samples technique was used to select respondents:
Data was primary and secondary sources and the data collection instrument was interview
schedule and questioner guide. Data was presented and analyzed by use of percentage
and spearman’s correlation coefficient to establish the relationship between them. The
finding revealed that there was a significant positive correlation between cash
management and profitability of business enterprise. The study recommends that
management of SMES should endeavor to establish a formal cash management policy in
place and they should ensure that these policies should be adhered to.

TABLE OF CONTENT

COVER PAGE PAGE

Declaration……………………………………………………………………..i
Approval…………………………………………………...............................ii
Dedication………………………………………………...............................iii
Acknowledgement……………………………………………………………iv
Table of content………………………………………………………………v
List of tables…………………………………………………..........................vi
List of abbreviation……………………………………………………………vii
Abstract……………………………………………………….........................viii

CHAPTER TWO
INTRODUCTION
1.0 Introduction
1.1. Background to the Study
1.2. Statement of the Problem
1.3. Purpose of the Study
1.4. Objective of the Study
1.5. Research questions
1.6. Scope of the Study
1.6.1. Subject Scope
1.6.2. Time Scope
1.6.3. Geographical Scope
1.7. Significance of the Study
1.8. Conceptual frame work
1.9. Terms used in the Study

CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1. Cash Management
2.1.1. Cash management practices
2.1.14 Importance of Cash management practices
2.1.1.5. Cash Management Challenge faced by SMEs
2.2. Profitability of a business enterprise
2.2.1. Measures of profitability
2.3. Relationship between cash management and profitability of a business enterprise
2.4 Conclusion
CHAPTER THREE
METHODOLOGY
3.0. Introduction
3.1. Research Design
3.2. Study population
3.3. Sample Design
3.3.1. Sample size
3.3.2. sampling techniques
3.4. Source of Data
3.4.1 Primary Source
3.4.2 Secondary source
3.5. Data collection methods instruments
3,6. Data Reliability or Validity
3.6.1. Reliability of the research instructors
3.7. Data presentative
3.7.1 Editing
3.7.2 Coding
3.7.3. Tabulation
3.8 Data Analysis
3.9. Ethical consideration
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.0. Introduction
4.1. Response Rate
4.2. Background Characteristic of respondents
4.3. Establishment of the effectiveness of cash management Policies
4.4. Assessing level of profitability of SMES
4.5 Establishing the relationship between cash management and profitability of SMEs.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION TO THE STUDY
INTRODUCTION
5.1. Summary of Findings
5.1.1. Background Characteristics of Responded
5.1.2. establishing the effectiveness of Cash Management policies
5.1.3. Assessing the levels of profitability of SMEs
5.1.4. Establishing the Relationship between Cash Management Profitability of SMEs
5.2. conclusion
5.3. Recommendations
5.4. areas for further research
  Referees
 Appendix A-Questionnaires
 Appendix B-Proposed Budget
 Appendix C-Time Schedule
 Letters of Introduction

LIST OF TABLES
Table 3.1. sample size
Table 4.1. showing genders distribution of respondent
4.2. Showing age distribution of respondent
4.3. Showing marital status
4.4. Showing level of Education
4.5. Showing number of years, the respondents has been in the enterprise.
4.6. Showing the establishment of the effectiveness of Cash Management Policies
4.7. Assessing the level of profitability of SMEs
4.8 Showing the Summary of all response

LIST OF ABBREVIATIONS
SMEs-Small and Medium Enterprise
CAP_ Certified Public Accountant
ROE- Return on Equality
ROL- Return on investment
ROCE-Return on Capital Employed
EBIT-Earning Before profit, internet and Tax
EAT-Earning After Tax
CHAPTER ONE
INTRODUCTION
1.0. INTRODUCTION
This chapter presents the background to the study, statement of the problem, purpose and
Objectives of the study, research questions and scope of the study and the significance of
the study.
1.1. BACKGROUND TO THE STUDY
The success of any small and medium Enterprise (SME) depends on a number of factors
including cash management practices. Unfortunately, many SMES overlook the role of
proper cash management, resulting into solvency (Masocha and dzonorida, 2016) that
forces them into borrowing to strengthen their operations. Since financial management,
particularly cash management is core in the growth and profitability of SMEs, its
ineffectiveness and inefficiency are detrimental in their longevity and profitability. Cash
management is an essential tool which aims at establishing the financial position of the
organization According to Pandey (2004), as cited by Akinyemi (2014), cash
management is defined as a practice of the ability of controlling the cash inflows and out
flows in a business, It also entails the ability to establish the cash balances that are held in
a business at all times. Uwuigbe, Uwalomua and Egbide (2011) indicated that cash
management entails taking the needed precautionary measures to ensure that adequate
cash levels are maintained in the business so that the operational requirements could be
met. Cash management is concerned with; collection concentration, and disbursement of
cash including, measuring liquidity managing cash balances and short-terminvestment.
(cash management://www.refere for business.com). It is the set of guidelines established
by management to ensure that the organization has optimal cash balances at any time to
meet organization’s goals cash recovery should be matched with cash spent on series, so
that there are no unused cash balances
From the above it can be seen that cash management requires; efficient planning of cash,
approval of cash expenditure, safe custody of cash and allocation of cash. This will safe
guard the obligations of the firm and hence making it able to achieve its needs: however,
organization may fail to meet its obligations due to misappropriation of cash, limited cash
resources, poor safety of cash and poor allocation of cash. It is upon this that organization
may fail to succeed without cash or the liquid assets (banking capital) that are necessary
to operate on a daily basis the enterprise risk becoming insolvent. And developing
economies however, SMEs do not keep track of cash flows with the intention of avoiding
taxes (maggevol, Rebound and Clank, 2015). Cash is a generated from sale revenues
(accounts receivable) and if this cash flows slows due to falling sale, or slow recovery of
the accounts receivable, the business will need a cash or injection become insolvent. Cash
is used to pay business Obligation and it is a vital component of working capital as it
keeps the business running (you set 2016). The adequacy of cash and other current assets
together with their efficient handling virtually determine, the profitability or extinction of
a business concern.
The term small and medium enterprise (SMEs) covers a wide range and of definitions
and measures, varying from country to country and between the sources reporting SME
statistic. Although there is no universally agreed definition of SMEs, some commonly
used criteria are the number of employee’s, value of assets, value of sale and size of
capital (Bataa,2008). In Uganda SMES are officially defined based on both number of
people employed and annual turnover of the enterprise (Turyahebwa, Sunday, and
Ssekajugo, 2013). They are enterprise employing a minimum of 5 people and a maximum
of 50 people, with an annual sales/revenue turns over of more than UGX 360 million and
total assets of more than UGX 360millions. The contribution of SMEs to Uganda’s
economy is well over ninety percent (90%) of the total non-firm private sectors
employment, approximately 2% of the national gross domestic product (GDP) and over
20% of income of the labour force (Myanyi, 2015). However, in Uganda, 90% of SMEs
collapse in their first year of startup due to poor cash management (Urinative and
Mwesigwa, 2015) According to the study carried out by Okello (2008), SMEs have
different types among others, they include, fueling stations/ gas station/ petrol stations,
milk cooling plants, Restaurants, Bars Hotels maize milling, garages, Jua-Kali General
Merchandise Saloons stationary, hardware shops, pharmacy/Clinic etc. According to
Bank of Uganda (various years) Quarter and annual reports SMEs are increasingly taking
the role of Primary Vehicle for creation of new jobs that is employing about three million
(3,000,000) people contributed to about 70% of GDP as well as paying for national
development. On top of that they also provide the economy with a continuous supply of
ideas, skills and innovation necessary to promote competition and allocation of scarce
resources domestics’ linkage such as the link between agriculture and large-scale
industries and ensuring equitable distribution of incomes. This has in turn helped to
mitigate the problem associated with unplanned urbanization, offering efficient and
progressive decentralization of the economy. This SMEs play a crucial role in creation of
opportunities, that make the attainment of equitable and sustainable growth and
development possible. Despite the role they play in the economy the performance of
these SMEs in terms of profits has remained poor. This may be due to, limited access to
cheap funds needed for long term growth through new investment and taking up new
opportunities, poor cash management, lack of managerial training and experience,
inadequate skills and Education needed to run SMEs, Nationals Policy and regulatory
frame work, technological changes that is since 1990s, there has been a growing concern
about the impact of technological change on the work of SMEs, poor infrastructure
scanty market information, and low productivity and profitability, hence impending the
success of SMEs (Ladu,2011).
Basing on the above background, it has prompt the researcher to investigate whether the
root cause of the problem is due to cash management as his starting point to have other
factors brought on board.
1.2. Statement of The Problem
Cash management is not a matter of choice it is something that must be undertaken in any
business (pande, 1998). There is no precise way of determining the exact amount of cash
that can enable all SMEs to succeed. It should however, be noted that the strength of an
enterprise would be determined on how managers handle the daily cash flows. Cash
management needs proper skills in financials management and training with adequate
experience in resources mobilization. Much as emphasis have been put on cash
management and financial management training and development of mangers, its impact
is still very low and manages are falling to manage cash in their organization. Most up
coming SMEs have faced a lot of challenges related to cash management thus leaving to
the death of their SMEs its upon this background where the researcher is investigating
how cash management in an organization affects the profitability of SMEs and possibly
propose a better solution to these challenges.
1.3. Purpose of the study
The study seeks to establish the significance of cash management on profitability of a
business organization, a case study of selected SMEs in Kitgum Municipal.
1.4. Objectives of the study
The study seeks to achieve the following objectives.
 To establish the effectiveness of cash management policies, adopted by selected
SMESs in Kitgum Municipal.
 To assess the level of profitability of SMEs in Kitgum Municipal.
 To establish the relationship between cash management and profitability of SMEs.
1.5. Research questions
The study was guided by the following research questions
 Are cash management Policies adopted by selected SMEs in Kitgum Municipal
effective?
 How is the level of profitability of selected SMEs in Kitgum Municipal?
 What is the relationship between cash management and profitability of SMEs
1.6. Scope of the study
1.6.1. Subject scope
The study emphasizes on cash management and profitability of a business organization,
the independent variable being cash management and dependent variable being
profitability of a business organization.
1.6.2. Time Scope
The study covered a period between 2015/2016 and 2016/2017 financial year. This
period enables the researcher to collect data which is vital for this study.
1.6.3. Geographical scope
 The study was conducted in Kitgum Municipal at selected SMEs. Kitgum town is located
in Northern Uganda and in the North being a town enroute to Southern Sudan.
1.7. Significance of the study
This study is expected to benefit the following categories of stakeholders.
 SMEs owners in Kitgum Municipal. The study finding would enable them assess
how they have been managing cash in their organization and come up with
remedies to areas of weakness.
 To other SMEs in Kitgum Municipal the study funding would enable them to
improve i.e. Cash management in order to improve on their profitability.
 To the policy makers especially the Ministry of trade and commerce, the finding
from this study would enable them come up with appropriate strategies on cash
management in SMEs.
 To other researcher, the finding from this studying would act as a basis for further
research on cash management or other related areas.
 To the researches the study would enable him acquire more skill and knowledge in
research

1.8. Conceptual frame work

The study conceptualized as in figure) 1.1
Figure 1.1. conceptual frame work

INDEPENDENT VARIABLE DEPENDENT VARIABLE

PROFITABILITY OF SMES
CASH MANAGEMENT
o Return on asset
o Cash planning
o Return on equality
o Cash flows management
o Return on investment
o Cash control
o Return on capital employed
 INDEPENDENT VARIABLE
o Skills and training
o Business environment
o Government support

Source: literature review

As seen from above cash management with contracts (cash planning) cash flow
management, cash control) influence profitability of SMEs with the constructs (Return on
asset return on equality, return on investment and return on capital employed. This
however, depends highly on the level of skills, training, business environment and
government support (independent variable due to time constraint however, these factors
would not be taken under consideration.
1.9. Term used in the study
 Cash -cash comprise of cash on hand and demand deposit
 Cash Budget-A cash budget refers to a forecasts of cash receipts and cash payment
of the business.
 Cash flow-this is the amount of money that the business is able to retrieve from
customers and debtors (cash inflow) and the same amount of money that the
business that the business is able to spend (cash outflow) in a period.
 Expense- An expense is defined as the decrease in economic benefit during the
accounting period in the form of out flows, from the business.
 Income-An income is defined as increase in economic benefits during the
accounting period in the form of inflows to the business.
 Profit-This is the difference between total income carried and total expenses
incurred.
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION TO THE STUDY FINDING

5.0 INTRODUCTION
This chapter present the summary, conclusion and recommendation. The summary and
conclusions, were based on the finding, on each objective, while recommendations were based
on areas that needed attention by various stakeholders

5.1. Summary of Findings

5.1.1. Background Characteristic of Responded

On gender distribution of respondent the study finding revealed that most respondents were
within the age bracket of 30-39 years as represented by 40%. The findings further showed that
majority of respondent were married at 52%. As regard the Education level, the result indicated
that most respondents were Diploma holders this was at 42% further still the study revealed that
most respondent have been with the organization between 4-7 years.

5.1.2. Establishing the Effectiveness of Cash Management Polices.

On whether there are journal cash management practices in the enterprise the result showed that
majority of respondent represented by 68% disagree. The finding however, showed that most
respondent represented by 72 discovered with the statement that the management and employees
are aware of the cash management practices in place. The finding further revealed that this cash
management practices are not adhered to. This was at 70%. The study finding further showed
that SMEs efficiently plan for its cash as represented by 48%. On whether the cash flows are
management easily, the result showed that majority represented by 68% agree. The finding
further indicated that most SMEs take precautionary measures, on cash level, this was at 82%.
The result however, revealed that there is no proper management of cash in most SMEs.The
finding further revealed that at times SMEs may not have cash whenever it is needed as
represented at 64%, the result also indicated that there no effective control over cash balance
brought down,at 68%. Regarding control over finding showed that there is proper control, this
was represented by 60%. On cash collected the result showed that there is majority of responded
represented by 66% agree that it is properly controlled in SMEs. The finding is not on a daily
basis, this was at 64%. Still the result indicated that there is no control over petty cash, this was
at 68%. On cheque payment the finding revealed that there is proper’s control over cheque
payment as represented by 66%. Lastly the finding however, showed that most SMEs do not
have a strong cash control system in place

5.1.3 Assessing the Level of Profitability of SMEs

On profitability of SMEs, the finding revealed that most enterprises have been profitable within a
period of 3 months this was at 60%. On profit level the finding however noted that the level of
profitability has remained low. The finding also showed that SMEs earnings after tax are very
low as represented by 56%. The result also indicated that SMEs net profit is low.

The result further showed that SMEs profit margin is low this was at 58% regarding return on
equality the finding revealed that it is still very low as represented by 64%. Regarding return on
investment the finding showed that it is high, this was that SMEs in Kitgum Municipal, this was
at 70%. Concerning the level of earing, the result showed that it is still very low as at 62%.
Regarding income and expenses, the result indicated that the income is always in excess of
expenditure this was 62%. The study finding lastly revealed that SMEs strides hard to reduce
their operation expenses while increasing their revenue.
5.1.4. establishing the relationship between cash management and profitability of SMEs

On the relationship between cash management and profitability of SMEs, the finding revealed
that there is a significant positive correlation between SMEs as represented by r=0.7: All
correlation analysis expresses the strength of the linkage between two variables in a single value
between. On the effectiveness of cash management, it was concluded that there are no formal
cash management practices in place as exudence by management and employees not being
aware, the system is not adhered to the proper management of cash, not having cash at all times,
no effective control over cash balance brought down.

On the level of profitability, it was concluded that most SMEs are profitable deposit, the fact that
the level is still low;

On the relationship between the variable the study positive collection between cash management
and profitability of SMEs as evidence by r=0.7.

5.3. recommendation

Based on the finding drawn from the study the researcher represents the following
recommendatives.

Management of SMEs should endeavor to establish a formal cash management practices in

place, so as guide in the operation of the business.

 The organization should ensure that both management and employees of the enterprise
should be aware of this practices in place
 The management should ensure that the cash management practices, in place should be
adhered to.
 Management should ensure cash availability whenever, it is needed as this of the
business.
 The enterprise and the management in particular should ensure daily banking. Of cash
collection this would avoid risk associated with keeping cash in the business primes
 Management and employees should strive to improve in the profit level of the business
this could be achieved by controlling expenses.
 5.4. limitation to the study during the course of the study the researcher uncover the
following limitation
 Unwillingness by some respondents to give relevant information as they suspected the
researches to be a government spy. This however, was addressed by presenting an
introducing letter from the University.
 Slow response on some questionaries’ as some of the respondent were reluctant to give
relevant information here appointment to meet respondents were made.
 There was limited time since the researcher had to balance the research and attending
lecture and prepare for test and exams. This was however solved by adhering to time
table.
 Inadequate fund to cater the expenses such as to a sport priority, and internet service. The
researcher solved this by seeking support from personal friends and personal savings.
 The researcher used only interview method of data collection which could not cover all
potential respondent with knowledge of the study variable. This however was shown by
designing questionnaire guide and interview guides

5.4. Area for Further Research

The study and recommends the following areas for further research.

 Cash flows management and finance performance of a business enterprise.

 Cash management and survival of business enterprise
 Sources of financing and profitability of a business enterprise.

Appendix A. research questionnaire

Dear Respondent

I ‘am Otema Sunday a student of Kampala international University under taking a course
leading to the award of a Bachelor Degree in Business Administration. Currently I am carrying
out a research study on the significance of cash management on profitability of a business
organization, a case study of selected SMEs in Kitgum Municipal.
 The study is for academic purpose and the information that you will give will be handled with
confidence. You have been identified as respondent for this study and I therefore kindly request
you to answer all the questions truth fully and as honestly as you can.

Thanks

SECTION A. DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS

Tick in the box provide the correct answer.

1. Gender
Male Female
2. Age
Between 18-29 30-39 40-49 above -50
3. Marital status
Single Married widow(er) divorced
4. Level of education
Certificate Diploma Bachelor Degree Master
 5. Number of years with the enterprise between
0-3years 4-7 years 8-10years Above 11 years

SECTION B
Rate the following statement as per the given Likert scale; 1-strongly disagree
2=disagree, 3=Not sure 4-Agree 5=strongly agree.

s/no Statement (cash management) 1 2 3 4 5

6. There are formal cash management practices in my enterprise
7. The management and employees are aware of practices in
place
8. The practices in place is usually adhered to
9. The business efficiently plans for its cash
10. We manage our cash flow easily in the business
11. My enterprise takes precautionary measures on cash level
12. There is proper management of cash in my enterprise
13. The enterprise usually has cash whenever it is needed
14. There is effective control over cash balance brought down
15. There is proper control over cash received in the business
16. There is control over cash collected in the business
17. My enterprise cash is Banked daily
 18. I have control over petty cash
19. I have control over cheque payment
20. The enterprise has a strong cash control system

SECTION C

s/no Statement (profitability of the enterprise) 1 2 3 4 5

21. The enterprise has been profitable over the past 3 months
22. The enterprise overall profit level is very high
23. The enterprise profit earnings after tax is high
24. The enterprise net profit is low
25. Our enterprise profit margin is very high
26. Our enterprise return on equity is low
27. The enterprise return on investment is high
28. The enterprise return on capital employed is very low
29. The enterprise operating profit is very high
30. The enterprise sales turnover is always very low.
31. The enterprise sale revenueincreases every year
32. The enterprise level of earning is very high
33. The enterprise income is always in excess of expenditure
34. The enterprise aims at reducing operational expenses while
increasing their income

Thank you very much

APPENDIX B BUDGET

Items Qty Rate Amount

Stationary
Rolled paper 1 ream 18,000 18,000
Photocopying paper 1 ream 16,000 16,000
Pens 10 500 5,000
Plash desk Pc 25,000 25,000
Transport 10 trips 20,000 200,000
Typing and type setting 60pages 1,000 60,000
Printing 60pages 100 6,000
Photocopying 180pages 100 18,000
Binding 3 books 15,000 45,000
Airtime Assorted 50,000
Facilitation (research assistant) 1 100,000 100,000
Accommodation Assorted 75,000
Meals Assorted 50,000
Miscellaneous 80,000
Total 748,000

APPENDIX C: TIME SCHEDULE

Activity/month March April May June July August sept

Topic formulation
Proposal writing
Data collector
Data analysis
Report writing
Production of 1st digit
Production of final copy
Submission