effective capital management and organisation

EFFECTIVE CAPITAL MANAGEMENT AND ORGANISATION PROFITABILITY,

A CASE OF GREEN POWER LIMITED.

BY

KALUBA EMMANUEL

1163-05014-06743

THE RESEARCH REPORT SUBMITTED TO THE COLLEGE OF ECONOMICS

AND MANAGEMENT IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF A BACHELORS

DEGREE IN BUSINESS ADMINISTRATION

OF KAMPALA INTERNATIONAL

UNIVERSITY

SEPTEMBER, 2019

DECLARATION

I do certify that this is my original research report. And it has never been produced before in any

University for any award.

SIGNATURE ~ DATE.~~~2~

KALUBA EMMANUEL

1163-05014-06743

APPROVAL

I certify this research report has been under my supervision and is ready for submission to the

faculty of management.

SIGNATURE.~~.~ DATE

MR: MASEM UZAMIL

DEDICATION

This book is entirely dedicated to my beloved mother Ms. Wandawa Milly, my sisters Kwagala

Elinah, Ariye Stacy, my brothers Kiligah Shawn, Kyobe Calvin, My uncle My Mukama Benard,

Kirya Ivan, and MY Aunt’s Kayanga Betty.

III

ACKNOWLEDGEMENT

First and foremost I thank the Almighty God for the life HE gave me and the ability to go

through in this research period and the entire course period for making everyone easier for me

which contributed to my success.

I wish to extend my sincere appreciation to the management and staff of Green power for the

chance accorded to me of doing my research from the organization.

I also appreciate the organization for the trust, cooperation and honor extended to me during the

research period.

I am further grateful to my university supervisor Mr.Masembe Muzamil for the advice, guidance

and direction ever-readily rendered to me during this research period.

Am greatly thankful to my beloved mother Ms. Wandawa Milly for a contribution towards the

success of my education

To my beloved my sisters Kwagala Elinah, Ariye Stacy, my brothers Kiligab Shawn, Kyobe

Calvin, siblings as well as all the well-wishers.

iv

TABLE OF CONTENTS

DECLARATION

APPROVAL ii

DEDICATION iii

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS v

LIST OF TABLES viii

ABSTRACT ix

CHAPTER ONE 1

INTRODUCTION 1

1.0 Introduction 1

1.1 Background of the study 1

1.2 Statement of the problem 2

1.3 General objective 3

1.4 Specific Objectives 3

1.5 Research questions 3

1.6. Scope of the study 4

1.6.1 Content scope 4

1.6.2 Geographical scope 4

1.6.3 Time scope 4

1.7 Significance of the study 4

V

CHAPTER TWO. 5

LITERATURE REVIEW 5

2.0 Introduction 5

2.1 Definitions of working capital management, working capital and profitability 5

2.2 The relationship between Average Collection Period (ACP) and Profitability 5

2.2 The effect of Inventory Conversion Period (ICP) on the profitability 8

2.3 The relationship between Average Payment Period (APP) and Profitability 9

2.4 Relationship between working capital management and business profitability 9

CHAPTER THREE 11

METHODOLOGY 11

3.0. Introduction 11

3.1. Research design 11

3.2. Study population 11

3.3.Sample size and sampling methods 11

3.3,1 Sample Size 12

3.4.0 Data collection methods and instructions 12

3.4.1. Questionnaire 12

3.4.2 Interview 13

3.4.3 Observation 13

3.5. Source of Data 13

3.5.1 Primary source 13

3.5.2 Secondary source 14

3.6.0. Data processing and analysis 14

3.6.1. Date processing 14

vi

3.6.2. Data analysis. 14

3.7 validity and reliability of instruments 14

CHAPTER FOUR 15

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS 15

4.0 Introductions 15

4.1 Demographic Characteristics of Respondents 15

4.2 Average collection period and profitability 17

4.3 Effect of inventory conversion period on profitability 19

4.4 The relation between working capital management and profitability of Best Green power

Ltd 21

CHAPTER FIVE 24

SUMMARY CONCLUSION AND RECOMMENDATION 24

5.0 Introduction 24

5.1 Summary of the findings 24

5.1.1 Working Capital Management 24

5.1.2 Profitability 24

5.1.3 Working capital management and financial performance 25

5.2 Conclusion 25

5.3 Recommendations 25

5.4 Areas for further research 25

REFERENCE 26

APPENDICES 28

Appendix I: Questionnaire for staff members 28

vU

LIST OF TABLES

Table 1: Showing Sample Size Distribution 12

Table 2: Showing Age of the Respondents 15

Table 3: Showing Gender of Respondents 16

Table 4: Showings Level of education 16

Table 5: Showing Period Spent working in the enterprise by the Respondents 17

Table 6: Showing that All the debtors cleared their debts 17

Table 7; Showing that all the debtors are recorded in the books of accounting 18

Table 8: Showing that daily money collected from debtors is banked that very day 18

Table 9: Showing that Only one person authorizes a debt 19

Table 10: Showing that there was an increase in turnover/sales 19

Table 11: Showing that Inventory is sold in a very short period of time 20

Table 12: Showing that the inventory gets expired before it’s sold 20

Table 13: Showing that there are no sales returns by customers 21

Table 14: Showing that poor management of funds hinders profitability 21

Table 15: Showing that daily recording of funds affects the profitability of the investment 22

Table 16: Showing that Purchase orders are issued for all purchased good 23

Table 17: Showing that all Receipts are verified by the Authorized person 23

VIII

ABSTRACT

This study was conducted on atopic working capital management and business profitability a

case study of green power ltd. The study was guided by the following research objectives.

To determine the relationship between Average Collection Period (ACP) and Profitability of

green power limited.

To establish the effect of Inventory Conversion Period (ICP) on the Profitability of green power

limited.

To ascertain if there is a significant relationship between Average Payment Period (APP) and

Profitability of green power limited.

To establish the relationship between working capital management and business Profitability of

green power limited.

The research design involved across sectional study comprised of both qualitative and

quantitative research.

A simple random sampling was employed to determine the sample size. A sample size

comprised of 30 respondents from a population of 33 people was selected.

Data sources were produced from Primary data which was collected by the use of questionnaires

which were developed from the research questions. The other source was the secondary data

which was got from journal reports and internet in relation to the study objectives.

The findings revealed that most of the debtors cleared their debts though most of them were not

recorded in the books of account, most of the respondent disagreed that only one person

authorizes adebt, there is no increase in the company’s turn over and the stock is not sold in a

short period yet there was sales returns in the business because goods expired before they were

sold.

The business is recommended to ensure that complete and accurate business records are kept,

advertisement of their products to increase on the turnover which will reduce goods getting

expired before they are sold and this will reduce on the sales return, all receipts must be verified

to mitigate fraud among others in order to improve on efficiency and productivity hence business

profitability.

ix

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter covered the back ground of the study, problem statement, objectives of the study,

research questions, Scope of the study, justification of the study, significances of the study, and

significances of the study.

1.1 Background of the study

Working capital management 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

(Jeff Madura, 2010).

Working capital is the money needed to finance the daily revenue generating activities of the

firm (Angie Mohr, 2008).Therefore this means that without having a good working capital, the

company’s profitability will be affected since it’s from these daily revenue generating activities

that it will be able to generate profits.

Profitability is the ability of a business to earn a profit that’s to say a profit is what is left of the

revenue a business generates after it pays all the expenses directly related to the generation of the

revenue such as producing a product and other expenses related to the conduct of the business

activities. These means for a company to become profitable, income must exceed expenses and

these can only be achieved when a company is able to reverse and maintain its working capital.

(Dr. VK Goyal, Financial accounting, 2008).

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 as well on liquidity. Business

profitability depends heavily on the ability of financial managers to effectively manage the

components of working capital(N. Ramachandranb, Ram Kumar Kakani, Financial

Accounting for Management, 2007).

A firm may adopt an aggressive or a conservative working capital management policy to achieve

this goal.

Uchumi supermarket Ltd annual report (2005) reported that the company had a tight cash flow

position that made it difficult for the company to maintain supplier relations and consistent

supplies.

1

This condition led to loss of customers due to competition and worsened the cash flow position

which resulted into receivership and hence reduced the profitability of the business.

It is therefore worth investigating the effect of working capital management on the business

profitability.

Business entities exist for purposes of enhancing owners’ investment value. Realization of this

objective requires finesse in financial strategy and entrenchment of responsive adoption systems.

As a result, a firm is required to maintain a balance between liquidity and profitability while

conducting its day to day operations. Liquidity is a precondition to ensure that a firm is able to

meet its short-term obligations and its continued flow can be guaranteed from a profitable

venture (Lawrence J.Gitman, 2009). Working capital management can be seen as a managerial

accounting strategy focusing on maintaining efficient levels of both components of working

capital, current assets and current liabilities, in respect to each other. Working capital

management ensures a company has sufficient cash flow in order to meet its short-term debt

obligations and operating expenses. (Brigham and Joel F.Houston, 2009)

The theory of working capital management describes how working capital should be managed

and demonstrates the benefits in terms of liquidity, solvency, efficiency, profitability, and

shareholder wealth maximization which accrue to the company from appropriately managing

working capital (Eugene F.Brigham and Michael C.Ehrardt, 2010).Declining levels of liquidity,

unless remedied, may result in insolvency and eventually bankruptcy as the businesss liabilities

exceed its assets (Brigham et al 2009).

1.2 Statement of the problem

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 as well on liquidity.

Business success depends heavily on the ability of financial managers to effectively manage the

components of working capital (corporate finance by Steve lumby et.al, 2003).

Green power limited has put some controls for example, record keeping, etc so as this cannot

affect the business profitability. However it has failed to generate profit even when the working

capital management has been checked or revised (managing Director Green power Mbabazi

Abdul Rahuman) this is due to number of factors for example law turn over, heavy taxation, high

operating expenses among others(Ssekatawa, 8. (2010).).

2

It is therefore worth investigating the effect of working capital management on the profitability

of the business.

1.3 General objective

To establish the effect of working capital management on the profitability of green power

limited.

1.4 Specific Objectives

I. To determine the relationship between Average Collection Period (ACP) and Profitability

of green power limited.

II. To establish the effect of Inventory Conversion Period (ICP) on the Profitability of green

power limited.

III. To ascertain if there is a significant relationship between Average Payment Period (APP)

and Profitability of green power limited.

IV. To establish the relationship between working capital management and business

Profitability of green power limited.

1.5 Research questions.

I, What is the effect of Average Collection Period (ACP) on the Profitability of green

power limited?

II. How does inventory conversion Period (ICP)affects profitability of green power limited?

III. What is the effect of Average Payment Period (APP) on the profitability of green power

limited?

IV. What is the relationship between working capital management and Profitability of green

power limited?

3

1.6. Scope of the study.

1.6.1 Content scope.

The study was focused on working capital management as the independent variable and

profitability as the dependent variable.

1.6.2 Geographical scope.

The study was based in Green power ltd located in the central part of Kampala district on

Nalubwama Arcade, (between cooper complex and Old Taxi Park).

This was chosen because of its convenience to the researcher and also the willingness of staff to

provide data to help in the research.

1.6.3 Time scope

The research covered a period of 3years that’s to say from 2012 to 2015 because this time was

enough for the researcher to cover up all the necessary information and produce comparative

analysis of the relationship between working capital management and profitability of green

power limited.

1.7 Significance of the study

i. The study findings may be useful to future researchers to widen their understanding in

matters of working capital management as a tool for career development.

ii. To future academicians especially of Islamic University in Uganda, the study maybe

helpful in gaining insight about working capital management and business profitability.

iii. The study may help researcher to get more knowledge and information about the research

topic that’s to say effect of working capital management and business profitability.

4

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents the review of literature concerning the definitions, the relationship

between Average Collection Period (ACP) and Profitability, the effect of Inventory Conversion

Period (ICP) on the profitability, the relationship between Average Payment Period (APP) and

Profitability and the relationship between working capital management and business

Profitability of green power limited

2.1 Definitions of working capital management, working capital and profitability.

Working capital management 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 (Jeff Madura, 2010).

Working capital is the money needed to finance the daily revenue generating activities of the

firm (Angie Mohr, 2008).

Profitability is the ability of a business to earn a profit that’s to say a profit is what is left of

the revenue a business generates afler it pays all the expenses directly related to the generation

of the revenue such as producing a product and other expenses related to the conduct of the

business activities.

2.2 The relationship between Average Collection Period (ACP) and Profitability.

Average Collection Period can be seen as the approximate amount of time that it takes for a

business to receive payments owed, in terms of receivables, from its customers andor clients

(Lawrence J.Gitman, 2009)

Companies and or businesses uses the average collection period to assess the effectiveness of a

company’s credit and collection policies and as well as to determine the firm’s profitability.

5

It should not greatly exceed the credit term period that is to say the time allowed for payment

(Eugene F.Brigham and Michael C.Ehrardt, 2010).

The average collection period can further be seen as a measurement of the average number of

days that it takes a business to collect payments from sales that were made on credit(Michael

P.Griffin, 2010).

Businesses of many kinds just like Green power solution for this case allow customers to take

possession of merchandise right away and then pay later, typically within 30 days. These types

of payments are considered accounts receivable because the business is waiting to receive these

payments on an account.

Accounts receivable are an asset that is to say something the business owns or is owed (Drury

Cohn, Management and cost accounting, 7th edition, 2008). As you might expect, businesses keep

a close eye on these types of accounts, because if they do not receive the money that they are

owed when it is due, they will not be able to pay their own bills.

For our case we are to explore how the company tracks their accounts receivable and what

equations they use to find an average collection period by looking at a real-world example.

Green power solution is such an organized business which sells phones, solar system and

accessories. Because some of their items are so expensive, they allow some their customers to

purchase using credit. When an item is sold on credit, the accounting manager enters the amount

of the item into the books as an account receivable.

This is great for customers who want their purchases right away but what happens if they do not

pay their bills on time? The accounting manager at Green power solution is going to be watching

for this and will run monthly reports to assess whether payments are being made on time. He is

going to need to know the average collection period to know how many days it is taking to

collect payments from customers (Kakuru ,J. (2000)

6

The average collection period is calculated using a two-step process:

Step 1: By finding accounts receivables turnover by dividing the credit sales by the accounts

receivable

Step 2: By finding average collection period by dividing the accounts receivables turnover by

365

Accounts Receivables Turnover, as we said before, accounts receivable are the monies owed to

the company (Dr. VK Goyal, 2008), in this case from customers who have been allowed to use

credit. In order to calculate the average collection period, you must calculate the accounts

receivables turnover first. The accounts receivable turnover shows how many times customers

pay during a year. The accounting manager of Green power solution calculates the accounts

receivable turnover by taking all the credit sales and dividing them by the accounts receivable.

That is to say Credit Sales / Accounts Receivable = Accounts Receivable Turnover

(EugeneF.Brigham and Michael C.Ehrardt, 2010)

These figures come from two different financial statements. The credit sales are reported on the

revenue section of the income statement and the accounts receivable are reported in the asset

section of the balance sheet.

The average collection period has an effect on the company’s profitability in a way that if the

days are many then the company will sell its products on credit and at the end of the day it goes

shortage of stock, the sales lowers and due to the fact profits are generated from sales therefore

lower profit will be got and where the account receivable are not cleared by the debtors and they

into bad debts due to many days given it affects the company’s assents hence producing an

expense in the comprehensive income statement hence reducing the profitability of the

firm(Eugene F. Brigham and Michael (C. Ehrardt, 2010).

This is because Account Receivable is essentially a loan to the customer, so the company loses

out whenever customers delay payment and therefore affecting the profitability of such a

business due to the fact that the longer a company has to wait to be paid, the longer that money is

unavailable for investment elsewhere.

7

2.2 The effect of Inventory Conversion Period (ICP) on the profitability.

The inventory conversion period can be used to mean the time required to obtain materials for a

product, manufacture it, and sell it(Angie Mohr,2008).Though the inventory conversion period is

treated as an average amount for all of the items that a company manufactures, it is most useful

when calculated on an individual product basis, since you can then decides which products

require the longest period to construct and convert to cash - which can result in process analysis

to compress these time periods, thereby reducing the company cash investment in

inventory(Stanley B.Block et.al,1997)

The inventory conversion period is essentially the time period during which a company must

invest cash while it converts materials into a sale.To find out the value of inventory conversion

period we should have the value of average inventory and cost of sales.

Furthermore the inventory conversion period reports us about the average time to convert our

total inventory into sales. It is relationship between total days in year and inventory turnover

ratio. In other words, it measures the length of time on average between the acquisition and sale

of merchandise (Eugene F.Brigharn and Michael C.Ehrardt, 2010).

For example, if the inventory turnover ratio is 10 times of average stock at cost. Its inventory

conversion period will be

365/10 = 37 days. It means, the inventory has been disposed off or sold on an average in 37

days. (N. Ramachandranb, Ram Kumar Kakani, Financial accounting for Management, 2007)

The Interpretation of Inventory Conversion Period implies that Less inventory conversion period

is better because more firstly, we will convert our inventory into sales, there will be less chance

of obsolescence and paying of over-stocking cost and an entity with such will be more profitable

compared to one with more days because there will be more expenses incurred for example the

storage costs which at the end of the day reduces the profits of the business.

8

2.3 The relationship between Average Payment Period (APP) and Profitability.

Average payment period simply means the average period taken by the company in making

payments to its creditors (Eugene F.Brigham and Michael C.Ehrardt, 2010).It is computed by

dividing the number of working days in a year by creditorsturnover ratio.

Average payment period= Accounts payable x Number of working days! Net credit purchase

Or Average payment periodNumber of working days!Payable turnover ratio

Any of the above formulas may be used to compute average payment period. If credit purchases

are unknown, the total purchases may be used (Jeff Madura, 2010). Here we note that a shorter

payment period indicates prompt payments to creditors. Like accounts payable turnover ratio,

average payment period also indicates the creditworthiness of the company. But a very short

payment period may be an indication that the company is not taking full advantage of the credit

terms allowed by suppliers (Campsey, B.J (2005).

Managers try to make payments promptly to avail the discount offered by suppliers. Where the

discount is available for early payment, the amount of discount should be compared with the

benefit of the length of the credit period allowed by suppliers.

But It is better for managers to use all the credit period allowed because the returns seems to be

higher than when it targets the little discounts paid by the suppliers on paying their credit

promptly and this means that when the firm uses the credit for long its more profitable than when

it pays the credit on time and it is further still noted that the company benefits by slowing down

payment of Account Payable to its suppliers, because that allows it to make use of the money

longer hence increasing the company’s profitability.

2.4 Relationship between working capital management and business profitability

Working capital management can be seen as a managerial accounting strategy focusing on

maintaining efficient levels of both components of working capital, current assets and current

liabilities, in respect to each other (Jeff Madura, 2010).

Working capital management ensures a company has sufficient cash flow in order to meet its

short-term debt obligations and operating expenses.

9

Implementing an effective working capital management system is an excellent way for many

companies to improve their earnings and or profitability (Eugene F.Brigham and Michael

C.Ehrardt, 2010). The two main aspects of working capital management are ratio analysis and

management of individual components of working capital.

Profitability ratios are commonly used to evaluate the financial viability of various businesses

and measure how much a company earns (usually after taxes) relative to its sales that’s to say the

profits. Firms can achieve optimal management of working capital by making the trade of

between profitability and liquidity Omesa (2013) examined the relationship between working

capital management and firm’s profitability.

The goal of working capital management in every business can be seen as to ensure that a firm is

able to continue its operations and that it has sufficient ability to satisfy both maturing short-term

debt and upcoming operational expenses and at the end of the it has to show the profits made

hence it’s a role for every business to put in practices the working capital policies (Jeff Madura,

2010).

10

CHAPTER THREE

METHODOLOGY

3.0. Introduction

This chapter elaborates the entire design of the study and how it is carried out. It also explains

how the study has been conducted, the area of the study. Sample size and sample technique. It

also indicates how the data was collected and analyzed as well as the limitations which were

encountered during the study.

3.1. Research design

The research involved a cross sectional study using both qualitative and quantitative research

centered on working capital management practices. The techniques were designed in a way that

it best suit quick collection of relevant data. The data wassystematically collected and presented

to give exploratory analysis to particular phenomenon with emphasis to cover the extent of the

problem. That is to say how working capital management affectsthe profitability of business.

3.2. Study population

The study was carried out considering a population of 33 employees among the staff of Green

power ltd and of which were drawn from sales, marketing, accounts department and

Management was also targeted for the study research.

3.3.Sample size and sampling methods.

Sampling can be seen as a statistical method of obtaining representative data or observation from

a group or population. The Sample of a study can have a profound impact on the outcome of a

study. The researcher used a simple random sampling technique when selecting the respondents

for the study. Here everyone in the entire target population has an equal chance of being selected.

11

Simple random sampling helps to eliminate sampling bias. There respondent involved among

other employees, management and clients.

3.3.1 Sample Size

A sample can be seen as a group of people who take part in the investigation. The study

encompassed, are presentation of a sample of 30 respondents from Green power who among

others were the employees from different departments, management and clients who were

chosen for the study. This sample size was taken with consideration of time constraints,

convenience and funds among others. A special caution was taken to ensure gender equality to

avoid or minimize biased results.

Table 1: Showing Sample Size Distribution.

Department No of employees per No of Respondents

department.

Marketing 8 10

Account 5 3

Management 7 7

Clients 10 10

Total 33 30

Source: Primary Data 2019

3.4.0 Data collection methods and instructions

Data was collected by the use of questionnaires, interviews and observation as described here

under.

3.4.1. Questionnaire

This was the dominant primary data method in the study. Here comprehensive self- administered

questionnaires were the main instruments in the study. These were designed to gather

12

information and explore the key variables addressed to the staff and management. Both open and

closed ended questionnaire was used to let the respondents give their own opinion about the

research problem.

3.4.2 Interview

The researcher conducted face-face interaction with interviewees, the political leaders and key

informants were interviewed using interview guides developed by the research to address the

different aspects of study. The method was used because it encouraged free and open responses,

capturing respondent’s reception in their own words and it involved a bit of probing and open

ended questions.

3.4.3 Observation

This method was employed during the process of carrying out the study. It involved a systematic

watching of a number of people employed by Green power Ltd in different departments .Both

quantitative and qualitative date was used to gather information about the respondents.

3.5. Source of Data

There are mainly two major sources of data namely; Primary data which was got from selected

respondents by use of self-administered questionnaires, interviews and observations.

Secondary data which was the other source of data and was got from related Literature like

accounting records of Green power Ltd, published test books and internet.

3.5.1 Primary source

Primary data was collected from respondents through issuing of questionnaires. Some of the

respondents who interpret and follow the questions in the questionnaires were guided by the

researcher so as to deliver the required information.

13

3.5.2 Secondary source

Secondary data was got from journals, reports, and internet which will be used in line with study

objectives.

3.6.0. Data processing and analysis

3.6.1. Date processing

Upon collecting data, several methods were used to process and analyze the data.

All the data collected was checked for result and compiled, sorted, edited, classified and coded to

improve on its accuracy and relevancy .It was tabulated to reveal the frequencies and percentage

scores of different study attributes .This was then analyzed by calculating the ratios where

necessary to reveal the profitability of Green power Ltd.

3.6.2. Data analysis

To ease the interpretation of data, the study was analyzed using qualitative techniques with the

help Microsoft word to clearly come up with the relationship between working capital

management and profitability of a firm.

3.7 validity and reliability of instruments

Validity of an instrument refers to whether the instrument can measure what it is intended to

measure and Reliability refers to quality of an instrument to measure what it intends to.

The validity of data collection instruments was done with help of experts to edit the

questionnaire and the interview guide. The researcher discussed the appropriate test to suit the

nature of study undertaken and the instruments selected.

14

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introductions

This chapter involves data presentation, analysis, and interpretations the findings of the

Study with reference to working capital management and profitability. This was done mainly

through questionnaire to the selected respondents.

4.1 Demographic Characteristics of Respondents

Findings on the demographic characteristics of respondents were considered and responses

noted there on as evidenced in tables below.

Table 2: Showing Age of the Respondents.

Response Frequency Percentage

18-20yrs 4 13

20yrs- 24yrs 6 20

25yrs-29yrs 15 50

30yrs and above 5 17

Total 30 100


From the table 2 above, (4) 13% of the respondents were between 18 to 20years of age and (15)

50 % were between 25 to 29years. This implies that respondents were mature enough to answer

questions in the questionnaires. The explanation for this is that there are no minors and the

mature people are therefore considered to be knowledgeable enough to give valid information

needed by the researcher and they are also articulate.

15

Table 3: Showing Gender of Respondents


Male 20 67

Female 10 33

Total 30 100


Table 3 above reflects that (20) 67% of the respondents were male and (10) 33% were female.

This implies that there was no gender bias in the study. To ensure gender equality research and to

produce better quality research, equal consideration must be given to the life patterns, biological

differences, needs and interests of both women and men. Therefore this would help activities that

pursue great gender equality in research aim to integrate, whenever relevant, sex and socio —

cultural differences in all phases of research, this helps to get all the genders to be positively

considered in the study.

Table 4: Showings Level of education

Frequency Percentage

Certificate 10 33

Diploma 13 44

Degree 07 23

Total 30 100


Table 4 above shows that (10)33% of the respondents were certificate holders, and (07) 23%

degree holders. This implies that respondents had the capacity to answerquestions in the

questionnaire. Rock 2000, Jeff, Jamie noted that Educated is a rope that can carry us to

greatness. It is one of most important things in life because without education you can’t

contribute to the world or earn money, and lack knowledge. This implies that those people have

got the capacity to provide information needed effectively by the researcher

16

Table 5: Showing Period Spent working in the enterprise by the Respondents.


Less than 3 years 07 23

3-5 years 13 44

Above 5years 10 33

Total 30 100


Table 5 above revealed that (07) 23% of the respondents had spent less than 3 years in the

enterprise, (13) 44% had spent 3 to 5years. This implies that respondents have experience with

the enterprise because that’s quite a reasonable time and therefore respondents have enough

information about the organization this helps to get the valid information needed.

4.2 Average collection period and profitability.

Findings on the effect of Average Collection Period on the profitability of green power ltd were

considered and can be evidenced in tables below.

Table 6: Showing that All the debtors cleared their debts.


Strongly agree 17 57

Agree 08 27

Not sure 03 10

Disagree 02 6

Strongly disagree 0 0

Total 30 100


From table 6 above (17) 57% of the respondents strongly agreed that all debtors in the Enterprise

cleared their debts, (8) 27% agreed. This implies that all debts where cleared. This helps to

reduce on the level of bad debts that may affect the working capital of the entity.

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Table 7; Showing that all the debtors are recorded in the books of accounting.


strongly agree 5 17

Agree 10 33

Not sure 0 0

Disagree 13 43

Strongly Disagree 2 7

Total 30 100


Table 7 above reveals that (5)17% of the respondents strongly agreed that all debtors are

recorded in the books of accounting for proper accountability (13) 43 % disagreed. This implies

that some debtors are not recorded in the books of account.

Table 8: Showing that daily money collected from debtors is banked that very day.


Strongly Agree 5 17

Agree 10 33

Not sure 7 23

Disagree 6 20


Total 30 100


Table 8 above shows that (5) 17% of the respondents strongly agreed that Daily money received

b from debtors by the business is banked that very day and 50% agreed. This implies that Daily

money received by the business is banked daily therefore fraud is reduced because all the funds

received are banked.

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Table 9: Showing that Only one person authorizes a debt.


Strongly Agree 3 10

Agree 3 10

Not sure 0 0

Disagree 4 13


Total 30 100

Source: primary data 2019

Table 9 above indicates that (3) 10% of the respondents strongly agreed that one person

authorizes a debt and 67% strongly disagreed. This implies that more than one person authorize

adebt.This therefore indicates that there is control over stock which is not good in any business

and it may result to missing stock and or bad debt.

4.3 Effect of inventory conversion period on profitability

Findings on the effect of inventory conversion period on profitability of Green powere ltdwere

illustrated in the tables bellow:

Table 10: Showing that there was an increase in turnover/sales.


Strongly Agree 3 10

Agree 4 13

Not sure 0 0

Disagree 15 50


Total 30 100


Table 8 indicates that (3) 10% of the respondents strongly agreed that there was an increase in

turn over in the business and (15) 50% disagreed. This implied that sales of the business did not

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increase. This could be due to the growing competition within the region where the business is

located and may other factors that can be considered.

Table 11: Showing that Inventory is sold in a very short period of time.


Strongly Agree 2 7

Agree 3 10

Not sure 4 13

Disagree 8 27


Total 30 100

Source: Primary Data. 2019

Table 11 shows that (2) 7% of the respondent strongly agreed that stock was sold in avery short

period of time by the business,(8)27% disagreed and(13) 43% strongly disagreed. This implies

that some stock could expire before they were sold hence loss and this affected the profitability

of the business

Table 12: Showing that the inventory gets expired before it’s sold.


Strongly Agree 6 20

Agree 14 46

Not sure 2 7

Disagree 5 17


Total 30 100

Source: primary Data 2019

Table 12 reflects that (20)10% of the respondents strongly agreed, (14)46% agreed that stock

gets expired before it’s sold, (5)17% disagreed and (3)10% strongly disagreed This implies that

inventory gets expired before its sold this affects the profitability of Green power investment ltd.

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Table 13: Showing that there are no sales returns by customers.


Strongly Agree 4 13

Agree 3 10

Not sure 2 7

Disagree 8 27


Total 30 100

Source: primary Data 2019

Table 13 revealed that (4) 13% of the respondents agreed that there are no return in wards (RIW)

and (13) 43% strongly disagreed. This indicated most of the sales made by the business was

being reduced by the sales returns or return in wards and this affects the profitability of green

power ltd.

4.4 The relation between working capital management and profitability of Best Green

power Ltd.

Finding on the relation between working capital management and profitability of Green power

ltd were considered and can be evidenced in tables below.

Table 14: Showing that poor management of funds hinders profitability.


Strongly Agree 15 50

Agree 10 33

Not sure 3 10

Disagree 0 0


Total 30 100


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Table 14 reflects that (15) 50% of the respondents strongly agreed that profitability was hindered

by poor management of funds within the business and (2) 7% strongly disagreed. This indicates

that the profitability of Green power Ltd is hindered by poor management of funds Conservation

financial policies are often criticized as serving the interests of managers rather that the interests

of stakeholders (Wayne H. Mikkelson and M. Megan partch,2013). Therefore could the reason

behind that argument.

Table 15: Showing that daily recording of funds affects the profitability of the investment.



Agree 9 30

Not sure 2 7

Disagree 3 10


Total 30 100

Source: primary Data

Table 15 indicates that (2)7% of the respondents strongly disagreed that daily recording of funds

affects the profitability of the business and (14)46% strongly agreed. This implies that

profitability of the business can be affected by daily recording of funds that’s to say if funds are

not Recorded it can be misappropriated hence affecting the profitability of the business. Keeping

records is crucial to successfully manage a business. A comprehensive record keeping system

makes it possible to develop accurate and timely financial reports that show the progress and or

profitability and current condition of the business. (Missouri Business.Net, 201 4).Therefore daily

recording of funds affects has appositive impact on the profitability of every business.

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Table 16: Showing that Purchase orders are issued for all purchased good.


Strongly Agree 4 13

Agree 3 10

Not sure 3 10

Disagree 5 17


Total 30 100


Table 16 indicates that (4) 13% of the respondents strongly agreed that purchase orders are

issued for all goods bought and (15) 50% strongly disagreed that purchase orders are issued.

When purchase orders are given, purchase order helps organizations to tress lost purchases or

confirm their stock and this will mean proper inventory management (kamukama Nixon

2006).therefore this means that there was a poor stock management and it affected the

profitability of the business

Table 17: Showing that all Receipts are verified by the Authorized person.



Agree 6 20

Not sure 3 10

Disagree 4 13


Total 30 100


Table 16 indicates that (14) 47% of the respondents strongly disagreed that all receipts are

verified by the authorized person, (4)13% and (3)10% strongly disagreed. This implied that there

was some internal control observed hence the profitability of the business will not be positively

affected.

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CHAPTER FIVE

SUMMARY CONCLUSION AND RECOMMENDATION

5.0 Introduction

This chapter presents summary conclusion and recommendations in

Relation to the study objectives

5.1 Summary of the findings

5.1.1 Working Capital Management

The Finding revealed that most of the debtors cleared their debts though most of them were not

recorded in the books of accounts for proper accountability, this causes to growth of bad debtors

and at the end of the day it will affect the profitability of the organization (Hall, B. (2006), small

and medium scales enterprises).Further still on the same note the findings reveals that at green

power a debt is not authorized by one person though the collected amount is said to be banked

the same day.

However, the verification of receipt is done by the Authorized person and funds are daily

recorded, this mitigates the misappropriation of funds that may occur.

5.1.2 Profitability

Findings revealed that there is no increase in capital of Green power ltd this was due to the

reduced sales and high sales returns within the entity and there was nothing like a loan acquired

to boost the business at any time. Nevertheless, respondents said that they had more customers

and majority said they had fewer customers, and the Enterprise is not the main supplier to most

of the retail shops in Kampala so this to affects its profitability at the end of the day.

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5.1.3 Working capital management and financial performance

Findings revealed that there is a strong positive relationship between Working capital

Management and business profitability (Stanley, K.(1997). Management of financial company

sixth Edition)

5.2 Conclusion

Findings revealed that all funds in Green power ltd are recorded in its books of accounts for

proper accountability at the end of the day, Daily money received from its debtors is banked that

very day and this is affected by the fact that many employees can authorize adebt this causes

fraud and hence affects the profitability of the business, purchase order is not first issued for

ailgoods brought and receipt are verified by the authorized person which reduces fraud and

therefore the researcher concluded that there is a strong positive relationship between working

capital management and business profitability.

5.3 Recommendations

The business is recommended to ensure that complete and accurate business records are kept,

advertisement of their products to increase on the turnover which will reduce goods getting

expired before they are sold and this will reduce on the sales return, all receipts must be verified

to mitigate fraud among others in order to improve on efficiency and productivity hence business

profitability.

5.4 Areas for further research

Further research need to be carried out on the following;

The Effect of cash management on profitability of a business.

The Effect of record keeping on the profitability of business.

25

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Dr. VK Goyal, Financial accounting, 3” Edition, Published by Excel books Rs245 2008,

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Arinatwe Kamukama Nixon, Cost and movement accounting, 1 edition, Published by Makerere

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Datari. srikantmFoster George RajanMadhav, Ittner, Cost accounting and

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Drury Cohn, Management and cost accounting, 7” Edition, published by London

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effective capital management and organisation

Documents