CASH MANAGEMENT SYSTEM AND PROFITABILITY OF

MOTOR DEALERS IN FIRST DISTRICT

OF BATANGAS

A Thesis
Presented to
The Faculty of College of Accountancy, Business and Economics
BATANGAS STATE UNIVERSITY
The National Engineering University
Lemery, Batangas

In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Management Accounting

By:
Bathan, Oliver Rusly A.
Belga, Mary Grace C.
Mendoza, Khyla A.
Moreno, Althea Mary Kate B.
 Chapter I
THE PROBLEM

This chapter contains the introduction, background of the study, statement

of the problem, theoretical framework, conceptual framework and hypothesis of

the study. Likewise, it includes the significance of the study, the scope and

limitations of the study, and the definition of terms that serve as a guide for the

researchers in conducting the study.

Introduction

Cash is the most important aspect of operating a business. It is the basic

input that keeps business running on a day-to-day basis. Therefore, it is

necessary to manage cash effectively as a business’ operating environment is

quite volatile. A firm with a sufficient amount of cash is highly liquid, it has the

ability to meet all of its expenses. Whereas, an illiquid firm does not have enough

cash. The insufficiency of cash can act as a drag on the business operations.

Furthermore, businesses need to maintain an optimal amount of cash

balance. This is because inadequate cash can slow down production. Whereas

excessive cash can turn out to be expensive as it hampers the earning potential

of the business. This means that having inadequate or surplus cash indicates

mismanagement of business funds. Therefore, the business must lay emphasis

on maintaining an optimum balance of cash and such a cash balance needs to

be maintained at the right place, at the right time and at the right cost (Cook

2019).
 Additionally, cash from investments and operations is categorized as cash

flow in businesses. It is a representation of the incoming and outgoing cash flows

from operating a business. The success of an organization depends on its ability

to manage cash flow. It covers a company's financial investments, financing

practices, and management of its operations or business activities. Even if a

business turns a profit by bringing in more money than it spends on overhead,

paying back investors, and growing, it still needs to manage its cash flow

effectively to succeed. For businesses to make timely payments to vendors and

suppliers and determine when to invest in new assets, cash inflows and outflows

must be connected to core business operations. The process of strengthening

cash management techniques takes time and effort. However, these techniques

may assist to foresee cash needs, speed up cash collections, and resist

borrowing money to run business. Therefore, effective cash management

contributes to effective working capital management. And hence, efficient cash

management reflects effective working capital management for the company. To

meet its business needs, it must always have enough cash on hand. This also

paves the way for current financial obligations to be met.

Similar to this, profitability and cash management assist in assessing the

business's cash position. In terms of a motor dealer's finances, cash flow is just

as important as profits, if not more so. If they put profitability before cash flow,

they will be putting the cart before the horse. Dealers who don't have enough

cash on hand to cover expenses and operations run the risk of running into

money problems, and in the worst-case scenario, they might never even be able
to realize the solid profits that on the balance sheet appeared to be a mirage. A

company must always have enough cash on hand in order to succeed. It needs

cash to acquire new properties, pay off bank loans, cover expenses, and pay

taxes.

On the other hand, a motor dealer's financial performance is typically

assessed by looking at its profitability. Profits, after all, are what enable retailers

to compensate their workers well, support owners' and other shareholders'

income, and enable the stores to expand and grow. Income and expense

performance serve as a gauge of profitability, which is the main objective of all

business endeavors. Without profitability, the company cannot last over the long

haul. And as such, it's crucial to evaluate past and current profitability as well as

project future profitability.

Correspondingly, the majority of dealerships use profitability as a measure

of financial success. Profits, after all, are what support owners' and other

shareholders' income, permit dealerships to generously compensate staff

members, and permit the stores to develop and grow. However, some dealers

are having trouble selling some vehicles that have been sitting in their inventories

for too long. The dealership will have more money in the bank if you can sell and

bring in another popular model more quickly. Although money is practically at

hand, it is minimizing your income while the car is on the market. Because of the

dealership cash flow cycle's relative security, dealerships are prone to

complacency. As a result, they fail to take simple steps that could improve their

cash flow and operational capabilities.

 According to Worth (2022), dealers must be cautious not to use their

short-term cash funds for long-term financial commitments. Motor dealerships

experiencing liquidity issues may face challenges securing loans from banks or

financial institutions to bail them out. While hard money loans and private debt

funding are available, these can be expensive choices for recovery over finding

resources where vehicles taking up space can be quickly sold for a profit.

Dealers must be skilled at managing cash flow in order to prevent cash

management problems. Additionally, a company's main goal ought to be

profitability because, without it, the company might not endure over the long

term. Owners, employees, etc. should be knowledgeable of both cash flow

management strategies and profitability as both are essential in various ways

when determining the business's financial condition. The ability to track the value

of cash entering a business and determine its current, prior, and future

profitability would be useful to motor dealers. If a company has a positive cash

flow, it means that more money is coming in than is leaving. Due to its effect on

securing a business and potential to draw in additional customers, it shares many

characteristics with profitability. Even with a sizable profit, poor cash flow

management would still be a problem for a business, so these two things should

always be related.

Thus, it prompted the researchers to study the cash management system

and profitability of motor dealers in the First District of Batangas. This study

provided a deep understanding of how cash management systems and

profitability can influence the success of motor dealers and how such strategies

can be used to enhance the business performance.

Background of the Study

The researchers are typically management-oriented individuals who were

interested in learning more about management accounting as preparation for the

future. “Cash management system and profitability of motor dealers in First

District of Batangas” was chosen by the researchers due to their enthusiasm to

help motor dealers to survive in these trying times.

According to Gagel (2014) new generations of buyers are gradually

shifting to the internet as the basis for the entire vehicle sales and aftersales

experience. It will be less likely for any dealer to survive in the competition with

other brands, internet shops and independent workshops. Gagel stated the five

reasons why many dealers will fail.

First, they have no good internet accessibility. Answering emails, following

up web page generated leads, making online appointments, and selling online.

For too many dealers, all these things are still non-existent, poorly executed or

simply not important.

Second is the store opening hours. Many car dealers still require their

customers to almost “take a day off” to buy a car or get a service. Stores closing

at 5 or 6 pm, or closed on the weekends, or even Saturdays are not competitive

to the 24/7 internet.

 Next is that after sales experience at many dealers is still quite old

fashioned- except maybe the soft skills, friendliness, and also some hard facts

like timeliness.

Another is dealers need more than one brand to survive but no one really

needs all the cars of different manufacturers in one showroom. If a dealer does

not live for the brand they display, they will not transport the message and make

the brand experiences rather exchangeable.

Lastly, dealers must stay competitive in the market. Pricing out of the

market is an issue for some dealers. Sometimes it is only perception by the

customers, like in pharmacies thought of being expensive (which they often are,

but not always). Their competition is the web for new vehicles, and the

independent workshop for the aftersales. Not so much the dealer next door.

Understanding this helps to have a better view on what to look at.

The sustainable development goal related to this study is goal number 8,

decent work and economic growth because in the world of business, it frequently

happens that some companies underpay their workers. Hence, with the help of

this sustainable development goal, the significance of good financial

management will be more emphasized, and employees will receive the

appropriate compensation and be provided with suitable employment.

In light of the aforementioned factors, the researchers carried out a study

that was primarily concerned with methods to maintain better cash management

systems and profitability for motor dealers. Its justification made clear that it

wanted to determine how important is the cash management system and

profitability to the motor dealers in the First District of Batangas. Additionally, it

sought to ascertain how profitability and cash management system could be

applied to enhance business performance. Last but not least, it advanced the

researchers' level of professional development and added to the body of

knowledge.

Researchers believe that this study is pertinent to their course in that it

may offer a number of suggestions for cash management systems and

profitability that are actually useful to management students. Furthermore,

research recommendations can serve as a great starting point for understanding

how motor dealers use such cash management systems and profitability.

Statement of the Problem

This study aims to ascertain the cash management system and

profitability of motor dealers in the First District of Batangas.

In accordance, it sights to answer the following questions:

1. What is the profile of the business in terms of:

1.1 Form of business;

1.2 Number of Employees;

1.3 Years of Operation;

1.4 Capitalization;

1.5 Average monthly income?

2. How do the respondents assess cash management system in terms of:

2.1 Collection System;

 2.2 Disbursement System?

3. How do the respondents assess profitability in terms of:

3.1 Net Profit Margin;

3.2 Return on Asset;

3.3 Return on Equity?

4. How may the response be compared?

5. What plans may be recommended for the motor dealer owners to enhance the

business capability in generating profit and reducing risk of bankruptcy?

Theoretical Framework

This part of the study serves as the researchers' foundation for developing

the structure of their research. The theory describes the cash management

system and profitability concerned with perceptions, as well as its relationship to

the study.

According to Bhalla (2014) the cash management system of a firm is the

mechanism that provides the linkage between cash flows. The financial manager

of the firm has the responsibility, at least in part, of developing and maintaining

the policies and procedures necessary to achieve an efficient flow of cash for the

firm's operations. The external elements of the cash system include a collection

system for getting cash into the firm and disbursement system for paying the

suppliers and other receivers of cash.

 A collection system is a set of procedures and banking arrangements

used to move value from customers or other payers to the payer's deposit bank

account. Since the finance manager is concerned with value transfer, the

analysis of the collection system focuses on creating an available balance in the

deposit account and not just receiving transfer information (e.g., a cheque).

Collection systems must also be concerned with payment information that

supports the payment. A payment received without sufficient documentation may

incur high search cost for locating information that permits accounts receivable to

credit the appropriate customer's account. In short, an efficient collection system

performs the functions of mobilizing cash, providing accurate cash flow

information, providing timely information on sales and customers’ accounts, and

providing an audit trail for goods control.

On the other hand, disbursement systems include the banks and the

delivery mechanisms and procedures firms use to facilitate the movement of

cash from the firm's centralized cash pool to disbursement banks and then on to

suppliers and other payers. Disbursement banks are the banks on which

disbursement cheques are drawn. A disbursement system may be more complex

than a collection system in one sense; made before a given time period.

Disbursement systems must consider the possible costs of missing discounts if

payment cannot be made in time.

In addition, according to Spaulding (2020) the best measure of a company

is its profitability, for without it, it cannot grow, and if it doesn't grow, then its stock

will trend downward. Increasing profits are the best indication that a company
can pay dividends and that the share price will trend upward. Creditors will loan

money at a cheaper rate to a profitable company than to an unprofitable one;

consequently, profitable companies can use leverage to increase stockholders'

equity even more. The common profitability measures compare profits with sales,

assets, or equity: net profit margin, return on assets, and return on equity.

The net profit margin is the net profit (aka net income) after taxes and

excluding extraordinary items divided by total revenues.

The return on assets (ROA) (aka return on total assets, return on average

assets, return on investment (ROI), is one of the most widely used profitability

ratios because it is related to both profit margin and asset turnover, and shows

the rate of return for both creditors and investors of the company. ROA shows

how well a company controls its costs and utilizes its resources.

The return on equity (ROE), also known as return on investment (ROI), is

the best measure of the return, since it is the product of the operating

performance, asset turnover, and debt-equity management of the firm. If a firm

can borrow money and use it to achieve a higher return than the cost of the debt,

then the leveraging creates additional revenue that accrues to stockholders as

increased equity.

According to Beranek from the Beranek Model, firms where the cash

inflows were steady, but the outflows were periodic. This is the mirror image of

the time pattern of cash flows within the Baumol model, where inflows were

periodic and outflows were steady. The time pattern of cash balances in the

Beranek model is pictured in Panel A of Figure-5. Balances build over time, then
 are disbursed all at once. This time pattern represents the situation faced by

many firms. Cash would be collected continuously at a uniform rate, but would be

disbursed over a short time as a group of the firm's cheques reached its bank

and were paid. In this pattern of cash flows, the challenge is to profitably invest

the funds between the time of their receipt and the time when a group of cheques

are presented to the bank for payment. In the Beranek model, however, the cash

is accumulated gradually (rather than disbursed gradually), so the transactions

pattern would involve a series of investments followed by one disinvestment at

the end of the period.

Conceptual Framework
INPUT PROCESS OUTPUT

Profile:
- Form of business
- Number of
Employees
- Years of Operation
- Capitalization Data Gathering
- Average monthly Analysis and Proposed
income Interpretations Recommendation
through Survey
Cash management Questionnaire
system:
- Collection system
- Disbursement
System

Profitability:
- Net Profit Margin
- Return on Asset
- Return on Equity
 Figure 1 exhibits the conceptual framework paradigm of the study. It

serves as a baseline on determining the cash management system and

profitability in the First District of Batangas using Input-Process-Output.

Input includes the business profile of the respondents, the profile of the

business in terms of form of business, number of employees, years of operation,

capitalization and average monthly income. It also includes the cash

management system such as collection system and disbursement system.

Lastly, the profitability such as net profit margin, return on asset and return on

equity.
Figure 1
Process containsConceptual
data-gathering procedure,
Paradigm analysis, and interpretations
of the Study

that will be made by the researchers through the use of survey questionnaires as

main-gathering instruments. The gathered data will be tallied, tabulated,

statistically treated, and interpreted.

Finally, the output is the source of action proposed by the researchers to

further enhance the business capability in generating profit and reducing risk of

bankruptcy

Hypothesis of the Study

The study tested the hypothesis given below:

Ho: There is no significant relationship on cash management system and

profitability of motor dealers in First District of Batangas

Scope and Limitation of the Study

This study involves the cash management system and profitability of

motor dealers in the First District of Batangas. It focuses only on the specific

categories that entail the cash management system in terms of collection system

and disbursement system. Also, it includes profitability such as net profit margin,

return on assets and return on equity.

The researchers will accommodate the motor dealers in First District of

Batangas wherein survey questionnaires will be used to gather information. The

total population size of motor dealers will serve as the total number of

respondents.

However, this study is limited only to the cash management system in terms of

collection system and disbursement system. Also, in profitability such as net

profit margin, return on assets and return on equity. Any critical information such

as their financial statements and many others will not be part of the study. The

result of the assessment through a survey will serve as the basis for the

researchers to create recommendations to enhance their knowledge in terms of

cash management system and profitability. Likewise, this study is delimited to the

motor dealers outside First District of Batangas.

Significance of the Study

 This study will give significance to individuals regarding the cash

management system and profitability of motor dealers in First District of

Batangas. Also, the study is deemed advantageous to the following:

To the motor dealers, who will serve as respondents of the study, this

may provide knowledge on how they will monitor the cash flow of their business

and control its operations.

To business owners, it may help them to enhance their knowledge of the

cash management system and apply it to their business for better generating

profit.

To management accounting students, this study may provide them with

a range of insights and ideas about cash management systems.

To Batangas State University – Lemery, this study may serve as

additional or new reference material that the university can provide to the

students in doing any research endeavor.

To the researchers, this study may certainly enhance their understanding

through the obtained knowledge about the cash management system.

To future researchers, this may be used as reference data for future

studies or for testing the validity of other related findings. This study may also

provide essential information to develop new related studies in the future.

Definition of Terms

Cash management. Its most salient part is monitoring the cash flow

statement. Since the cash flow statement records all business transactions, it
helps track accounts receivables, payables, investing amount, financing amount,

etc. In a nutshell, the cash flow statement tells you how much readily-available

cash the organization has at any given time (Srivastava, 2023). In this study,

cash management is assessed as it includes the business financial stability and

management of operations or business activities, financial investments, and

financing activities.

Cash management system. It helps to record, track, forecast and report

the cash flows of a business. It follows the movement of cash in and out of the

company across multiple channels, branches and structures (Srivastava, 2023).

In this study, cash management systems ensures that the business has enough

funds available for its operation and provides accurate data for every processed

transaction.

Collection system. It eliminates manual effort, reduces errors, and

improves the ability to collect unpaid debts. While AR personnel are primary

users of the system, it also benefits the company as a whole (Shinn, 2022). In

this study, collection system is assessed as a system that monitors the debts of a

customer as well as ensuring that the receivables are recorded appropriately

along with its payment information.

Disbursement System. It is a payment made by one party to another.

Also called cash payments or disbursements, they can be made by check, e-

check, Automated Clearing House (ACH), digital payment, and all formats of

payments recorded with an immediate deduction (Zorc, 2022). In this study, the
disbursement system shows how the company pays out by issuing checks or

cash payment for financial and business expenditures.

Net profit margin. It is also known as “Profit Margin” or “Net Profit Margin

Ratio”. It is a financial ratio used to calculate the percentage of profit a company

produces from its total revenue. It measures the amount of net profit a company

obtains per dollar of revenue gained (Schmidt 2023). In this study, net profit

margin is assessed as it shows how capable a business is in producing profit and

controlling its costs.

Profitability. It is the ratio between a business’s income and its expenses.

A business determines its income by calculating the money the business

generates through its operations and activities. A business determines its

expenses by calculating the number of resources (money, time, and inventory)

consumed during the course of its operations (Paller,2022). In this study,

profitability measures the business income through income statements

comparing it to the expenses that result in conducting business activities.

Return on assets. It compares the value of a business’s assets with the

profits it produces over a set period of time. Return on assets is a tool used by

managers and financial analysts to determine how effectively a company is using

its resources to make a profit Birken and (Curry 2021). In this study, return on

assets is evaluated as it allows the business to monitor good and bad

investments and to analyze long - term changes in business.

Return on equity. It is a measure of financial performance calculated by

dividing net income by shareholders' equity (Fernando, 2023). In this study,

return on equity is used to identify the profitability of the business venture and

how it generates those profits efficiently.