CASH MANAGEMENT AND PROfiTABiliTY

IN SMAll AND MEDIAM ENTERPRICES

IN KAMPAlA UGANDA

A Research Report

Presented to the

School of Business and Management

Kampala International University

Kampala, Uganda

In Partial Fulfillment of the Requirements for the Degree of

Bachelor of Business Administration

By:

Abdirizak Ahmed Farah

BBA/20063/82/DF

December, 2011
 Declaration
I Abdirizak Ahmed, hereby declare that this report is my original work and has never been
submitted to any academic institution of higher learning for any award.

Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date ...................................... .

ABDIRIZAK AHMED FARAH

 Approval

This research proposal has been submitted by Abdirizak Ahmed Farah for examination
with my approval.

SUPERVISER: Mr. Michael Ruteganda (A.C.I.S)

iii
 Dedication
This report is dedicated to my parents, Mr. Ahmed Farah and Mrs. Sahra Ismail Musa and
my aunt Fowsiyo Jama Ajab. My success has been due to their hard work.

iii
 4.3.2 Reasons for holding cash by Mukono leisure gardens ............................................................. 17
4.3 .3 Finding on if the organization has encow1tered any cash problems ............................ ,............ 17
4.3.4 Finding on control teclmiques/ policies the organization has put in place to stream]i,1e cash 18
4.4.1 Finding on if the organization has made profit in the past two years ....................................... 19
4.4.2 Finding on factors that are influence profitability ofMukono leisure gardens ........................ 19
4.5.1 Finding on if cash management contributes to profitably ........................................................ 20
4.4.2 Finding on the strength of relationship between cash management and profitability? ............ 20
CHAPTER FIVE ............................................................................................................................ 21
DISCUSSION, SUMMARY, CONCLUSION, RECOMMENDATIONS AND AREAS FOR
FURTHER RESEARCH ................................................................................................................ 21
5.0 Introduction ..................................................................................................................................
21
,5.1 Discussion of the findings ............................................................................................................
21
5.2 Summary of the key findings ....................................................................................................... 22
5.3 Conclusion ...................................................................................................................................
23
5.4 Recommendations .......................................................................................................... ,............
23
5.5 Areas for Fw1her Studies ................................................................................................ ,............
23
REFERENCES ............................................................................................................................... 24
Questionnaire ................................................................................................................................... 27

vi
 Abstract
The purpose of the study was to establish the relationship between cash management and
profitability and in small and medium enterprises (SMEs). The study was conducted in
Mukono leisure gardens

The objectives of the study were to find out examine the various cash management
policies used in small and medium enterprises (SMEs), factors influencing their
profitability and to establish the relationship between cash management and profitability
in small and medium enterprises.

The methodology used included descriptive research design, interview and questionnaires
as primary source of data and literature of various scholars as secondary source of data.
The data was presented, i1~terpreted and analyzed using tables and percentages.

From the findings cash management was identified as a key to success of the organisation
as seen from the study. This is because cash management provides a basis for vrofitability
and survival of the organisation in the short and long run. It was therefore noted by
different scholars that SMEs should adopt cash management policies to stream line their
cash management in order to be profitable.

Basing on the survey, majority of the respondents also agreed that it is vital for the
organisation to adopt cash management polices that can enable it manage it cash for
example working capital management cash budgeting, cash planning and Forecasting and
investing the surplus· :;ash to other profitable venture. This enable the organisation to
stream line it& cash and avoid cash problems.

It was concluded that cash management is strongly con·elated to influence profitability of

the an organisation this is because when different cash management policies and tools are
used administered collectively in relation to other factors that influence profitability of
small and medium enterprises (SMEs) then they will be able the to succeed and remain
profitable.

It was recommended that the organisation revisit its cash management policies and
streamline them with the organisation goals and also adopt more the different cash
management policies that will enable it improve its profitability levels and net worth.

vii
 CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The importance of managing cash correctly cannot be understated. The lack of
understanding when it comes to cash management has been a "stumbling block" for
entrepreneurs and businesses alike (FindLaw, 2008). Knowing what cash management
techniques to use depending on business situation could be the difference between thliving
as a business and going out ofbusiness. Cash is a business's lifeblood, if managed well a
company remains healthy and profitable. Business analysts report that poor management
of cash is the main reason why businesses fail and collapse. Cash management can be a
problem even when a small business has numerous clients, offers a superior product to its
customers, and enjoys a sterling reputation in its industry (Mustafa, 2008). Understanding
the cash management basic concept of cash flow will help plan for the unforeseen that
nearly faces every business.

Cash is money that is easily accessible either in the bank or in the business to meet
company obligations like paying tor suppliers, rent, employees (Margan, 2009). Cash
management is important because of its effects on the firm's profitability and 1isk, and
consequently its value (Smith, 1980). When cash is received in exchange for products or
services rendered, many small business owners, intent on growing their company and
tamping down debt, spend most or all of these funds. While such priorities are laudable,
they should leave room for businesses to absorb lean financial times down the line
(Mustafa, 2008). The key to successful cash management, therefore, lies in tabulating
realistic projections, monitoring collections and disbursements, collection measures, and
adhering to budgetary restrictions. The challenge in managing cash is to balance the
inflow with outt1ow. A company would ideally want to have optimum cash to satisfy its
demands. On the other hand, the company does not want to have too much cash at staying
on hand because of the associated problems of holding cash other than invest in other
areas.

Effective cash flow management in small and medium enterprises is one of the key factors
for continued profitability and success. Profitability is the primary goal of all business
ventures (Smith, 1980). It is measured by difference between income and expenses if
income is higher than expenses then the finn is said to be profitable (Pandey, 1999).
Without profitability the business will not survive in the long run. Therefore poor cash
management translates directly into strains on a company's profitability leading to
eventual collapse.

1
 The study is to be carTied out at Mukono leisure gardens in Mukono district. The
organization in the leisure and enteriainment industry and is one of the growing finns in
the industry.

1.2 Statement of problem.

The inability to control cash is a single biggest problem to Small and Medium Enterprises.
This has been a problems and reason for poor perfonnance in terms of profit maximization
of up to 60% of surveyed enterprises as well as for the continued collapse of others
(Manalastas 2010). Cash management should be routine practice so that an enterprise can
keep track of their cash and capture the timing between profit seen on the income
statement and the cash that flowing in and out of the firm .However manage··s of small and
medium enterprises SMEs have note adopted this and it may be the reason for poor
performance in tenn of profitability and eventual collapse of these enterprises.

1.3 The Purpose of the study

The purpose of the study is to establish the relationship between cash management and
profitability and in small and medium enterprises (SMEs

1.4 Objectives of the study

To examine the various cash management policies used in small and medium enterprises
(SMEs)

To find out factors influencing profitability of SMEs

To establish the relationship between cash management and profitability in small and
medium enterprises

1.:; Research questions

What are the various cash management policies used by SMEs?

What factors influencing profitability of SMEs?

What is the relationship between cash management and profitability in small and medium
enterprises?

2
1.5 Scope of the study

1.5.1 The subject scope

The coverage of this study is cash management and profitability where cash management
is the independent variable and profitability is the dependent vmiable.

1.6 Significance of the study

The study will help small and medium enterprises to appreciate the need for embracing
good cash management policies for batter performance.

The study will enable the public and future scholar to use the report for future reference
and methodology in order to come up with similar results.

The study will enable the researcher to be a warded a bachelors Degree in

entrepreneurship and small business management,

3
 CHAPTER TWO
LITERITUER REVIEW

2.0 Introduction
This chapter reviews the available literature related to the subject of study (cash
mm1agement and profitability in small and medium enterprises).The literature reviewed
was based on empirical observations and study made by different scholars on cash
mm1agement policies in respect to profitability, factors influencing profitability of SMEs
and the relationship between cash management and profitability.

2.1 Cash Management

According to (Mustafa, 2008) cash management is a broad tem1 that refers to the
collection, concentration, and disbursement of cash. He acknowledges that it encompasses
a company's level of liquidity, its management of cash balance, and its short-tenn
investment strategies. ln some ways, managing cash flow is the most impotiant job of
business managers.

According to Pandey, 1999) cash is the most impotiant cunent asset for operation of the
business. It is the basiG input needed to keep the business mtming on continues ba3is. He
emphssizes that the way it is managed will determine the success or failure of a business.
(Senyonga 2007) acknowledges that the more cash is available to the business the more
the ability to meet its obligations when they fall due as compared to when it has less cash.
(Capstaff 2005) stresses that if at any time a company fails to pay an obligation when it is
due because of the lack of cash, the company is insolvent. He emphasizes that insolvency
is the primary reason firms go bankmpt. Therefore the prospect of such a direct
consequence should compel companies to manage their cash with care since efficient cash
management means more than just preventing bankruptcy.

2.2 Techniques/policies of cash management

Cash management policies or techniques are the different ways through which cash flows
and cash balances are managed into and out of a firm. Different researchers and scholars
have argued differently on cash management techniques or polices.

According to (Block & Hirt, 2005), one way a business manages its money is to hold it.
He states that the reasons a business may hold money include for transactions, Speculative
and for precaution motives. He gives an example of a business holding cash for
transactions is to use cash reserves to pay for corporate expenses like inventory,
employees and taxes. In other words a company may hold back cash for costs, some fixed
(like taxes) and some variable (like inventory).

Cash planning and forecasting helps an organization to identify effectively the period
when it expects to have more cash and that when it expects to have deficits and adjust

4
accordingly (J enner,2007) According to (Pandey, 1999) cash planning is a technique of
planning and control the use of cash. It protects the financial conditions of the firm by
developing a projected cash statement from a forecast of expected cash inflows and
outflow for a given period. He emphasizes that it helps developing the overall operating
plan for the business. (Senyonga, 2007) acknowledged that cash forecasts can be used to
access the scale of funding requirement or cash surpluses expected overtime and to act as
a check on the realization of cash flow based forecast.

A finn should decide on the appropriate level of cash balances to be held (Pandey, 1999)
He emphasizes that the cost of excess cash and dangers of deficiency should be matched
to be detennining the optimum level of cash balances. Optimal balance means a position
when the cash balance a mount is the most ideal position so that the company has the
ability to invest the excess and at the same time have sufficient liquidity for the business
operations. One of the primary responsibilities of the financial manager is to maintain a
sound liquidity position of the firm so that dues are settled in time. (Mustafa, 2008)
acknowledge that if a firm keeps high cash balance it will have a strong liquidity position
but its profitability will be low. The finn should maintain optimum (just enough) neither
too much nor too little cash balance.

Investing surplus cash is another way of cash management. According to (Alexander,

201 0) when managing excess cash, the main emphasis should be on liquidity and capital
preservation. He points out that one way of utilizing excess cash is by investing the money
treasury bills or any other investment tat can be easily converted to cash. As one invest in
these areas he should look out for risk involved and the rate of return.

Managing working capital is intimately related to the flow of cash into and out of a
business. Simply stated, one needs enough working capital to setup the business, pay
operating costs, and continue to operate until payment arrives 30, 60 or maybe even 90
days later. But if a lot of that working capital is used to pay for fixed assets, the firm may
come up against a crash crunch that prevents it from paying suppliers, buying materials
and even getting profits. It's a good idea then, to maintain a level of working capital that
allows a firm to make it through those crunch times and continue to operate the business.

Cash budget is budget is a detailed statement of inflows and out flow expected to be
received or made by the business over time (Senyonga, 2007). He notes that cash inflow
and out flow should be planned to project cash surplus or deficit for each petiod of the
planning. (Jenner 2007) acknowledge that cash budget helps organizations identify
effectively that period when it expects to have more cash and that when it expects to have
deficits and adjust accordingly. He further notes that firms should prepare monthly cash
budgets to keep track of their cash. In addition cash budget should be done six months in
advance to project cash needs since it will capture the timing difference between the profit

5
 the company sees on the income statement and the cash that is actually coming into and
flowing out of the firm.

Peauler (20 10), states that the purpose of the cash budget is not set target but for cash but
to anticipate needs. He acknowledges that cash budgets can address what if scenarios
where by one can attach a percentage of profitability to the future scenarios and tests his
assumption for example you can change the speed of your collection or timing of your
inventory purchases.

2.3 Factors Influencing Profitability of SMEs

Profitability is the most important measure of success of the business. A business that is
not profitable can not survive for along period of time (Hosfstrand, 20 I 0).

According to (Pandey 1999) profitability can be either defined as accounting or economic

Profitability. He points out that in economic sense profitability would mean net increase in
the wealth verses cash flow plus change in the value of the firms asse<s while in
accounting it is the result of the application of generally acceptable principles. The
accountants have to use his judgement which at times is based on assumption for
measuring profit. Fmiher more (Hosfstrand, 201 0) points out that profitability is measured
by the income statement which is a listing of income and expenses during a period of time
for the entire business. He stress that accounting profit provides a finn with an
intermediate view of the viability of the business while economic profitability provides
you with a long term perspective of the business

There have been various factors influencing profitability. For example return on sales
reveals how much a company earns in relation to its sales, return on assets determines an
organization's ability to make use of its assets and return on equity reveals what return
investors take for their investments (Tangen, 2003 ).

Different researchers and scholars have argued differently on how financial and non-
financial factors, such as debt leverage, capitalization, investment, size, age, location,
perfonnance, taxation and managerial efficiency, have an influence on the finns'
profitability and growth.

According to (Harris and Raviv, 1991) debt leverage is measured by the ratio of total debt
to equity (debt/equity ratio). It shows the degree to which a business is utilizing borrow<;!d
money. Companies that are highly leveraged may be at risk of bankruptcy if they are
unable to make payments on their debt; they may also be unable to find new lenders in the
future. He stresses that leverage is not always bad, however; it can increase the

6
shareholders' return on their investment and make good use of the tax advantages
associated with borrowing. The trade-off theory (TO) (Bradley, et al 1984) suggests that
eve1y finn has a specific optimal debt-to-equity ratio detennined by balancing the present
value of expected marginal benefits of leverage (tax savings due to paid interests) against
the present value of expected marginal costs of leverage. According to this theory, each
company borrows in order to gradually move towards its optimal debt-equity ratio, which
in turn maximizes its market value (given by the present value of the sum of the expected
costs and benefits of debt).

Furthem1ore (Zwiebel , 1996) support that increased debt can reduce the probability of a
finn's takeover by committing managers to a more efficient business strategy. Thus, there
is either a negative or positive influence of leverage on firms' profitability.

The capitalization rate or the ratio of fixed assets to total assets, measures the extent to
which fixed assets are financed with owners' equity capital (Vlachvei, 2007). He
acknowledges that a high ratio indicates an inefficient use of working capital which
reduces the finn's ability to carry accounts receivable and maintain inventory and usually
means a low cash reservr::. This may often limit the ability of the firm to respond to
increased demand for products or services. The fixed assets to total assets ratio affects
firm's profitability negatively (Agiomirgiannakis eta!., 2006). They point out that this can
be attributed to the reduced level of current assets which could lead to a lower level of
sales, since the firm will be short of the necessary materials, stocks, and other
requirements with a reduced level of activity overall. Net investment (ratio of the net
investment to the total assets) refers to an activity off spending, which increases the
availability of fixed capital goods or means of production.

Net investment is the total spending on new fixed investment mums replacement
investment, which simply replaces depreciated capital goods (Liargovaset a! 2008). He
points out that this ratio helps to give a sense of how much money a company '.s spending
on capital items used for operations (such as prope1iy, plants and equipment). Continued
investment in the capital of a firm is crucial because the useful life of existing capital
diminishes over time. The amount of net investment compared to such things as revenue
will differ between industries and between businesses depending on how capital intensive
the business is. This ratio is positively related to firm profitability since new investments
expand the production and the cash flow generating capacity of the firm
(Agiomirgiannakis et al.2006).

The size of the finn affects its profitability in many ways. Large finns cim exploit
economies of scale and scope and thus being more efficient and compared to smali finns.

7
In addition, small fin11S may have less power than large fihns; hence they may find it
difficult to compete with the large firms particularly in highly competitive markets. On the
other hand, as finns become larger, they might suffer from x-inefficiencies, leading to
inferior financial performance. Theory, therefore, is equivocal on the precise relationship
between size and profitability performance (Majumdar, I 997)

Regarding finn age, older finns are more expelienced, have enjoyed the benefits of
learning, are not prone to the liabilities of newness (Stinchcombe, 1996); and can
therefore, enjoy supelior perfonnance. Older finns may also benefit from reputation
effects, which allow them to earn a higher margin on sales. On the other hand, older firms
are prone to inetiia, and the bureaucratic ossification that goes along with age; they might
have developed routines, which are out of touch with changes in market conditions, in
which case an inverse relationship between age and profitability or growth could be
observed. Older firms are unlikely to have the flexibility to make rapid adjustm~nts to
changing circumstances and are likely to lose out in the performance stakes to younger,
and more agile, finns (Marshall, I 992). Thus the results may reveal bidirectional
interactions between age and firm profitability.

With the rapid advancement in transportation and communications, the role of location in
determining firm performance and profitability may decrease, with respect to factors that
can be easily sourced across regions in free-market economies, such as capital, goods, and
technology (Li, 2004). However, the enduring competitive advantages in a global
economy lie increasingly in local things--knowledge, relationships, and motivation that
distant rivals cannot match (Porter, 1998). Such advantages are specific to a patiicular
location and thus immobile. In order to access such advantages, a finn must locate in their
proximity.

According to (Bird, 1995) the adoption of best management practices is a source of

competitive advantage, positively related to tinns' perfom1ance, growth and survival.
Timmons (1994) assetis that entrepreneurs who succeed possess not only an innovative
behavior but also solid general management skills. Ronstadt (1984) conclude that
entrepreneur's management skills were conducive to business perfonnance and growth.
Successful finns will be those that have developed a core competence in entrepreneurship
where a core competence refers to ·a combination of complementary skills and knowledge
bases embedded in a group or team that results in the ability to execute one or more
clitical processes to a world-class standard (Cayne eta! 1997).

8
time, payments must be made to suppliers and staff cash must be invested in rebuilding
depleted stocks, new equipment may have to be purchased. The net result is that cash
receipts often lag cash payments and, whilst profits may be repmied, the business may
experience a shmi-tenn cash shmifall. For this reason it is essential to forecast cash flows
as well as likely project profits.

More recently, (Deloof, 2003) analyzes a sample of SMEs finns during the pe~iod 1992-
1996. His results confirm that Belgian firms can improve their profitability by managing
their cash appropriately days accounts receivable are outstanding and reducing
inventmies. Moreover, he finds that less profitable finns wait longer to pay their bills.

Liquidity influence refers to the degree to which debt obligations coming due in the next
12 months can be paid fi·om cash or assets that will be turned into cash (Myers, 1997). It is
usually measured by .the current assets to current liabilities (current ratio). h shows the
ability to convert an ilsset to cash quickly and reflects the ability of the finn <o manage
working capital when kept at norn1al levels. A finn can use liquid assets to timnce its
activities and investments when external finance is not available or it is too costly. On the
other hand, higher liquidity would allow a firm to deal with unexpected contingencies and
to cope with its obligations during periods of low earnings (Opler et al., 1999, In contrast
to the above reasoning, (Hvide rrnd These 2007), based on a theoretical model by (Evans
& Jovanovic 1989), suggest that a moderate amount of liquidity may propel
entrepreneurial perfonnance, but that an abundance of liquidity may do more harm than
good. Therefore, the effect of liquidity on firms' profitability is ambiguous.

10
 CHAPTER THREE
RESEARCH METHODOLOGY

3.0 Introduction
This chapter discusses the methods and procedures the researcher employed to collect the
relevant data. It presents the research design, study population, sample size and selection
procedure, sampling method and size, data collection methods, sources of data, data
collection instruments, data processing and analysis and constraints to the stud

3.1 Research design

The study will use descriptive and qualitative research design relating to the study
variables.

3.2 Study Population

The study population's main targets are the managers and employees of Mukono leisure
gardens in the entetiainment industry. This industry was selected because many
developments have come up in their operations.

3.3 Sample size and selection procedure

Due to the in- depth nature of the study and the budgetary constraints, a sample of 40
managers and employees will be purposively selected. Managers and head of departments
will be selected because they make decisions, implement them and control resources.

Table 1

Table showing the number of respondents

Department Number of Respondent

Management 2

Finance Dep 't 5

Operation 15

Sales and marketing . 12

Procurement 5

TOTAL 40

11
3.4 Sampling method and size
The study will use random sampling method for the target group of the manager and
employees of these are to be 40 of them.

3.5 Sources of data and data collection instruments

The study will use secondary and primary sources of data.

Secondary data sources will include published joumal and atiicles, company records at1d
documents are to be used m the study.

Primary data will also be used. This will be collected fi·om the respondents using
questioners and interviews.

3.6 Data processing and analysis

Data analysis for the study will be unde1iaken using the Microsoft packages of word and
excel relevant charts and tables will be used for descriptive statistics. Correlations test will
be run to at1alyse relationship between the study variables

3.7 Constraints to the study

Confidentiality of the information

The researcher was on the sensitive area conceming the study; respondents might not have
revealed all the required data for fear of being trapped by the rivals.

Limited time

The researcher carried out research in a very shmi time pe1iod that did not allow the
researcher to get enough data and submit it in time; even respondents did not give feed
back in time.

Financial constraints

Financial constraints in carrying out the research. The study involved a lot of funds like
transport, surfing, typing and printing the work and general welfare.

12
 CHAPTER FOUR

PRESENTATION AND ANALYSIS OF THE RESEARCH FINDINGS.

4.0 Introduction
This chapter mainly focuses on the presentation, discussion and analysis of the data
collected from different respondents on the topic of concem and these include the top
managers, and employee staff of Mukono leisure gardens. These findings are consistent
with objectives and research questions for the study.

4.1 Responses
When can·ying out research, the researcher administered thirty (30) questi01maires to
various respondents and 30 responses were received.

The response rate is as shown in the table 4.1 below

Table i showing response rate

Data collection method Number of Percentages (%)

respondents

Questionnaires 30 100

Total 30 100

Source: Primary Data

Table i reveals that out of 40 questioners g1ven out the 75% respondents filled the
questionnaires which enabled the researcher to analyze the data and therefore gives the
study reliable results.

13
4.2 Section a: bio data of the respondents
This section presents data concerning gender, duration of service, depatirnent, job title,
and level of education,

4.2.1 Gender
Table ii showing sex of the respondents

Sex Frequency Percentages

Male 17 57

Female 13 43

Total 30 100

Source: Primary Data

Table ii above shows that 57% of the respondents were males and 43% females. The
researcher observed from the findings that the number of female staff members is less than
the number of male staff members in this company

4.2.2 Level of education of the respondents

Table iii showing educaticn level of the respondents

Level of education Frequency Percentages

A Level 8 27

Diploma 15 50

Undergraduate 7 23

Total 30 100

Source: Primary Data

Table ii above shows that 50% of the respondents have diploma, 23% have degrees and
27% have attained advanced level education. The researcher observed from the findings
that the numbers of employees who have diploma are more followed by those with a
degree and lastly level certificate this company. This shows that they are to give
infonnation that not biased.

14
4.2.3 Duration of service in the company
Table iii showing duration of service in the company

Length of service Frequency Percentage (%)

Less than 1 year 7 23
1-4 years 12 40
5-8 years 8 27
9+ 3 10
Total 30 100

·i
Source: Primary Data

Table iii reveals that 40% of the respondents have been working for the Firm between one
year and 4years, 23% of the respondents have been working in the finn for not more than
a year, 30% of them have been working between five and eight years andthenlO% have
been working for in tbe organization foe nine and above years. Those who responded
came from a cross sectional of the organization which shows that reliable infom1ation
about the Finn was gathered that helped the researcher in the study.

4.2.3 Job title of the respondents

Table iv showing job title of the respondents

Job title Frequency Percentage (%)

Manager 2 7
Sales and executives 10 33
Marketing officers 4 13

Finance officers 2 7
Procurement 2 7
Operations
Total
10
30
33
100
~
' I
Source: Primary Data

From the table iv above, most respondents were Sales executives and in operations
represented by 33% each, Marketing officers, Finance officers, Procurement and manager
were represented by 7% each. This enabled the researcher to obtain unbiased data as the
data was collected from respondents with different job titles.

15
4.2.4 Department of work
Table v showing the department of work

Department Frequency Percentages (%)

Management 2 7

Marketing and sales Dept 14 47

Operetion 10 33
'
--.
Finance Dept 2 7

Procurement Dept 2 7

Total 30 100

Source: Primary Data

From the table v, it is revealed that the respondents came from a cross the business where
by out of the 30 respondents reached, 4 7% of the respondents came fi·om the Marketing
and sales department, , 30% from the Operation department, 7% of the respondent came
from the finance, procurement and management depmiment each and 33% fi·om 7% came
fi·om the, depmiment. The researcher obtained a variety of infom1ation on the study.

4.3.1 Finding on cash management techniques/ policies used by Mukono leisure gardens.
Table vi showing cash management techniques/ policies used by Mukono leisure gardens

Responses Frequency Percentage (%)

00
Cash budget 10 .).)

Cash planning and forecasting 5 17

Investing surplus cash 4 13

Use and maintaining optimal cash 3 10

Working capital planning 8 27

Total 30 100

16
 According to the findings obtained, out of30 respondents reached, 35% revealed that cash
budget is the most used cash management technique by the business, cash planning and
forecasting and working capital planning accounted for 17%, while Investing surplus cash
and maintaining use of optimal and working capital planning cash accounted for 13%
, I 0% 27% respectively.

4.3.2 Reasons for holding cash by Mukono leisure gardens

Table vii showing reasons for holding cash by the firm

Response Frequency Percentages (%)

Transaction motive 15 50

Speculative motive 6 20

Precautionary motive ,9 30

Total 30 100

According to the findings obtained, out of 30 respondents reached, 50% agree that the
finn mainly hold cash for transaction motive while 20% and 30% ;10ld cash for
speculative and precautionary motives respectively.

4.3.3 Finding on if the organization has encountered any cash problems

Table vi showing if the organization has ever encountered any cash problems.

Response Frequency Percentages (%)

Yes 18 60

No 10 33

Not sure 2 7

Total 30 100

According to the findings out of the 30 respondents 60% agree that the organization has
ever had cash management problems, 33%disagree while 7% are not sure

17
Finding on the kind of cash management problems the organization faces

Table vii showing cash management problems has your organization faced

Response Frequency Percentages (%)

Limited working 6 20

Limited cash for 12 40

expanswn

Budgeting constraint 6 20

Theft of cash 6 20

Total 30 100

From table viii it was reveled that the finn faces many cash management problems the
highest being Limited cash for expansion which is represented by 40% while Limited
working, budgeting constraint and theft of cash were represented by 20% each
respectively.

4.3.4 Finding on control techniques/ policies the organization has put in place to stream
line cash management.

Table x showing the control techniques/ policies for streamlining cash management.

Response Frequency Percentage(%)

Cash Budgeting 15 50

Forecasting 5 17

Working capital planning 8 26

Investing surplus cash 2 7

Total 30 100

According to the findings obtained, out of 20 respondents reached 50% of the respondents
agreed that cash budgeting as one of the best tool for stream line it cash management ,

18
 17% ,26, and 7% is attributed it forecasting, working capital planning and investing
surplus cash respectively.

4.4.1 Finding on if the organization has made profit in the past two years.
Table xi show if the finn has made profits for the past two year

Response Frequency Pe1·centage( % )

Yes 28 93

No 0 0

Not sure 2 7

Total 30 100

From the table it is clearly shown that 93% of the respondents agree that the finn has been
making profits for the last two years while 7% are not sure if the fim1 has been making
profits.

4.4.2 Finding on factors that are influence prof1tability of Mukono leisure gardens.
Table xii showing factors t responsible for profitability.

Response Frequency Percentage( % )

Good cash management policies 10 30

Management ~Jractices 6 15 ~
Capital Investing 4 20

Size of the finn 4 10

Location of the organization 2 10

Age 2 10

Tax rate 2 5

Total 30 100

19
 According to the finding obtained 30% of the respondents attributed profitability of the
fim1 to good cash management policies of the organization, 20% attributed it to capital
investment, 15% to management practices will I 0% and 5% attributed it to tlrin size,
location of the firm ,age of fim1 and tax rate respectively. Other factor such as number of
employees, intlation rate, interest rate, and the exchange rate were also highiighted as
influencing factors to profitability.

4.5.1 Finding on if cash management contributes to profitably.

Table xiii showing if cash management contribution to profitability

Response Frequency Percentage (%)

Yes 16 53
To some extent 8 27
No 4 13
Do not know 2 7
Total 30 100

Table xiii: above shows that 53% of the respondents agreed that cash management
contribute to profitability of the fim1, 13% disagreed with the former and 26% said to
some extent cash management contlibute to profitability while 7% did not know.

4.4.2 Finding on the strength of relationship between cash management and profitability?
Table xiv showing strength of the relationship between cash management and profitability

Response Frequency Percentage (%)

strongly affect 15 50

fair! y affects 12 40

weak! y affects 3 10

Total 30 100

Table xiv: above shows that 50% of the respondents agreed that cash management
strongly affect profitability of the tinn, 10% disagreed with the fonner that it is weakly
affects profitability and 4G% revealed that cash management is fairly affects profitability.

20
 CHAPTER FIVE
l)ISCUSSION, SUMMARY, CONCLUSION, RECOMMENDATIONS AND AREAS FOR
FURTHER RESEARCH

5.0 Introduction
This chapter presents the discussion of the results, summary of the findings, conclusion,
recommendations and areas for fmiher research.

5.1 Discussion of the findings

Given the back ground of the information to the topic of the study as picked from the
literature review, that gave way to the statement of the problem and the objectives, the
findings revealed more aspects.

The researcher carried out the investigation with the intention of finding out the
relationship between "cash management and profitability." So the researcher canied out a
study in Mukono leisure gardens in Mukono district from where various aspects about the
topic were obtained.

Basing on the finding from the research, it was discovered that most of the employees
were between the ages of 25- 40 and at least all of them had acquired a certain level of
education.

Basing on table vi, it was realized that the organisation was using cash management
policies to solve its cash problems. This is spear headed by cash budget as the most used
with 35% response. However the respondents also highlighted other cash management
policies such as foreca,ting investing surplus cash and others.

When looking at the reason for holding money 50% of the respondents agree that the
organisation mainly holds money for transaction motive as compared to other motives of
holding money. This was in agreement with (Block & Hirt, 2005) who also acknowledges
that the main reason why business hold money is to cater for pay for corporate expenses
like inventory, employees salary and taxes. The rest of 20% and 30%acknowledged that
the organization holds cash for speculative and precautionary motives respectively. This
not good for the organization the is need to sl!ike a balance for the different motives of
holding money as stress~d by (Alexander, 2010) who notes that holing money for
precautionary and speculative helps the a finn to cater for an certainties that arises in the
tirm.

21
 From the findings it was reveled that the organization faces some cash problems. This was
mainly in the area of expansion where by less money is put aside for expansion this was
represented with 40% ·as compared to other cash problems faced by the organization.

Basing on the table x the 50% of the respondent agree that cash budgeting as one the best
cash control tool the organization can use to sh·eamline it cash problem. This is in
agreement with (Jenner 2007) who acknowledged that cash budget helps organizations
identify effectively that period when it expects to have more cash and that when it expects
to have deficits and adjust accordingly.

According to the out come of the study it was reveled that the organization has been
making profits for the last two year this was represented by 93% of the responses
received. Further more it was reveled that one of the leading factor for it profitability was
good cash management policies the organization had put in place. This is in agreement
with (Capstaff 2005) who stressed that if at any time a company fails to pay an obligation
when it is due because of the lack of cash, the company will go insolvent.

On the relationship between cash management and profitability it was discovered that
there is strong relationship between the two variables which was represented by 50%. 10%
disagreed with the fonner that it weakly affects profitability and 40%of the respondents
revealed that cash management is fairly affects profitability. This is in similar view as
(Pandey, 1999) who stresses that poor cash management translates directly into strains on
a company's profitability leading to eventual collapse.

5.2 Summary of the key findings

Cash management is a key to success of the organisation as seen from the study. This
because cash management provides a basis for profitability and survival of the
organisation i the shoJi and long run.

Basing on the survey, majority of the respondents agreed that it is vital for the
organisation to adopt cash management polices that can enable it manage it cash for
example working capital management cash budgeting, cash planning and forecasting and
investing the surplus cash to other profitable venture. This enable the organisation to
streamline its cash and avoid c::tsh problems in order to be profitable.

According to the findings it was reveled that one of the leading factor for the organizations
profitability was good cash management policies the organization had put in place

From the findings cash management and profitability was discovered that have strong
correlated and was represented by 50% of the out of the thirty respondents.

22
5.3 Conclusion
Basing on the findings of the research, the researcher concluded that cash management
strongly influence profitability of the an organisation this is because when different cash
management policies and tools are used administered collectively in relation to other
factors that influence profitability of small and medium enterprises (SMEs) then they will
be able to succeed and remain profitable.

5.4 Recommendations
Basing on the findings got from the field, the researcher recommends the following.

The organisation revisits its cash management policies and streamlines them with the
organisation goals and also adopt more comprehensive cash management policies that will
enable it improve its net worth.

Proper planning should be done, that's to say, the there organisation should first assess
why they need cash in the short run or long run so that they can plan for the r,ash inflow
and out flow.

The organisation should set a side reasonable amount of money for transaction,
precautionary and speculative motives. All these should be balanced accordingly.

5.5 Areas for Further Studies

Considering the results got fi·om the field, its of great impotiance that fmiher research be
cani ed out on;

• Effecttve techniques of cash management, impact of cash management r;olicies on

the profitability of the small and medium enterprises.

• Effect of holding cash on profitability of a firm.

• Cash management techniques and profitability ratios.

23
REFERENCES
Agiomirgiannakis, G., Voulgaris, F. and Papadogonas, T. (2006) "Financial factors
affecting profitability and employment growth: case of Greek manufacturing"
Journal ofFinancial Services Management, Vol.l, 2/3, pp. 232-242.
Block, S.B., & Hiti, G.A. (2005). Foundations of Financial Management. [University of
PhoenixCustomEditione.
Bnet (2008), Commercial Paper, Corporate Finance, and the Business Cycle,
FindLaw. (2008). The importance of Cash management-small business.
Blinder et a!, 1991). Blinder, A.S. and Maccini, L.J. (1991), "The resurgence of inventory
research: what have we !eamed?"Joumal ofEconomic Survey, Vol. 5, pp. 291- 328.
Brennan, et all997), "Vendor fimmcing", Journal of Finance, Vol. 43, pp. 1127-41.
Bradley M., G.A. Jarrell and E.H. Kim (1984) "On the existence of an optimal capital
structure: theory and evidence", Journal ofFinance, Vol.39, 3, pp. 857-880.
Bird, B. (1995) "Toward a theory of entrepreneurial competency." In J.A.Katz (ed)
Advances in Entrepreneurship, Firm Emergence, and Growth, Greenwich, CT: JAI Press 2, pp.
52-72.

Capstaff (2005) "Intemational Cash Management and Hedging": Journal of management

.finance vol 31 Number I 0 2005.

Cayne et a! I (997) "Working Capital and Financial Management Practices in the Small
Firm Sector", International Small Business Journal

Deloot: M. (2003 ), "Does working capital management affect profitability of

Belgian fin11s? "Journal of Business, Finance and Accounting, Vol. 30,
pp. 573-87
Davidson, et a! 1992, Cash Traps· Small Business Secrets for Reducing Costs and
Improving Cash Flow. New York.
Emery, 1987), Emery, G.W. (1987), "An optimal financial response to variable demand",
Journal ofFinancial and Quantitative Analysis, Vol. 22, pp. 209-25.

24
Harris and Raviv, (1991) "Working capital and financial management practices in the small
finn sector", International Small Business Journal, Vol. 14, pp. 52-68.
Hvide and These (2007) "Efficiency of Working Capital and Corporate
Profitability", Financial Practice and Education 8, 37-45.
Liargovaset al (2008) "Finns as financial intermediaries: evidence from trade credit data",

working paper, World Bank

Li, S. (2004) "Location and Performance of Foreign Firms in China", Management
International Review, Vol. 44, 2, pp. 151-69.
Luiz, (2002) "The theory of capital structure," Journal ofFinance,
Vol. 46, pp. 297-355.
Manalastas (20 I 0) how not to run out a./cash as a small businessman
Marshall, (1992) "Corporate return and cash conversion cycle", Journal o.lEconomics and
Finance, Vol. 20, pp. 33-46.
Majumdar S. K. (1997) "The Impact of Size and Age on Firm-Level Perfonnance: Some
Evidence from India" Review a/Industrial Organization Vol. 12, pp. 231-241.
Morgan 201 0) "Risk management coordinating corporate investment and financing
policies," Journal o.lFinance 48, pp.l629- 1658.
Mustafl, (2008). Unde,-standing cash management in small and medium enterpr(ses.
Myers, Stewart C. and Rajan, Raghur.1m G., (!998) "The Paradox of Liquidity"
Quarterly Journal a./Economics Vol. 113, 3, pp. 733-771.
Obeing et a! 1999) "Working capital and fixed investment: new evidence on financing
constraints", Rand Journal o.lEconomics, Vol. 24, pp. 328-42.
Opler, Tim C. and Titman, Sheridan, (1994) "Financial Distress and Corporate
Performance", Journal o.l Finance, Vol. 49, pp. I 015-1040.

Pedro (2008)" Effects of working capital management on SMEs Profitability.

Porter, M., (1998) Clusters and the New Economics of Competition, Harvard Business
Review, November-December, pp. 77-90.

25
Robetion et a! 2003) ''Debt, liquidity ~onstraints, and corporate investment: evidence
from panel data", Journal ofFinance, Vol. 47, pp. 1425-60.

Smith K. (1980). "Profitability Versus Liquidity Tradeoffs in Working Capital

Management", in Readings on the Management of Working Capital
Smith,. and Smith,. (1999), "Evidence on the detem1inants of credit tenns used in interfim1
trade", Journal ofFinance, Vol. 54, pp. 1109-29.
Tangen S. (2003) "An overview of frequently used perfonnance measures", International
Journal ofProductivity and Pe1jormance Management
Timmons, J., (1994) New Venture Creation, 4th ed. Irwin.
Thomas, A. and Tonks, I (1999, July). "Corporate Environmental Policy and Abnonnal
Stock Ptice Retums: An Empirical Investigation" 1999 £co-Management and
Auditing Conference, Leeds, July.

Vlachvei, (2007) "The demand for trade credit: an investigation of motives for trade credit
use by small businesses", working paper, The Federal Reserve.
Worldwide loans. (2005), No Collateral Loan, Tricks and Creative No Collateral Loan
Solution,
Zwiebel, J., (1996) "Dynamic Capital Structure under Managerial Entrenchment,"
American Economic Review, Vol. 86, pp. 1197-1215.

Pandey, 1999
Senyonga 2007
(J enner,2007)
(Alexander, 2010
Peauler (20 I 0)
(Hosfstrand, 20 I 0).

26
 Questionnaire
Dear respondent

I am Abdirizak Ahmed Farah, a student of Kampala International University business school

pursuing a Bachelor's degree in "Business and Administration undertaking a study on cash
nu;magement and profitability in small and medium enterprises (SMEs) in Uganda". Your firm
has been selected as part of the respondents.

Y~JU are kindly requested to fill this Questionnaire as completely as possible. This infonnation
will exclusively be used for academic purposes and will be treated with utmost confidentiality.

INSTRUCTIONS;

Tick in the appropriate box and use the provided space to fill in your answers or infonnation, only
necessary information is needed.

SECTION A:

BIODATA OF RESPONDENTS

1. Sex

a) Male D b) female D
2. How long have you worked in the organization?
0
a) 0-1 year D b) 2-5years

c) 6-10 years D d) I 0 years and above D

3 Academic qualification A- level D Diploma D Undergraduate 0Masters D
4. In which depmiment do you work?

a) Accounting and finance dept D Management dept D

c) Marketing dept D d) operations dept
D

e) Any other, please specify

4. Job title

27
a) Managing director D b) operation manager D
c) Procurement manager 0 d) finance manager 0
Any other, please specify

Have you worked else where before? A) Yes [}Jo 0

If yes, please specify

SECTION B. Cash management techniques and policies

5. Docs the organization use any of these cash management technique/polices?

a) Cash budget 0 O optimum cash 0

D
c) Working capital management d) cash planning and forecasting

e) Investing cash surplus

D
Any other, please specify

6 For what reason does the organization hold many?

a), Precautionary purposes D

b). Speculative motive D
c). Transactions motive, D
Any other, please specify

3. Has your organization encountered any cash problems?

a) Yes D b) No 0Not sure D

4. If yes, what kind of kind of cash management problems has your organization
encountered?

28
&) Limited working capital D b) Limited cash for expansion D
c)"Theft of cash D d) Budgeting constraint D
Any other, please specify

5. Has your organization put in place cash control policies/technique to enable the
organization stream line cash management?

a).YesO b)NoO

6). what control techniques/ policies can your organization put in place to streaJD line cash
management?

a). Budgets D
b). Forecasts D
c). Working capital planning D
e). Investing cash surplus D
f). Any other please specifY

SECTION C: FACTORS THAT INFLUENCE PROFITABILITY

7} Has your organization made profits for the past two years?

a) Yes b) No Dot sure 0 0

8). If yes what could have led the organization to make profits?

a). Good cash management policies 0

b). Management practices D
c). Capital Investing D
d). Size of the finn D
e) Location of the organization D
f). Age D
g). Tax rate D
29
h). Any other, please specify..................................................................................... .

SECTION D: Relationship between Cash Management and Profitability

9). Does cash management contribute to profitability of the firm?

a). Yes D b) NoD c) To some extent 0 e). Do not know 0

10). If yes, explain the relationship between cash management and profitability.

a) Cash management is strongly correlated with profitability. 0

b). Cash management is fairly correlated with profitability. 0
c) Cash management is weakly correlated with profitability. D
11). Have cash management policies the organization use enabled it to be profitable?

a) Yes D b) NoD

Thank.for your time and information

30