CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

Working capital can be defined as the excess of the company’s capital total current asset over its current liabilities; it may be termed net current assets. Working capital might relate to the short-term financing decision which permits the enterprise to be financially viable to meet up its short-term obligations.

In the US, according to Doloof (2003), the petroleum corp a US Stocks Company traded in the American stock exchange, in 1999 had a working capital of 123.98 dollars and raw material of $22.6.M In April 2004 to September 2006, their working capital fell to 21.2M dollars which were lower than the raw material sector and 9 other companies and 78% lower than in other dependent gas oil companies which had working capital of 22.02dollaes. The working capital of all the stocks companies in the US mounted to 98.78 dollars making it higher than in the gas companies. Also, the Dove energy cooperates Enterprise in 2011 had working capital of 2.48M dollars in 2001, and between 1998-2001 Start buck’s cooperation company in Canada had generated a working capital of $21.2M with Current assets that mounted to 24.5M dollars and current liability of 3.3 dollars.

This indicated a probability that the company could go bankrupt if the working capital falls by 26.56%. In 2013 again, a US Regional mining group company also brought in additional working capital of $3.2M which had currently raised the working capital for the past three years. This company’s partner which is based in China increased the working capital by 23.07 M dollars with an additional share of 42 M and has its larger shareholders in China (an international mining group).This shareholder also brought in 42M shares.

In January 2013, Wise Greek explained that Miami and London corporate enterprises also experience a great deterioration in their working capital while the largest US public company, drastically increase its working capital to $27 due to the ability of the company to collect debts, management inventory, and pay supplier which decreases profitability, at the same time increased working capital level from 6% to 25% higher than that in 3years back.

Actual working capital remains flat but their cash conversion period deteriorates for the second year indicating that companies took a long time to convert sales into cash, and their assets fell to 14% over the year indicating poor management of working capital. Despite withstanding, the working capital in 2012 still reached $1.1.

Furthermore, in Africa, a study by Lee Bernard, the overall working capital performance of the largest South Africa public mining companies improved from 19.79M francs in 2011 to 24M francs in 2012 and remain the best level it has ever achieved in the past decade, according to research result released in 2001 the by global strategic business consultancy, stated from revenue growth that this company had more than 48.6billions in excess of working capital in 2013 which was the largest cash opportunity it has ever seen for the past 5years.

According to research, the company collect money from the customer 2and a half-day slower than before and pay suppliers 21days earlier and maintain double inventory while the company is starting to invest in expectation growth with capital expenditure rising by 19% in the past two months.

In Nigeria, the Oil refinery Industry in 1980 had working capital of 2,625Naira in liquid and equivalents, but in 1983, the company generated a total receivable of 5,7,26 Naira and their payables outstand at 3,985 Naira with its working capital been Constantin April 25th, 1990, the company’s working capital increased to about 3,540, Naira.

Due to the mismanagement of accounts receivable and payable, by 1992, the working capital of the company fell below 2,625 Naira which reduced the company’s liquidity and profitability because the available cash was used to pay off creditors to avoid cut off supply.

Finally, in Cameroon, there has also been the evolution of working capital in different companies. In the Douala stock exchange market Society Cameroonians depot Patroller (SCDP) had working capital of 2,21m in 1999 which rise to 4,67M Francs. in 2000 indicating an increase in the company’s working capital. As a specialty retailer, the GAP has substantial inventory and working capital needs at the end of 2000 financial year concluded January 2001.

The gap reported $1.904M in inventory and 3,35M in their non-cash current asset at the same time the account payable was 1.067m and other non-interest-bearing current liabilities established. The non-cash working capital were 1.904 = 335/ 81067 – 702 =$ 470m a working capital of 1040% in 1999 and 3.44% which gave a change of 15.06%.

1.2 Problem Statement

All businesses once established would like to have effective management of their receivable and payable accounts in order to continue its foreseeable future.(the going concern concept),but in most businesses, especially in a developing country like Cameron, there is a very weak assessment of the receivable and payable account in most companies due to a lack of experience experts to carry out a proper assessment of receivable and the payable accounts of the business because more attention is rather been given to profit-making

Many businesses do not consider the two different types of working capital that is the gross working capital and the net working capital; they give little attention to the debtor’s collection period and allow them to pay at will. By so doing, profit or earnings are used to pay creditors which affects their liquidity and profitability. The proper management of receivable and payables boost the liquidity of many companies and also enables companies to re-invest in profitable opportunities.

1.3 Research Questions

Due to the above mention problem statement, one is obliged to ask the following questions;

1. What is the effect of receivables and payables accounts on the company profitability and liquidity?
2. What is the effect of the credit extensions period on the profitability and liquidity of the company?
3. What is the effect of the receivables and payables period on the company’s operations?
4. What are the management procedures implemented in managing the company’s receivable and payable accounts?
5. What problems are faced by MPL in managing its receivables and payables accounts?

1.4 Objectives of the study

The main objective of this study is to evaluate the effects of receivable and payable management on corporate performance. The specific objective includes;

1. To examine the effect of receivable and payable accounts on the liquidity and profitability of the company.
2. To assess the effect of the credit extension period on the company’s operations.
3. To determine the management procedures implemented in managing receivable and payable accounts
4. To assess the problem faced by MPL in managing its receivable and payable accounts.
5. To make recommendations based on findings.