STUDENT DECLARATION

I declare that this senior project entitled “Effect of liquidity management on financial
performance of the commercial banks in Mogadishu-Somalia” is the result of my own
research except as cited in the references. The project has not been accepted for any
degree and is not concurrently submitted in candidature of any other degree.

Name of the Candidate: Abdishakur Ibrahim Abdulle

Signature: ............................................................................................

Date: ______/______/________
 SUPERVISOR APPROVAL

I hereby declare that I have read this senior project entitled “Effect of liquidity
management on financial performance of the commercial banks in Mogadishu-
Somalia” and in my opinion, this senior project is sufficient in terms of scope and
quality for the award of Bachelor Degree of Banking and finance and I accepted for
the submission to the examining panel.

Name: Abukar Gedow Awale

Signature: ___________________________

Date: _____/______/________
 APPROVAL SHEET

This senior project entitled “Effect of liquidity management on financial performance

of the commercial banks in Mogadishu-Somalia” prepared and submitted by:
Abdishakur Ibrahim Abdulle in partial fulfillment of the requirement for the award
of Bachelor degree of Banking and Finance has been examined and accepted by
examining panel.

Name and Signature of Chairman of Examining Panel

_____________________________________________________________

Name and Signature of Panelist

_____________________________________________________________

Name and Signature of Dean of Faculty of Business Administration

_____________________________________________________________

Date: __________/_________/________________
 DEDICATION

This work is dedicated my lovely parents that I appreciate their endless love, care,
moral and spiritual guidance and who taught me control, patience, and self-
righteousness. May ALLAH reward and keep them prosperous and wellbeing, may
the almighty bless them abundantly.
 ACKNOWLEDGEMENT

I would like to take the opportunity to acknowledge the support and help of all who
have assisted me in the research. Without their contribution and advice, I would have
never been able to progress with the work in the thesis.

Firstly, the first and greatest thank belongs to ALLAH (SWT) the LORD of the
universe. Indeed, without His Help and Will, this thesis would not have been possible.

Secondly, I would like to sincerely thank my thesis supervisor, Mr. Abukar

Gedow Awale for his guidance, support, technical knowledge and encouragement in
the whole research process and work.

Thirdly, I am fully indebted to my friends for their moral and spiritual support during
my period of study. Without their continued support, this may not have been
achieved. My love for them endures for a life time.

Fourthly, I would like to thank my dear lovely friend and classmate Mr. Mohamed
Abukar Gutale who helped as possible as he could.
 ABSTRACT

The study aimed at assessing “Effect of liquidity management on

financial performance of the commercial banks in Mogadishu-Somalia”
The study mainly looked at the influence of Bank performance on
Economic Growth and relationship between Bank performance and
economic growth. The researchers used descriptive research design with
quantitative methods with a population study of 51 people out of which a
sample size of 45, Experts 17 and Businessmen 34. Non-probability
sampling used to select the sample, and they included well experienced
people, customers and business owners. Using simple random sampling
respondents were chosen from the different departments selected and
questionnaires distributed to the selected respondents from the four
departments in the bank. Primary data used during collection of data.
Data collected by use of questioner method and analyzed in form of
tables. The Findings shows that liquidity management influences
financial performance of the banks and has moderate relationship which
indicated by R-value (r=2.71) and p-value (p=1.00). Since respondents
agreed that liquidity management is more influenced in financial
performance in commercial banks in Mogadishu-Somalia, researcher
recommended giving them high effort, and Management of the institution
is encouraged to enlarge their strategies for this activity. Also, study
indicated that there is moderate relationship between liquidity
management and financial performance, so management of the institution
should develop and make strong that relationship by increasing ways to
manage liquidity such as opening liquidity management department
specially Inventory, Cash and Accounts receivables.
 TABLE OF CONTACTS

STUDENT DECLARATION...............................................................................................i

SUPERVISOR APPROVAL...............................................................................................ii

APPROVAL SHEET.........................................................................................................iii

DEDICATION....................................................................................................................iv

ACKNOWLEDGEMENT...................................................................................................v

ABSTRACT.......................................................................................................................vi

TABLE OF CONTACTS..................................................................................................vii

LIST OF TABLES...............................................................................................................x

LISTOF FIGURES.............................................................................................................xi

CHAPTER ONE..................................................................................................................1

INTRODUCTION...............................................................................................................1

1.0 INTRODUCTION................................................................................................1

1.1 BACKGROUND OF STUDY.............................................................................1

1.2 PROBLEM STATEMENT..................................................................................5

1.3 PURPOSE OF THE STUDY...............................................................................6

1.4 Research objectives..............................................................................................6

1.5 Research questions...............................................................................................6

1.6 Significance of the study......................................................................................6

1.7 Scope of study......................................................................................................7

 1.8 Operational definition..........................................................................................7

1.9 Conceptual frame work........................................................................................8

CHAPTER TWO.................................................................................................................9

LITERATURE REVIEW....................................................................................................9

2.0 Introduction..........................................................................................................9

2.1 Concept of Liquidity Management......................................................................9

2.1.1 Inventory Management...............................................................................10

2.1.2 Cash management.......................................................................................13

2.1.3 Account receivable management................................................................14

2.2 Financial Performance of Banks........................................................................16

2.3 SUMMARY.......................................................................................................18

CHAPTER THREE...........................................................................................................19

METHODOLOGY............................................................................................................19

3.0 INTRODUCTION..............................................................................................19

3.1 RESEARCH DESIGN.......................................................................................19

3.2 RESEARCH POPULATION.............................................................................19

3.3 Sample Size........................................................................................................20

3.4 SAMPLING PROCEDURE...............................................................................20

3.5 RESEARCH INSTRUMENT............................................................................21

3.6 Research Quality................................................................................................21

 3.6.1 Reliability....................................................................................................21

3.6.1 Validity........................................................................................................22

3.7 DATA GATHERING PROCEDURES.............................................................22

3.8 DATA ANALYSIS............................................................................................23

3.9 LIMITATIONS OF THE STUDY.....................................................................23

3.10 ETHICAL CONSIDERATIONS.....................................................................23

CHAPTER FOUR.............................................................................................................24

DATA PRESENTATION, ANALYSIS AND INTERPRETATION...............................24

4.0 Introduction........................................................................................................24

4.1Frequency analysis of Demographic Data..........................................................24

4.2 Descriptive analysis of the variables..................................................................29

4.3 Correlation analysis............................................................................................31

CHAPTER FIVE...............................................................................................................32

MAJOR FINDINGS, CONCLUSION AND RECOMMENDATIONS...........................32

5.0 Introduction........................................................................................................32

5.1 Major Findings...................................................................................................32

5.2 Conclusion..........................................................................................................32

5.3 Recommendation................................................................................................33

5.4 Areas for Further Research................................................................................34

APPENDICES A: QUESTIONNAIRE.............................................................................39
 LIST OF TABLES

Table: 3.3.1 Sample Distribution...........................................................................20

Table 4.2.1 Inventory management.......................................................................29

Table 4.2 .2 Cash management..............................................................................29

Table 4.2.3 Account receivable management........................................................30

Table 4.2.4 Financial performance........................................................................30

Table 4.3.1 liquidity Management and Financial Performance.............................31

 LISTOF FIGURES

Figure 4.1.1: Gender of the respondents......................................................24

Figure 4.1.2: Age of the respondents...........................................................25

Figure 4.1.3: Marital status of the respondents............................................26

Figure 4.1.5: Educational level of the respondents......................................27

Figure 4.1.6: Occupation of the respondents...............................................28

 CHAPTER ONE

INTRODUCTION

1.0 INTRODUCTION

This chapter consists of background of study, problem of statement, purpose of study,

specific objectives, significance of study, scope, questions of study, operational
definitions and conceptual framework

1.1 BACKGROUND OF STUDY

Liquidity According to Begg, Fisher and Rudiger (1991) liquidity refers to the speed
and certainty with which an asset can be converted back into money (cash, income)
whenever the asset holder desires. Cash is the most liquid asset of all. In terms of
accounting, liquidity can be defined as the ability of current assets to meet current
liabilities (working capital). In terms of investment, it is the ability to quickly convert
an investment portfolio to cash with little or no loss in value. A liquid company is one
that stores enough liquid assets and cash together with 3 the ability to raise funds
quickly from other source to enable it meet its payment obligation and financial
commitment in a timely manner The liquidity in the commercial bank represents the
ability to pay its obligations by the contractor at the time of maturity, which includes
lending and investment commitments, withdrawals, deposits, and accrued liabilities
(Coyle, 2000).

Liquidity also means the ability to finance the increase in assets and meet liabilities
when they due fall without any unexpected losses, and so the efficient management of
liquidity in the bank help to make sure that the bank is able to meet the incurred cash,
which are usually uncertain and subject to external factors and to the behavior of other
agents. The liquidity management is a key factor in business operations. It is vital for
the survival of business; the firm should have sufficient degree of liquidity. It should
be IJSER International Journal of Scientific & Engineering Research Volume 8, Issue
7, July-2017 1460 ISSN 2229-5518 IJSER © 2017 http://www.ijser.org neither
excessive nor inadequate. Excessive liquidity means bank has ideal funds. Due to
which profitability may be lower, increase speculation, and unjustified extension.
Whereas inadequate liquidity results in interruptions of business operations. A proper
balance between these two extreme situations therefore should be maintained for
efficient operation of business through skill full liquidity management. (Abiola and
Olausi 2014),

Liquidity management is inversely related to the performance banks (Bassey, 2015).

A liquidity management crisis was evident in Global financial crisis of 2007–08
(Dullien, 2010). This was the worst financial crisis raising fundamental questions
about liquidity management (Basel Committee on Banking Supervision, 2013).
During the crisis banks were hit hardest by liquidity management pressures cutting
back sharply (Basel Committee on banking supervision, 2013). Major commercial
banks like Lehman Brothers collapsed. Other banks were bailed out by the
governments. The impact on the stock market was very severe as stocks shed prices
(Basel Committee on Banking Supervision, 2013). In many areas the economy faced a
huge financial blow, resulting in house evictions, foreclosures and prolonged
unemployment (Basel Committee on Banking Supervision, 2013). The crisis
underscored the role of liquidity management to commercial banks(Basel Committee
on Banking Supervision, 2013). Very liquid assets have low risk and hence a low
return. Therefore, must trade-off risk and return on liquidity (Basel Committee on
Banking Supervision, 2016). In absence of regulation it is expected that banks hold
liquid assets to the extent they aid in maximizing the firm’s financial performance
(Basel Committee on Banking Supervision, (Coyle, 2000).

(Amengor, 2010).The Financial performance of a firm can be analyzed in terms of

profitability, dividend growth, sales turnover, return on investments among others.
However, there is still debate among several disciplines regarding how the
performance of firms should be measured and the factors that affect financial
performance of companies (Liargovas& Skandalis, 2008). According to
Iswatia&Anshoria (2007) performance is the function of the ability of an organization
to gain and manage the resources in several different ways to develop competitive
advantage. Liquidity refers to investment in current assets and current liabilities which
are liquidated within one year or less and is therefore crucial for firm’s day to day
operations (Kesimli&Gunay, 2011). Liquidity is very closely related to working
capital which is the money needed to finance the daily revenue generating activities of
the firm. According to Vahid, Mohsen and Mohammadreza (2012) working capital
management plays a significant role in determining success or failure of firm in
business performance due to its effect on firm’s profitability. Business success
depends heavily on the ability of financial managers to effectively manage the
components of working capital (Filbeck& Krueger, 2005). A firm may adopt an
aggressive or a conservative working capital management policy to achieve this goal.
2 A number of studies (Almajali et al, 2012; Liargovas& Skandalis, 2008) have been
done with regard to factors affecting the financial performance of listed companies,
especially in developed economies. In Kenya, a few studies have been done in this
area and therefore it is imperative to find out how liquidity affects the financial
performance of non-financial listed companies at the Nairobi Securities Exchange.
The impact of liquidity position in management of an institution has remained
fascinating and intriguing, though very elusive in measurement of financial
performance. There appears to be an endless argument in the literature over the years
on the roles, meaning and determinants of liquidity management. In fact the firm
should manage its liquidity in such a way that sales are expanded to an extent to
which risk remains within an acceptable level. The aim of liquidity management
should be to regulate and control those costs that cannot be eliminated altogether.
These costs include the credit administration expenses, bad debts, losses and
opportunity cost of the fund tied up in receivables. Therefore, according to Ngwu
(2006) liquidity management is the act of storing enough funds and raising funds
quickly from the market to satisfy customer and other parties with a view to maintain
public confidence.

Kane and Rice, (1998). The quick ratio cuts out all but the most liquid of current
assets. Inventory is the most notable omission, because it is not as speedily
convertible to cash. The quick ratio is a reasonable marker of a business’s short term
liquidity. The quick ratio gauges a company’s ability to meet its short term obligations
with its most liquid assets. The higher the quick ratio the better the position of the
business. 1.1.2 Financial Performance Although “performance” may appear to be an
easy concept, a unique definition in the literature does not exist. Moreover, academics
often use special definitions tailored to fit the individual research purposes
(Langfield-Smith, 1997). The financial performance is often measured using
traditional accounting Key Performance Indicators such as Return On Assets,
Operating Profit margin, Earnings Before Interest and Tax, Economic Value Added or
Sales growth (Ittner&Larcker, 1997; Fraquelli&Vannoni, 2000; Crabtree &DeBusk,
2008). The advantage of these measurements is their general availability, since every
profit oriented organization produces these figures for the yearly financial reporting
(Chenhall&LangfieldSmith, 2007). However, balance sheet manipulations and
choices of accounting methods may 4 also lead to values that allow only limited
comparability of the financial strength of companies. Ratios are best used when
compared or benchmarked against another reference, such as an industry standard or
"best in class" within the industry. This type of comparison helps to establish financial
goals and identify problem areas. Vertical and horizontal analysis can also be used for
easy identification of changes within financial balances. 1.1.3 Effect of Liquidity on
Financial Performance There are several theories which have been developed to study
the effect of liquidity on financial performance. According to Chandra (2001),
normally a high liquidity is considered to be a sign of financial strength, however
according to some authors as Neto (2003), a high liquidity can be as undesirable as a
low. This would be a consequence of the fact that current assets are usually the less
profitable then the fixed assets. It means that the money invested in current assets
generates less returns then fixed assets, representing thus an opportunity cost. Besides
that, the amounts employed in current assets generate additional costs for
maintenance, reducing thus the profitability of the company. However, Arnold (2008)
points that holding cash also provides some advantages, such as (1) provides the
payment for daily expenses, such as salaries, materials and taxes. (2) Due to the fact
that future cash flows are uncertain, holding cash gives a safety margin for eventual
downturns. And finally (3) the ownership of cash guarantees the undertaken of highly
profitable investments that demands immediate payment. Thus it is an important task
for the financial manager to achieve the appropriate balance between the adequate
liquidity and a reasonable return for the company. They studied effects on working
capital management on Spanish SME’s profitability and concluded that additional
value can be created by reducing inventories and the number of day’s accounts
outstanding. Shortening the cash conversion cycle can also be a means to improve
firm’s profitability.
1.2 PROBLEM STATEMENT

Commercial banks have experienced huge financial losses due to poor liquidity
management (Vintila and Nenu, 2016). Thus poor liquidity management in the banks
poses major liquidity management which adversely affects their capital structure and
earnings. If not properly managed, liquidity management may lead to severe
consequences in the institution (Marozva, 2015). 4 Banks wholly depend on deposits
made by their clients and most of their operations are carried out through the deposits
(Vintila and Nenu, 2016). In a situation where all the depositors withdraw their cash
from the accounts, the bank is likely to face a liquidity management trap. This may
lead to borrowing funds from the central bank or other banks at a very high cost due
to high interest charges (Vintila and Nenu, 2016).

Due to this problem commercial banks have tried to ensure that they hold adequate
funds at all times so that they are able to meet the demand of their depositor’s.
However, maintaining this amount of funds in the organizations has proved extremely
expensive. This is due to the fact that the banks have to maintain large mandatory
cash reserve of 15 billion in their accounts .This may not only lead to the loss of
revenue but also high oportunity costs associated with holding large amounts of cash.
Generally, the main cause of liquidity management in these institutions is a mismatch
between the assets and the liabilities. This is measured using the maturity mismatch
gap. The larger the funding gap the higher the probability of a liquidity management
crisis. Many studies have examined the effects of liquidity management on the
performance of banks (Banks, 2005; Ruozi and Ferrari, 2012).

According to Kithinji (2010), poor liquidity management reduces the financial

performance of an institution. However, the default rate is the main determinant of the
financial performance of a bank. Ruozi and Ferrari (2012) added that most of the
financial institutions, especially the banks, have failed due to increased poor liquidity
management. With poor liquidity management banks and other financial institutions
have to borrow at very high rates, thus increasing the cost of banks.

Maina (2011) studied this issue among oil companies in Kenya. The results showed
that liquidity management has no effect on the firm’s profitability. Moreover, Kweri
(2011) examined the same problem among manufacturing firms. There is no study
done so far on the effect of liquidity management on the performance of commercial
banks in Mogadishu-Somalia. (Gurley & Shaw,1960).

1.3 PURPOSE OF THE STUDY

The main objective of the Study The objective of this is to determine the effect of
liquidity management on the financial performance of commercial banks in
Mogadishu-Somalia.

1.4 Research objectives

1. To establish the effects of inventory management on financial performance of

Commercial banks in Mogadishu-Somalia.
2. To determine the effects of Cash management on financial performance of
Commercial banks in Mogadishu-Somalia
3. To find out the effects of Account receivable on financial performance of
Commercial banks in Mogadishu-Somalia.

1.5 Research questions

1. What are the effects of inventory management on financial performance of

Commercial banks in Mogadishu, Somalia?
2. What are the effects of Cash management on financial performance of
Commercial banks in Mogadishu, Somalia?
3. What are the effects of Account receivable on financial performance of
Commercial banks in Mogadishu, Somalia?

1.6 Significance of the study

The findings of the study are expected to help the following parts:

Business Consultants: The findings of this study will be influential guiding business
consultants when accounting policies for the companies. The finding may act as a
guiding document on the approach those companies when making decisions on the
accounting procedures in their firms. To the researchers and scholars. The findings
may act as reference for the future researchers who may choose to carry out similar
research in the related This identification will help to carefully devise trade
policies. Further, this study will help management to know the most important
factors to be in focus minutely to make sound decisions for better management
of liquidity and profitability matters. (Manzura and Juanjuan 2009).

1.7 Scope of study

This study seeks to know impact of liquidity management on financial performance;

the scope shall be limited to assessing impact of liquidity management on
performance firms shall cover period between February and July, 2018.

1.8 Operational definition

Liquidity management: is defined by the relative ease, cost, and speed with which
an asset can be converted in to cash. ( Li and Zou 2014)

Financial performance of banks: is a subjective measure of how well a firm can use
assets from its primary mode of business and generate revenues.

Account receivable management: entails managing the firm's inventory and

receivables in order to achieve a balance between risk and returns and thereby
contribute positively to the creation of a firm value (Lindergren, 1987).

Cash management: involves the process of cash collection, monitoring of cash and
its application in investment activities.

Inventory management: supervises the flow of goods from manufacturers to

warehouse and from these facilities to point of sale.
1.9 Conceptual frame work
Financial performance
Inventory
management

Account receivable
management

Cash management
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter seeks to present in depth details from related literatures books academic
journals and articles relating and specific focus will be on the effect of liquidity
management on the financial performance of commercial banks in Mogadishu-
Somalia.

2.1 Concept of Liquidity Management

The term liquidity is often used in multiple contexts. An asset’s liquidity can be used
to describe how quickly, easily and costly it is to convert that asset into cash (Berger
& Bouwman, 2008). Liquidity can also be used to describe a company by the amount
of cash or near cash assets a company has; the more liquid assets, the higher a
company’s liquidity. Financial ratios that measure liquidity are referred to as a
company’s liquidity ratios. One such ratio is the current ratio which determines a
company’s ability to pay short term debts as they come due (Van Ness, 2009).
Liquidity risk has many definitions but the one that can be derived from the ratio is
the probability that a company will not be able to pay its short term obligations as
they come due. This inability can lead a company to face serious financial problems.
In addition to this, liquidity risk can also be defined in terms of the counterparty to a
transaction. In this sense the term means the risk inherent in the fact that the
counterparty may not be able to pay or settle the transaction even if they are in good
financial standing, because of a lack of liquidity (Petria & Petria, 2009)

Liquidity risk for a bank is especially prevalent as it is easy for a bank to lose its
liquidity because depositors can withdraw funds when they choose. In addition to
depositors, banks face another way in which their cash reserves can be strained by
fulfilling obligations to companies. These companies have previously established loan
commitments, called credit lines, that can be borrowed from the bank when needed
(Gatev, Schuermann, & Strahan, 2007).
. Historically, runs on banks have shown certain banks predisposition to liquidity risk
and the severity of impact this risk can have on the economy. This risk is intricately
tied to the nature of banking. This is why banks, governmental entities, and private
industry have tried to understand liquidity risk and implement public policy,
regulations, and risk assessment policies to mitigate this risk. (Ogboi and Unuafe
2013).

Mishkin, (1997) Aside from managing their own liquidity, banks play another role
with regards to liquidity by creating liquidity for the market. Due to the growth of the
commercial paper, equity, and bonds markets in recent decades, the role of banks as
the sole provider of capital to large companies has diminished. This results from
companies looking for the type of financing that best suits their specific needs. Banks
still play a largely influential role in financing. They are a primary issuer of capital to
companies who seek loans to fulfill a portion of their financing needs. Many times
they act as the fall-back crutch on which companies support themselves in times of
difficult financing.

2.1.1 Inventory Management

Inventory management is pivotal in effective and efficient organization. It is also vital

in the control of materials and goods that have to be held (or stored) for later use in
the case of production or later exchange activities in the case of services. The
principal goal of inventory management involves having to balance the conflicting
economics of not wanting to hold too much stock. Inventory problems of too great or
too small quantities on hand can cause business failures. If a manufacturer
experiences stock-out of a critical inventory item, production halts could result.
Moreover, a shopper expects the retailer to carry the item wanted. If an item is not
stocked when the customer thinks it should be, the retailer loses a customer not only
on that item but also on many other items in the future. (Rajan 2010).

Therefore, inventory management approaches are essential aspects of any

organization. In the earlier years, Inventory Management was treated as a cost Centre,
since most of the department was spending money on inventory while Stores was
holding huge stock of inventory, blocking money and space, Ramakrishna (2005).
However, with the process of liberation and opening up of global economy, there has
been a drastic change in the business environment, resulting in manufacturing
organizations exposed to intense competition in the market place. Service companies’
worldwide has been working out various strategies to face the challenges and to cut
down manufacturing costs to remain competitive (Blomqvist, 2012).

The conclusion one might draw is that effective inventory management can make a
significant contribution to company’s profit as well as increase its return on total
assets. It is thus the management of this economics of stockholding, that is
appropriately being refers to as inventory management. The reason for greater
attention to inventory management is that this figure, for many firms, is the largest
item appearing on the asset side of the balance sheet. (Yang et al, 2006)

There have been numerous attempts to explain financial performance of companies in

the fields of strategic management, accounting, finance, marketing and management
science. Naturally each of these areas concentrates on different explanatory variables
and therefore this study limits the survey to papers that are perceived as immediately
relevant. In the US, Sanghal (2005) studied the effect of excess inventory on long
term stock price performance. The study estimated the long-run price effects of excess
inventory using 900 excess inventory announcements made by publicly traded firms
during 1990-2002. These announcements are clear and unambiguous
acknowledgement by affirm that it is suffering from excess inventory. Examples
include instances of production curtailment, temporary shutdowns, price mark downs,
promotion to liquidate inventory and inventory write- offs to deal with excess
inventories. He found evidence suggesting that stock market partially anticipates
excess inventory situations and that firms do not recover quickly from negative effects
of excess inventory. He further noted that the negative effect of excess inventory is
economically and statistically significant. In Malaysia, Agus and Noor (2006)
examined the relationship between inventory management practices and financial
performance. The study measured he manager’s perceptions of inventory and supply
chain management practices and the level of performance in the industry. The
practices include lean inventory systems, Technology and strategic supplier
partnerships. They employed a structured questionnaire, which was designed to assess
the companies in terms of the described dimensions. The sample companies were
randomly chosen from manufacturing companies (non- food based manufacturing
companies with medium to high technology) in Klang valley, Malaysia. The findings
suggest that inventory management practices have significant correlations with
profitability and return on sales (ROS). Roumiantsev and Netessine (2005)
investigated the association between inventory management policies and the financial
performance of affirm. The purpose of the study was to assess the impact of inventory
management practices on financial performance across the period 1992-2002.They
used conventional firm specific variables (inventory levels, margins, and lead times)
as explanatory variables. They found no evidence that smaller relative levels are
associated with financial performance as measured by return on assets. Eckert (2007)
examined inventory management and role it plays in improving customer satisfaction.
He found a positive relationship between customer satisfaction and supplier
partnerships, education and training of employees, and technology. In Greece,
Koumanakos (2008) studied the effect of inventory management on firm performance
1358 manufacturing firms operating in three industrial sectors in Greece, food textiles
and chemicals were used in the study covering 2000 – 2002 period. The hypothesis
that lean inventory management leads to an improvement in a firm’s financial
performance was tested. The findings suggest that the higher the level of inventories
preserved (departing from lean operations) by a firm, the lower the rate of return. In
conclusion, most of the studies reviewed concentrated on conventional firm level
variables such as inventory levels, demand and lead time. © Center for Promoting
Ideas, USA www.ijbhtnet.com 80 little attempt was made to capture the perceptions
of managers about the impact of inventory management practices on firm financial
performance. Agus and Noor (2006) did measure the perception of managers about
the impact of inventory management practices on financial performance of
manufacturing firms in Malaysia. However, circumstances in Malaysia could be
different from those in Kenya. This study seeks to investigate the impact of inventory
management practices on financial performance of sugar manufacturing firms in
Kenya. (Sailesh et. Al, 2005).
2.1.2 Cash management

Cash management involves the process of cash collection, monitoring of cash and its
application in investment activities. It is one of the key element for ensuring a
company’s financial stability and solvency (Hansen, 2005). It is worthy noting that
any business entity, having the objective of maximizing on the profits must always
want to acquire the necessary resources for the operation not. These resources
needed are limited by ownership of the firms and supply. Money needed for any
investment opportunities is also scarce and can only be availed because it was
withheld from consumption.(Ronald Coase’s 1937).

Cash management has acquired a global concern in recent years. According to

economist John Keynes (1990) business entities hold cash because of the
following reasons. Transaction motive implies that persons hold cash for the
payment of the normal day-to-day transactions, precautionary motive which means
that people will hold cash to cater for any emergencies that may arise and
speculative motives which means that persons have expectations that at a future date
the cost of some of their inputs may be low. They therefore set some money aside to
take advantage of the low price and acquire bulk of the same for use or disposal when
prices escalate. In summary, this motive entails holding cash to meet some planned
expenditure.

It is unrealistic to suppose that every business payment bill will go through the bank
account. When the firm has determined its future cash needs, it is prudent to plan their
financing so as to gain control over it. If the shortage of cash is persistent, it indicates
a state of under-capitalisation and the need for additional permanent capital; and
unless this is obtained the entity may be forced out of business (Flick, 1998).
According to the free cash flow theory of cash management (Huseyin, 1991), the
management has the responsibility of holding cash to gain control over it in making
investment decisions which can affect a business entity. Therefore, this will improve
the financial performance of the business entities. (Seppala, 2000).

Hutchison (2007) defines cash management as the process which involves the
collection and management of cash to ensure optimal cash balances by the business
entities. The management of cash focuses at ensuring adequate cash is maintained by
the business entities and any surplus is put into the correct use. Business entities have
the duty of ensuring that the entities don't overuse overdrafts as the means of finance.

Cash management entails cash forecasting. If entities know their demand for cash in
the future, it is possible for any business entity to estimate the demand for cash at any
point in time. Due to the uncertainty involved, determining the level of liquidity
entails the forecasting of short term and long term cash demands with reference to
investment by the firms, their marketing demands and production activities. Cash
forecast. Nevertheless, cash budgets are the best tools for the ongoing WC
requirements. It is therefore advisable for the financial controller to carry out the cash
forecasts on daily, weekly or monthly basis depending on how busy the entity is the
objective of the cash management is to ensure the financial health of a business entity
which will ultimately improve the profitability for the shareholders. This can be
achieved by ensuring that finance is available when needed since liquidity is the
lifeblood of any business entity. According to Miller –Orr model approach (Miller
and Orr, 1961), business entities should always maintain the optimal cash balances;
and incase of any cash crisis the business entity should reverse past investment
decisions by diverting from activities which are not key. (Yusuf, 2003).

Business entities should ensure that the cash conversion cycle is as short as possible,
it implies that the business organization need few resources to operate. when the cash
conversion cycle is longer it implies that the sales growth is high which translates to
higher profits. According to the cash conversion cycle theory the shorter the cash
conversion cycle the better the financial performance (Petria & Petria, 2009)

2.1.3 Account receivable management

According to Haris (2005), in many organizations the growth in access to credit has
led to a rising level of consumer indebtedness which is having a significant impact on
business profitability. Accounts receivables management is an issue for every
institution offering credit to its customers and the challenge for organizations is to
protect profit margins by reducing write-offs, cutting the cost to collect and
maximizing the cash collected. According to Bellie et al (2000) the view of Accounts
receivables management should not be limited to customers who are unable to pay;
the key is for organizations to use early identification of accounts at risk to enable
proactive management of a customer before they become bankrupt. Management of
accounts receivables which aims at maintaining an optimal balance between each of
the accounts receivables components, that is, cash, receivables, inventory and
payables is a fundamental part of the overall corporate strategy to create value and is
an important source of competitive advantage in businesses (Deloof, 2003). In
practice, it has become one of the most important issues in organizations with many
financial executives struggling to identify the basic accounts receivables drivers and
the appropriate level of accounts receivables to hold so as to minimize risk,
effectively prepare for uncertainty and improve the overall performance of their
businesses

Many theories have been developed to explain the management of accounts

receivables.. The agency theory initially put forward by Berle and Means (1932) also
contributes to the 2 Accounts receivables management decision. Therefore, the theory
will help in trying to investigate if firms that present monitoring mechanisms of
managers’ actions have lower level of accounts receivables requirement. According to
Meigs et al (1996), in today’s organizations, the management has two conflicting
objectives with respect to accounts receivables. First, the management wants to
generate as much sales as possible. Offering customers length credit terms with little
or no interest has proven to be an effective means of generating sales revenue.
Secondly, the management wants to minimize the amounts of money tied up in form
of accounts receivables because every business would rather sell for cash than on
credit unless the accounts receivables earn interest which is not the case. Accounts
receivables are nonproductive assets because they do not produce revenue as they
await collection.

The term debtors are defined as ‘debt’ owned to the firm by customers arising from
sale of goods or services in the ordinary course of business” (Pike and Cheng, 2001).
The three characteristics of receivables the element of risk, economic value and
futurity explain the basis and the need for efficient management of receivables
(Jackling et al., 2004). The element of risk should be carefully analyzed. Cash sales
are totally riskless but not the credit sales, as the same has yet to be received.
Accounts receivables management entails managing the firm's inventory and
receivables in order to achieve a balance between risk and returns and thereby
contribute positively to the creation of a firm value. Excessive investment in
inventory and receivables reduces the profit, whereas too little investment increases
the risk of not being able to meet commitments as and when they become due (Harris,
2005).

In the developing economies, the receivables management decision is crucial as such

decisions becomes even more difficult in times when the economic environment in
which these firms operates presents a high degree of instability. Firms must be
equipped with a set of well defined polices to manage collections appropriately. Mian
and Smith (1992, 5 1994), provide a systematic exploration of the determinants of
accounts receivables policy, but they provided only tangible determinants due to a
lack of clarification. To this end therefore, this study basically attempts to examine
the effect of receivables management on the financial performance of manufacturing
firms in Nakuru County (Simson and Hempel, 1999).

2.2 Financial Performance of Banks

According to Alfred (2007) financial performance is the measurement of how a

business entity has utilized its resources to generate revenues. Financial performance
is normally measured by the gearing ratios, profitability ratios and the liquidity ratios.
Profitability ratios of any business entity portrays the picture of how well an entity has
employed the resources efficiently, liquidity ratios deals with the capacity of
business entities to accomplish the short term obligations and the gearing ratios
indicates the extent of debt employment by the companies. This study rely on
return on assets in the measurement of the financial performance. The financial
performance of business entities is determined the financial statements of the business
entities which are collection of reports on the business entities financial results for a
given period of time.

For a long time, financial performance has been perceived only through its ability to
obtain profits. This has changed over time. Further, also act as a restrain in financial
performance, since it does not contribute to return on equity (Rafuse, 1996). A well
designed and implemented financial management is expected to contribute positively
to the creation of a firm‘s value (Padachi, 2006). Dilemma in financial management is
to achieve desired trade- off between liquidity, solvency and profitability (Lazaridis,
2006).The subject of financial performance has received significant attention from
scholars in the various areas of business and strategic management. It has also been
the primary concern of business practitioners in all types of organizations since
financial performance has implications to organization‘s health and ultimately its
survival.

A firm can be categorized as global performance if it can satisfy the interests of all
stakeholders: managers are interested in the welfare and to obtain profit, because their
work is appreciated accordingly; owners want to maximize their wealth by increasing
the company’s market value (this objective can only be based on profit); current and
potential shareholders perceive performance as the company’s ability to distribute
dividends for capital investment, given the risks they take; commercial partners look
for the solvency and stability of the company; credit institutions want to be sure that
the company has the necessary capacity to repay loans on time (solvency); employees
want a stable job and to obtain high material benefits; the state seeks a company to be
efficient, to pay its taxes, to help creating new jobs, A firms’ management use
financial indicators to measure, report and improve its performance. Analysis of the
determinants of corporate financial performance is essential for all the stakeholders,
but especially for investorsRisk and growth are two other important factors
influencing a firm’s financial performance. Since market value is conditioned by the
company’s results, the level of risk exposure can cause changes in its market value
(Fruhan, 1979). Economic growth is another component that helps to achieve a better
position on the financial markets, because market value also takes into consideration
expected future profits (Varaiya, Kerin & Weeks, 1987).
2.3 SUMMARY

For a long time, financial performance has been perceived only through its ability to
obtain profits. This has changed over time. Further, also act as a restrain in financial
performance, since it does not contribute to return on equity (Rafuse, 1996). A well
designed and implemented financial management is expected to contribute positively
to the creation of a firm‘s value (Padachi, 2006). Dilemma in financial management is
to achieve desired trade- off between liquidity, solvency and profitability (Lazaridis,
2006).The subject of financial performance has received significant attention from
scholars in the various areas of business and strategic management. It has also been
the primary concern of business practitioners in all types of organizations since
financial performance has implications to organization‘s health and ultimately its
survival.( Payle, 1997).

A firm can be categorized as global performance if it can satisfy the interests of all
stakeholders: managers are interested in the welfare and to obtain profit, because their
work is appreciated accordingly; owners want to maximize their wealth by increasing
the company’s market value (this objective can only be based on profit); current and
potential shareholders perceive performance as the company’s ability to distribute
dividends for capital investment, given the risks they take; commercial partners look
for the solvency and stability of the company; credit institutions want to be sure that
the company has the necessary capacity to repay loans on time (solvency); employees
want a stable job and to obtain high material benefits; the state seeks a company to be
efficient, to pay its taxes, to help creating new jobs, (Valentin, 2013). A firms’
management use financial indicators to measure, report and improve its performance.
Analysis of the determinants of corporate financial performance is essential for all the
stakeholders, but especially for investorsRisk and growth are two other important
factors influencing a firm’s financial performance. Since market value is conditioned
by the company’s results, the level of risk exposure can cause changes in its market
value (Fruhan, 2012). Economic growth is another component that helps to achieve a
better position on the financial markets, because market value also takes into
consideration expected future profits (Varaiya, Kerin & Weeks, 2015).
 CHAPTER THREE

METHODOLOGY

3.0 INTRODUCTION

This chapter discusses the research methodology of the study. The first section
present research design method, the second section focuses on research population
including sample size and sampling procedure. The third section specifies research
instrument with the validity and reliability of the instrument. Fourth section will
discuss data collection. Section five presents data analysis followed by section six
which presents the ethical consideration of the study, while final section presents the
limitations of the study.

3.1 RESEARCH DESIGN

A research design is a plan or strategy used to get the expected study results (Kothari,
2004). Research design is categorized into different types depending on the nature of
the study, which includes case study design, survey design and experimental
design.This study was conducted through quantitative survey descriptive research
design.Since the study is aimed to investigate the effect of liquidity management on
financial performance. The researcher has seen that survey research design would
enable him together the necessary data. The population of this study were derived
from some selected of commercial banks in Mogadishu-Somali. This study is based
on primary data and use questionnaire as a tool of data collection.

3.2 RESEARCH POPULATION

The study only targeted banks A non-probability sampling system specifically

purposive sampling technique was used during the study. And the population was 51
this is because the total number of population from which the sample was drawn was
not known to the researcher. And the researcher targeted only those respondents who
receive commercial banks services offered by those banks, i.e. Premier bank, Salaam
Somali bank and Dahabshil bank. The researchers select these commercial banks
because they have well-functioning commercial service compared to the other banks
and they have large customer base, the target population of this study will be
customers of these banks because they have comprehensive knowledgeable and
experience through their accessibility of banks service of these banks

3.3 Sample Size

The researchers used Solvent’s formula to calculate the sample size, with maximum

N
acceptable error 5 %. n = 1+ Ne 2

N. Stands the population

n. Stands the sample

a. Stands acceptable error

51
2
n= 1+ 51 ( 0 . 05 ) =45

Table: 3.3.1 Sample Distribution

No Categories Population Sample

1 Experts 17 15
2 Businessmen 34 30
Total 51 45
The sample size was 45 people. The Researcher will distribute questionnaires to
every respondents view like businessmen, experience people how dealing long time
with banks Mogadishu—Somalia, to determine the adequate respondents from the
total number of target population and avoid untraced generalization and time wasting,
it is widely accepted that researchers choose staff performance, and the sample size
represents the characteristics of the whole population.

3.4 SAMPLING PROCEDURE

This study will apply non- probability sampling and the research team will use
purposive technique (judgmental) select the sample size. During the purposive
sampling the researchers consciously decides who will include the sample, the
main purpose of purposive sampling is that it designed to collect focused
information. It is preferred for this study because of its efficiency particularly it saves
time and money.

3.5 RESEARCH INSTRUMENT

This study will be used questionnaire instrument as main tool for collection data,
which Questionnaire may be defined as well established tool within social science
research for acquiring information on participant social characteristics, present and
past behavior, standards of behavior or attitudes and their beliefs and reasons for
action with respect to the topic under investigation (Bulmer, 2004).

The questionnaire is a popular and fundamental tool for acquiring information on

knowledge and perception (Bulmer, p. ix, 2004). The selection of this tool has been
guided by the nature of data to be collected, the time available as well as by the
objectives of the study and the overall aim of study is to investigate and examine “The
Effect of Liquidity Management on Financial Performance in commercial banks” and
questionnaire techniques have been adopted in collecting primary data as it provides
and efficient way of collecting responses from a large sample size. The
researcher used questionnaire of this study because of the population is literate,
time constraints and information needed can be easily described in writing.

3.6 Research Quality

Before data entry into computer a series of pretest were conducted the data scanning
and scrutiny technique were employed from available questionnaires from
respondents to examine and validate the survey instrument so as to ensure content
reliability and validity.

3.6.1 Reliability

A reliability test will conduct to evaluate the logic and internal consistency of the
items by using all variables. The reliability of the research instruments concern with
the degree to which the research will give the same result. The reliability of an
instrument is the ability of the instrument to collect the same data consistently under
similar conditions.
Reliability is trustworthiness of a measuring instrument; it is the degree to which the
instrument consistently measures whatever it is meant to be. The researcher conducts
a pilot study before the final collection of data. Data collection tools are pilot tested in
order to ascertain its ability to solicit the relevant responses to support the study. The
justification for establishing the reliability of the instruments is determined by the
consistency, relevancy and clarity of the instruments. Kothari (2004) defined validity
as the degree to which an instrument measures what is supposed to measure. Gay
(1996) defined reliability as the degree of consistency that the instrument
demonstrates. Reliability consists of both true and error scores and it is necessary but
not sufficient for validity.

3.6.1 Validity

Refers to the extent to which data collection method accurately measures what it will
intend to measure or to the extent to which research findings were about what they
claimed to be about (Saunders Lawis&Thornhill, 2009). Generally,

Validity of each question or group of questions assessed rather than of the

questionnaire as whole. In order to increase validity of the questions in this research,
the research will utilize content validity index for the reason that the researcher will
be create the questions as clear as possible, measured only one thing at the time, will
be given to the respondents by researcher to avoid possible different interpretations of
the main concept. English been the languages of the research might have had some
influence in decreasing the validity of question; however, a great care will be
exercised to reduce the error

3.7 DATA GATHERING PROCEDURES

in This study, the data will be collect from 50 respondents of the commercial
banks in Mogadishu, Somalia. The data will be collected in hand and the researcher
responsible for this collection of the data. Then the researchers will try to cooperate
with the respondents to fill the questionnaires appropriately in addition to that
researchers distributed to the target population by self-administration.
3.8 DATA ANALYSIS

Data from questionnaires will be use a computerized data analysis package known as
Statistical Package for Social Science (SPSS) version 15.0 To analyze objectives, the
researchers used descriptive statistics because it can utilize our objectives, descriptive
analysis used to measure central tendencies such as mean and measures of description
such as standard deviation to describe a group of subject (Oso & onen, 2008).

3.9 LIMITATIONS OF THE STUDY

This study has many limitations which may affect researchers across on its research
procedure such limitations include: the geographical scope, the study will be limited
only in Mogadishu, the study will be limited to only a sample of 50respondents of
commercial banks’ in Mogadishu, the time of the researcher is also limited as well as
limitation of the population, the researchers look about positive side of the role of
commercial on customer satisfaction in local banks, the Potential researchers are
expected to cover large samples in the future research. In addition the study also
suffers the use of questionnaire. Because, the questionnaire have some limitations
such as Poor response rate, Incomplete or poorly completed answers, Limit and shape
nature of answers and cannot check truth of answers. And another major drawback of
Questioner is there is no way of checking misinterpretations and unintelligible replies
by the respondents.

3.10 ETHICAL CONSIDERATIONS

In this study, the researcher regarded the ethical issues through the research project by
keeping the privacy, confidentiality and anonymity of respondents. To maintain
ethical issue, the researchers requested from banks’ administration a permission to
distribute questionnaire to their customers and will be used it only for academic
purpose and the research will be kept the solitude, confidentiality and secrecy of
respondents. The researchers promised that this research will be conducted in a fully
ethical manner way and all copyrights will be reserved.
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.0 Introduction

This chapter presented the findings and interpretations of the study results. Analysis
of data in this study was done concurrently with data collection. After data collection
the questionnaires of respondents were sorted out accordingly; responses were
verified, coded, categorized and entered into the computer using statistical package
for Social Sciences (SPSS) version 20.0 software. For easy understanding and
following of the results, descriptive data analysis was used and the results were
presented using mean and standard deviation.

4.1Frequency analysis of Demographic Data

Figure 4.1.1: Gender of the respondents

Source: Primary Data, 2018

According to Figure 4.1.1 shows the majority of the respondents 36(80.0%) were
male while 9(20.0%) were female.

Figure 4.1.2: Age of the respondents

Source: Primary Data, 2018

Figure 4.1.2 indicates that the majority of respondents 43(66.7%) ware in the age
between20 – 30 years old, while 11 (24.4%) ware in the age between 31 – 40, and the
minority group 4 (8.9%) were ages above 40 years.
Figure 4.1.3: Marital status of the respondents

Source: Primary Data, 2018

The above figure illustrate that the most of the participants 27(60.0%) were single,
18(40.0%) were married.
Figure 4.1.5: Educational level of the respondents

Source: Primary Data, 2018

The above figure illustrate that the most of the participants 36 (80.0%) were bachelor,
while 6 (13.3%) were master, and the minority of the respondent were diploma and
secondary.
Figure 4.1.6: Occupation of the respondents

Source: Primary Data, 2018

Figure 4.4.6 shows that most of the respondents 29 (64.4%) were employees, and the
remaining portion were management.
4.2 Descriptive analysis of the variables

Table 4.2.1 Inventory management

Statement Mean SD
There is reorder level to avoid any possible inventory run out 4.29 .895
The company rarely experiences production shutdown due to inventory run
2.91 .596
out
The company always fully satisfies the customer’s order 2.13 1.17
The company always base its order quantity to market demand to inventory
3.36 .765
holding costs
Total Average Mean 3.17 0.86

Source: Primary Data, 2018

Table 4.2.1 Shows that most of the respondents agreed that inventory has good
influence to financial performance which was indicated by mean value of (M=3.17)
and standard deviation (SD=0.89).

Table 4.2 .2 Cash management

Statement Mean SD

The stewardship or proper use of an entity’s cash resources 4.31 .557

Serves as the means to keep an organization functioning by making the best

4.91 .288
use of cash or liquid resources of the organization
Is to use to finance working capital and financial institutions 1.27 .447

Collection and monitoring of cash and its application increase investment

3.86 .876
activities

Total Average Mean 3.59 0.54

Source: Primary Data, 2018

Table 4.2 .2 Shows that most of the respondents agreed that Account receivable
management has good influence to financial performance which was indicated by
mean value of (M=3.59) and standard deviation (SD=0.54).

Table 4.2.3 Account receivable management

Statement Mean SD
Firm Ensures that expected payments are received in a timely manner 4.47 .625
Managing debt owed to the firm by customers arising from sale of goods or
4.64 .645
services
To increase the sales volume and decrease the risk of credit should
1.60 .688
minimize accounting receivable
Maintaining adequate capital of the firm, cash management should be first
4.67 .876
priority
Total Average Mean 3.85 0.71

Source: Primary Data, 2018

Table 4.2.3 Shows that most of the respondents agreed that Account receivable
management has good effect on financial performance which was indicated by mean
value of (M=3.85) and standard deviation (SD=0.71).

Table 4.2.4 Financial performance

Statement Mean SD
The most important tasks in transition planning and analyzing 4.51 .506
Understanding company-capital market interaction and investment
4.13 .625
planning
The degree to which financial objectives being or has been accomplished
4.51 .506
in best manner
Assess firm's production and productivity performance, of the firm 4.45 .667
Total Average Mean 4.4 0.58

Source: Primary Data, 2018

Table 4.2.4 Shows that most of the respondents strongly agreed that liquidity
management has good effect on financial performance which was indicated by mean
value of (M=4.40) and standard deviation (SD=0.58).

4.3 Correlation analysis

Table 4.3.1 liquidity Management and Financial Performance

liquidity Financial
Management Performance
Pearson
1 .361*
Liquidity Correlation
Management Sig. (2-tailed) .015
N 45 45
Pearson
.361* 1
Financial Correlation
Performance Sig. (2-tailed) .015
N 45 45
*. Correlation is significant at the 0.05 level (2-tailed).

Source: Primary Data, 2018

Table 4.3.1 above shows correlation between liquidity Management and Financial
Performance. The result obtained indicated that there is significant moderate
relationship between liquidity Management and Financial Performance. The findings
indicate that there is positive relationship liquidity and Financial Performance which
was indicated by r-value (r =.361) and p-value (p = 0.015) as shows in the table.
 CHAPTER FIVE

MAJOR FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

Chapter five provides the summary of findings. This has been arrived at using the
three study objectives. In this chapter the conclusion provides the summery of
objectives, as well as the recommendations also followed the conclusion.

5.1 Major Findings

The study concentrated main different types of demographic factors, like gender, age,
educational level and occupation, the result obtained shows that, majority of the
respondents 80.0% were male while 20.0% were female, other hand, age of majority
of respondents 66.7% ware in the age between 20 – 30 years old, while 24.4% ware in
the age between 31 – 40, which means most participants were young and the ages
above 40 years were minority group 8.9% were.

In term of education, the most of the participants 80.0% were bachelor, while 13.3%
were master, and the minority of the respondent were diploma and secondary, so all of
participants were educated people, but in term of occupation most of the respondents
64.4% were employees, and the remaining portion were management.

The result from study is reliable since most of participants were educated, young and
employed people.

5.2 Conclusion

This section discovers the research result and findings derived from the distributed
questionnaires. The main objective of this study is “To determine the effect of
liquidity management on the financial performance of commercial banks in
Mogadishu-Somalia”. The study had three objectives, the objective one of the study,
which is “To establish the effects of inventory management on financial performance
of Commercial banks in Mogadishu-Somalia” the mean value of the questions was
3.17 which indicates Agree level so this indicates that the answer shows that there is a
very good level. The objective two of this study was “To determine the effects of
Cash management on financial performance of Commercial banks in Mogadishu-
Somalia” the mean value was 3.59 which indicates agree level so this indicates that
the answer shows that there is a very good level. The objective three of this study was
“To find out the effects of Account receivable on financial performance of
Commercial banks in Mogadishu-Somalia” the mean value was 3.85 which means
strongly agree level so this indicates that the answer shows that there is a very good
level.

Finally the study indicates the correlation between the two variables which are
liquidity management and financial performance is measured using Pearson's
correlation method with two tailed and the relationship between the two variables
were positive relationship with R-value of .361 and this information indicates that
there is moderate positive significant relationship between liquidity management and
financial performance.

5.3 Recommendation

The researcher suggested the following suggestions to the selected institution “Salam
Somali Bank Mogadishu-Somalia

Since respondents agreed that liquidity management is more influenced in financial

performance in commercial banks in Mogadishu-Somalia, researcher recommended
giving them high effort, and Management of the institution is encouraged to enlarge
their strategies for this activity.

Also, study indicated that there is moderate relationship between liquidity

management and financial performance, so management of the institution should
develop and make strong that relationship by increasing ways to manage liquidity
such as opening liquidity management department specially Inventory, Cash and
Accounts receivables.
5.4 Areas for Further Research

The researcher found that there is a possible area for further research which enables
academic students to make further research and they are as follows:

 Credit management and financial performance. This area is way can

be got new ways can create financial performance to commercial banks in
Mogadishu-Somalia.
 Al researchers can investigate each of dimensions in this study that
gives you research area so.
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 APPENDICES A: QUESTIONNAIRE

UNIVERSITY OF SOMALIA

COLLAGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF BANKING AND FINANCE

TITLE: Effect of liquidity management on financial performance of the commercial

banks in Mogadishu-Somalia

Dear respondents,

I am a student at University of Somalia (UNISO) undertaking a study on the above

title. The study is in partial fulfillment of the requirements for the award of a
bachelor’s degree in Banking and Finance.

After your informed consent, I kindly request you to answer the questions sincerely
and accurately. The information will only be used for academic purposes and it will
be treated with maximum confidentiality. Thank you for your kind cooperation.

Thank you for your contribution.

Section A: Demographic Profile

The following questions refer to the demographic profile of the respondents. Please
provide the appropriate information by placing (✔ ) in the bracket provided to
represent your answer.

1. Gender of the respondents

( ) Male

( ) Female

2. Age of the respondents:

( ) 20 – 30 years

( ) 31 – 40 years

( ) above 40

3. Marital Status of the respondents

( ) Single

( ) Married

( ) Divorced

4. Educational Level of the respondents:

( ) Secondary Level

( ) Diploma Degree

( ) Bachelor Degree

( ) Master Degree

( ) PhD

5. Occupation of the respondents:

( ) Management

( ) Employees
Please (✔) one cell according to the following 4-point Linker scale, with 1-Strongly
Disagree and 4- Strongly Agree that best describe your level of argument with the
following statements.

SD= Strongly Disagree D= Disagree A=Agree SA= Strongly Agree

Section B: Inventory management

NO Statement SD D A SA
1 There is reorder level to avoid any possible inventory run
out
2 The company rarely experiences production shutdown due
to inventory run out
3 The company always fully satisfies the customer’s order
4 The company always base its order quantity to market
demand to inventory holding costs

Section C: Cash management

NO Statement SD D A SA
1 The stewardship or proper use of an entity’s cash resources
2 Serves as the means to keep an organization functioning by
making the best use of cash or liquid resources of the
organization
3 Is to use to finance working capital and financial
institutions
4 Collection and monitoring of cash and its application in
investment activities
Section D: Account receivables management

NO Statement SD D A SA
1 Firm Ensures that expected payments are received in a
timely manner
2 Managing debt owed to the firm by customers arising from
sale of goods or services
3 To increase the sales volume and decrease the risk of credit
should minimize accounting receivable
4 Maintaining adequate capital of the firm, cash management
should be first priority

Section E: Financial Performance

NO Statement SD D A SA
1 The most important tasks in transition planning and
analyzing
2 Understanding company-capital market interaction and
investment planning
3 The degree to which financial objectives being or has been
accomplished in best manner
4 Assess firm's production and productivity performance, of
the firm