Yamoah Gilbert PDF
Yamoah Gilbert PDF
Yamoah Gilbert PDF
By
August, 2015
i
DECLARATION
I, hereby declare that this submission is my own work towards the degree of Master of
previously published by another person nor material which has been accepted for an award
for another degree of the University, except where due acknowledgement has been made in
the text.
……………………..
Certified by:
…………………..
Certified by:
…………………..
ii
ABSTRACT
This study was conducted to gain information on current cash management practices of the
various Halls and Hostels that provide accommodation for Kwame Nkrumah University of
Science and Technology (KNUST) Students. Purposive sampling technique was adopted to
select the respondents for the study and data was collected mainly through the use of
questionnaires. The data collected was analyzed using Statistical Package for Social
Sciences (SPSS). The study revealed a worrying situation as unlike the practice in Halls of
Residence, majority of the Hostels studied do not adhere to good cash management
practices in terms of proper cash planning, control and disbursement. The study also
highlighted some factors that pose as a challenge to effective cash management in both
facilities which includes inadequate information on avenues to invest cash surplus and
finance cash gaps; the seasonal nature of their major cash inflow against all-year-round
cash disbursement and the unfavourable economic conditions prevailing in the country.
The Researcher recommends a closer partnership between the University and the Hostel
facilities by providing training and support on cash management issues for owners and
managers.
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ACKNOWLEDGEMENT
I express my profound gratitude and appreciation to the Almighty God for His divine
Many thanks also go to my supervisor, Dr. Daniel Domeher for his assistance and
contribution to this work. I also acknowledge the contribution of my family and all who in
Finally, I would like to take the opportunity to render my sincere appreciation to Mrs.
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DEDICATION
I dedicate this thesis to the Almighty God for His immense support throughout this period
of study, my family, my supervisor, Dr. Daniel Domeher and Ms. Yaa Adwubi Asamoah
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TABLE OF CONTENTS
DECLARATION .......................................................................................................... ii
ABSTRACT ................................................................................................................. iii
ACKNOWLEDGEMENT ........................................................................................... iv
DEDICATION .............................................................................................................. v
TABLE OF CONTENTS ............................................................................................. vi
LIST OF TABLES ....................................................................................................... ix
LIST OF FIGURES………………………………….………………………………..x
CHAPTER ONE .......................................................................................................... 1
INTRODUCTION ....................................................................................................... 1
1.0 Background of the study. ........................................................................................ 1
1.1 Statement of the problem. ....................................................................................... 3
1.2 Objectives of the study. ........................................................................................... 3
1.3 Research questions. ................................................................................................. 4
1.4 Significance of the study. ........................................................................................ 4
1.5 Methodology. .......................................................................................................... 4
1.6 Scope of the study. .................................................................................................. 5
1.7 Limitations of the study. .......................................................................................... 5
1.9 Organization of the study. ....................................................................................... 5
CHAPTER TWO......................................................................................................... 6
REVIEW OF RELATED LITERATURE ................................................................ 6
2.1 Definition of cash .................................................................................................... 6
2.2 Motives for Holding Cash. ...................................................................................... 6
2.2.1 Transaction motive. .............................................................................................. 7
2.2.2 Precautionary motive............................................................................................ 7
2.2.3 Speculative Motive ............................................................................................... 8
2.2.4 Compensating Motive .......................................................................................... 9
2.3 Cash Management ................................................................................................... 9
2.4 Cash Management Studies in Ghana ..................................................................... 11
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2.5 Cash Planning. ....................................................................................................... 12
2.5.1. Cash budgeting. ................................................................................................. 13
2.5.2. Cash flow statement. ......................................................................................... 13
2.5.3 Sensitivity Analysis. ........................................................................................... 14
2.6 Cash Control .......................................................................................................... 14
2.6.1 Cash Collection .................................................................................................. 15
2.6.1.1 Concentration Banking ................................................................................... 16
2.6.1.2Lock-Box System ............................................................................................. 16
2.6.1.3Electronic Fund Transfer. ................................................................................. 17
2.6.2 Cash Disbursement. ............................................................................................ 18
2.7. Cash Management Models. ................................................................................. 18
2.7.1 The Baumol Model............................................................................................. 19
2.7.2 The Miller-Orr Model. ....................................................................................... 21
2.8. Investing surplus cash ......................................................................................... 23
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4.1.1Type of facility. ................................................................................................... 29
4.1.2 Highest level of educational of respondents. ..................................................... 30
4.1.3 Age of Facility. ................................................................................................... 30
4.1.4 Facility’s intake in relation total demand. .......................................................... 31
4.2 Cash movement ..................................................................................................... 32
4.2.1 Cash receipts. ..................................................................................................... 32
4.2.2 Cash disbursements ............................................................................................ 33
4.3 Cash Management Practices .................................................................................. 35
4.3.1 Cash holding Motive. ......................................................................................... 35
4.3.2 Cash planning. .................................................................................................... 36
4.3.3 Causes of deviations from cash targets. ............................................................. 37
4.3.4 Cash Control ....................................................................................................... 38
4.3.5 Investment of cash surplus. ................................................................................ 39
4.3.6 Factors considered in selecting a marketable security. ...................................... 40
4.3.7 Managing cash flow. .......................................................................................... 41
4.3.8 Financing cash shortage. .................................................................................... 43
4.3.9 Level of influence of respondents on cash management issues. ........................ 44
4.4 Challenges to Effective Cash Management........................................................... 46
4.4.1. Relevance of effective cash management on survival and growth of the facility.48
APPENDIX I ............................................................................................................... 59
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LIST OF TABLES
Table 4: What is the percentage of students intake in relation to total demand? ........ 32
Table 7: What mainly account for the deviation from cash targets? ........................... 38
Table 11: What mode of payments (Major) is used by the facility? ........................... 42
Table 13: What is your level of influence on cash management issues in the facility?46
Table 14: Relevance of cash management on survival and growth of the facility...... 49
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LIST OF FIGURES
Figure 1: Cash receipts by facility type ....................................................................... 33
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CHAPTER ONE
INTRODUCTION
Cash is seen as the “life blood” of every business organization. Khan and Jain (2013)
indicate that, apart from the fact that cash is the most current asset, it is also seen as the
common denominator to which all current assets can be reduced. They explain this to mean
that all other liquid assets, such as; inventories, receivables and marketable instruments
According to Scherr (1989), “cash management deals with determining the optimal level
of cash, the appropriate types and amounts of short-term investments in cash as well as the
efficient methods and controls of cash collections and disbursements”. This involves the
administration of liquid assets and liabilities, and the raising of funds to finance a business.
efficiency in cash control is essential to ensuring that a business remains liquid enough to
be able to meet payment obligations when it is due. This is carried out through the
management of cash receipts and payments, cash balances and cash transfers between the
While holding cash has its own benefits to the business, it nonetheless comes with a cost -
the opportunity cost of the profits that could be made if the cash was invested elsewhere. It
is therefore the duty of the financial manager to balance the firm’s liquidity with its
profitability.
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A business organization must develop appropriate mechanism to manage and correctly
forecast its cash needs in order to make appropriate decisions with respect to borrowing
and investment. Proper cash management therefore is an effective way of ensuring that the
little cash available to the business is managed well to bring full benefit to the business in
question.
Planned acquisition and utilization of cash or near cash resources ensures that businesses
are in the position to meet their liquidity requirement while earning reasonable profits on
their cash reserves. On the other hand, poor cash management practices can result in cash
Unfortunately, studies on this subject matter reveals that availability and proper
management of funds remains a major challenge to the survival, growth and expansion of
businesses in Ghana. Mbroh (2012) indicated that, although the burden of cash
successes or failure of the business sector, majority of businesses operating in Ghana are
cash-trapped as a result of inadequate cash inflow to meet their operational needs. Logli
(1981), on the other hand, identified poor management of funds as a major problem
This study is conducted to provide current understanding on how the various aspect of cash
management are carried out in the various Halls of Residence and Hostel Facilities that
provide accommodation for the Kwame Nkrumah University of Science and Technology
(KNUST) Students.
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1.1 Statement of the problem.
In recent times, the accommodation issue has been a major challenge faced by KNUST
Students. Although accommodation fees continue to be on the rise, these Halls and Hostel
facilities have not been able to expand enough to meet the increasing demands for their
services.
Notwithstanding the vital role cash management play in every business organization, it is
unfortunate that lot of studies in this area is focused on corporate institutions such as the
banks.
It is in light of this that this research is conducted to provide current understanding on how
the various aspect of cash management are carried out in the various Halls of Residence
This study is aimed at gaining understanding of how cash management practices are
carried out by the financial managers of the various residential facilities for students in
KNUST.
1. To ascertain the major sources of receipts and disbursement of cash for the selected
facilities.
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1.3 Research questions.
These and other research questions will be answers through the research objective.
This study will help provide insight to stakeholders and policy markers with regards to
issues concerning cash management in residential facilities for the students in KNUST.
It is also the aim of the research to provide recommendations to interested parties on how
The research will further serve as a reference document to aid in further research in this
area of study.
Overall, this study provides useful strategic data to government and its agencies, the
businesses community and all stakeholders, in order for them to double their cash
1.5 Methodology.
Data on the research work was obtained from primary source. Primary data was collected
directly from the field administering questionnaires and face-to-face interviews. Collected
data from the sample was put into quantitative analysis and Statistical Package for Social
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1.6 Scope of the study.
With the view of providing an in depth information about the subject matter and also
because of time constraint, the focus of the research was limited to five (5) main Halls of
Residence of KNUST and fifteen (15) selected hostels in and around the KNUST Campus.
The research also centered on both the Bursars of the respective Halls of Residence in
KNUST and Managers of the selected Hostel facilities in and around the KNUST Campus.
As part of any research work, the researcher is usually confronted with certain issues that
hinder the smooth running of the research work. One of such is time constraint in
conducting this research due to the fact that the researcher had to combine both academic
The attitude of some of the respondents posed as a challenge as they were reluctant in
The first chapter introduces the research study and highlights the general overview of the
publications and scholarly articles on the study. The Chapter three focuses on the
methodology the researcher adopted covering the sample size and techniques, methods of
data collection, and methods of data analysis (statistical procedures). Chapter four presents
the analysis and findings and the final chapter, Chapter five summarizes findings,
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CHAPTER TWO
Khan and Jain (2013) define cash as “the ready currency to which all liquid assets can be
reduced”. In the narrow sense, cash symbolize currencies and any other financial
instruments that is generally accepted as a cash equivalent, such as bank drafts, demand
In the broader perspective, however, cash includes “near cash” assets - assets that can be
readily sold or converted into cash within a shorter time span. According to Khan and Jain
(2013), “such assets provide a short-term outlet for excess cash and are also useful for
meeting planned outflow of funds”. Dauter (1956) recognized money orders, and cheques
It should be noted that ,cash is considered as the firm’s least productive assets as it is not
directly involved in the production of goods and services as in the case of other liquid
assets (inventories and receivables), therefore, no direct returns (profit) will accrue to a
Despite the seemingly low or no return for holding cash, a number of reasons exist that
motivate businesses to keep cash. Von Eije & Westerman, (2001) points out that “cash
usually would not be needed if it were not for the market imperfections and resulting
transaction costs of urgently needing cash at short notice if the need arises and there is no
enough cash”
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J.M Keynes (1936) identified only three (3) reasons of cash by excluding compensating
motive. However, other writers have identified (4) reasons why cash is held are
1996; Von Horne and Wachowicz, 1998; Khan and Jain, 2013),
Kytönen (2004) identified that; transaction motive is one of the main reasons why firms
hold cash in the form of non-interest-bearing currency. Since firms financial obligations
(For example, payment of wages and salaries, payments of bills and settlement of other
operational expenses) are settled mainly through the exchange of cash, firms keep cash to
It is therefore right to assert that, there is a positive correlation between the transactional
motive of holding and the volume of transaction a firm engages in, in that the more
payment the firm is expected to honour, the greater will be its transaction motive for
holding cash.
Unfortunately, the amount of cash to be spent by the firm in the future with regards to
transaction purposes cannot be determined with certainty as emergencies can occur which
will require the firm to make immediate cash disbursement. To prevent such situation,
additional cash in excess of its transactional needs is kept as a precautionary measure and
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The amount of money that a business holds for this purpose depends on a number of
factors such as, the attitude of the business towards risk and the uncertainty characterized
According to Horne and Wachowicz (1992), “firm should endeavor to bring in profit on
the cash set aside for precautionary and transaction needs by investing a larger percentage
The more cash for precautionary motive are held in near cash assets, the less currency cash
kept and the greater the interest earned, all other things being equal. However, Ross et al
(1996) highlights that there is a trade-off between the interest revenue earned and the
transaction costs involved in purchasing and selling such near cash assets.
This is where a firm holds additional cash balance with the aim of benefiting from yet
example, if a firm expects a swift fall in the prices of its inputs, the firm may hold cash
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2.2.4 Compensating Motive
Some commercial banks require a minimum cash balance in every current account.
Although this balance is a non-interest-bearing deposit, this minimum cash balance must
be maintained by the firm so as to benefit from the luxury of holding that account in the
Cash shortage will inevitably impact negatively on the operations of the business, while
excess cash will also remain idle without contributing anything significant, in terms of
returns, towards the profitability of the organization. Maintaining a sound cash position for
Watson and Head (2007) explained the management of cash to mean the practice that
concerns itself with the optimization of the amount of cash available, obtaining maximum
benefit from returns on idle funds and minimizing losses caused by delays in the
disbursing, investing, and planning for cash a company needs to operate smoothly”.
Although businesses must possess enough funds to meet its financial obligations or it risk
facing bankruptcy, keeping excessive amount of cash for unexpected circumstances is not
profitable as this idle money could have been invested elsewhere to generate returns. This
limits or reduces the growth of the business and its profitability because investing cash,
even for a short period of time, can add to the profits of the business.
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An efficient cash management, therefore, affords the firm an opportunity to face the cash
demands of the firm, guard against the situation of holding unnecessary large amount of
cash and increase the returns generated from each dollar the company owns.
According to Davidson et al (1992), cash can be a problem even though business has a
large number of customers, offers a superior product to its customers and enjoy a strong
It should be noted that businesses suffering from cash flow problems do not have a safety
margin in case of unforeseen expenditure. They may also exhibit certain features such as
experiencing problems in obtaining funding for innovation and expansion; and difficulty in
Westerfield et al (1999) highlighted the essence to establish a distinction between cash and
liquidity management as the word cash is used practically in two ways. This preposition
was also affirmed by Khan and Jain (2013), who indicated that practically, cash can be
used to mean actual currency cash on hand or cash equivalents (near cash).
One of the maiden studies into solving cash management problems in businesses was
phases, and further recognised the characteristics of cash inflows and outflows, such as the
level and swiftness of cash flows as well as its patterns and steadiness as essential parts
that should be included when designing a direct measure of a given cash level.
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Brealey and Myers (1988) also advised that to successfully tackle the problem of short-
Cash conversion cycle was used as a standard to determine the strength of cash
management businesses in the research conducted by Richards and Laughlin (1980). They
define this cycle to mean the period that funds are engaged in the production, distribution
and collection processes, less the period associated with the delays in inflows of
receivables.
Few studies into cash management have been conducted in Ghana. For example, in an
effort to find the root cause of cash flow problems faced by businesses in Ghana, Logli
(1981) identified the management as one of the main problems hindering the smooth
running and expansion of businesses in Ghana. Marfo-Yiadom (2002) also indicated that
cash is the basic unit needed to keep businesses running on a continuous basis; shortages
therefore will interrupt the operations of the firm while excess of it will remain idle
Gitman et al. (1979) attributed the problem relating to cash management, among other
things, to the rapid increase in inflation and interest rates. Philips (1997) also noted that
with the double digits interest rates experienced in the late 1970s and early 1980s, effective
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This situation described by Gitman et al (1979) and Philip (1997) is not different from the
interest rates and the depreciation of the Ghana cedi, thereby making the subject of cash
Cash planning is an important tool for strategic growth in very business. Abioro (2013)
defines it as “a technique to plan for and control the use of cash”. He further observed that
cash planning protects the financial situation of the company to develop a forward-looking
statement of projected cash inflows and outflows expected over a particular period.
Therefore, this plan helps forecast future cash flows and cash demands of the company,
Pandey (1999) noted that the frequency of financial planning generally depends on the size
of the business and its management philosophy. Larger companies keep daily and weekly
forecasts while the medium-sized companies often prepare weekly and monthly forecasts.
The same observation was made by Udojung et al. (2010) as they concluded that, planning
of funds is not a science, but rather a continues process that involves many parts of the
business. This can be done on a daily, weekly or monthly basis and the frequency of
planning for cash is dependent on the size of the company and management philosophy.
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2.5.1. Cash budgeting.
Cash budget is useful to the finance manager in projecting the future cash balances of the
business and in planning for the financing of future cash needs. Thus, it provides
information on the timing and size of expected future cash flows and cash equivalents in
the future. This helps to determine the future cash requirements of the business, plan for
the financing of its asset needs and exercising control over the cash and liquidity of the
firm.
Brealey and Myers (1996) emphasizes that “cash budget provides a standard against which
future performance can be judged. The financial manager through the cash budget is able
The amount of cash a business generates from its day-to-day activities over a period of
time is its cash flow. Various means can be used to ascertain the amount of operational
cash flow of a business; however, the most popular method is the use of income statement
and the statement of financial position in preparing the cash flow statement. (Kasilo, 1997)
Positive cash flows shows that the volume of cash the business has generated from its
operations outweigh its cash outflow during the financial year while negative cash flows
indicate how much additional cash has been used to sustain the operations during the same
period. It is not unusual that firms experiencing negative cash flow from operations also
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insolvency problems and may eventually go bankrupt. (Kasilo op cit: 30, Vause and
Khan and Jain op cit defines sensitivity analysis as “a behavioral approach that uses a
number of possible values for a given variable to assess its impact on a firm’s returns”.
They further explained that sensitivity analysis provides diverse cash flow estimates based
Donaldson (1969) recommended that management should work out more than one cash
budget for each period to cater for variances from expected outcome. By preparing a
budget under both most optimistic outcome and the worst case scenario relating to the
same period, will afford management the opportunity to better plan for any contingencies.
For internal planning purpose, allowing for a range of probable outcomes is far better than
Cash management aims at keeping the investment in cash as low as possible while still
keeping the firm operating efficiently and effectively. Once cash budget has been
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approved, and appropriate net cash flow established, the financial manager should ensure
that there does not exist a significant variation between projected cash flows and actual
cash flows. To do this, the financial manager has at his deposal an array of techniques to
Pandey (2010) divided cash management in the modern corporation into two simple rules:
(ii) Slow down cash disbursement (Cash Outflow) – maximize disbursement float”.
Ross et al. op cit also reiterated that the aim of cash management in cash collection is to
accelerate collections and delay the lag time between the time consumer pays their bills
and the time the cheques are paid. The rule therefore is to accelerate collections and delay
disbursement.
In managing cash efficiently, the cash inflow process can be accelerated through two main
and converting payments by customers into cash without delay. Techniques used in
15
accelerating collections and reduce collection time include, but not limited to, lock-box
Khan and Jain op cit defines concentration banking as “a collection procedure in which
payments are made to regionally dispersed collection centers, and then deposited in local
banks for quick clearing”.It refers to the practice of transferring money from several banks
Pandey (2010) describes this system to work through a series of collection centers instead
of a centralized collection center at the Company’s Headquarters. Bragg (2010) added that,
management where subsidiaries and branches maintaining their respective individual bank
accounts and as a result create serious problems with regards to monitoring and
reconciliation.
Lock-box system is a collection procedure, whereby customers send their cheques to local
post box, which is emptied by the firm’s bank frequently and any cheque found is
and carried out at the branch level. The only difference, however, is whereas under the
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concentrating banking arrangement, customers send cheques to the collection center of the
firm; they rather send it to the post office under the lock-box system.
“lock boxing involves; receiving mails (cheques) in a bank-controlled post office box,
picking up mails (cheques) at several times in a day, taking mails (cheques) back to the
bank processing site, opening and sorting mails, determining if any cheques received
fact that a phase in the collection process (that is, the receipt and deposit of cheques by the
Electronic transfer is another effective way to manage the collection of cash. It is a process
whereby cash is transferred from one bank account to another bank account with the help
cash becomes available immediately when the firm receives a transfer notification.
Ross et al. (1996) also observed that electronic transfer is the fastest yet the most
expensive way to transfer funds. It only takes a few minutes to get to the firms account and
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2.6.2 Cash Disbursement.
financial managers must focus on delaying payments as much as possible. By so doing, the
company makes maximum use of the interest-free source of funds provided by the trade
creditors. This can be achieved through the means of raising disbursement float and
Van Horne (2001) affirmed the idea put forward by Ross (2000) that “the objective of cash
however quick to add that, care should be taken not to compromise firm’s relationship with
its supplier while pursuing this objective. Cash disbursement techniques include;
delaying payments to suppliers until there fall due rather than paying before time;
expenditure;
Efficient cash management technique will inevitable bring about surplus cash over the cash
needs of the firm. It is therefore imperative for the financial manager to determine the
optimal level of cash to hold so that the excess can be converted into “near cash”
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One principal duty of the financial manager, according to Pandey (2010), is to maintain an
appropriate level of liquidity in the firm such that financial obligations can be honored
when it is due. He should be able to establish the appropriate level of cash balance to be
held by the firm at any point in time and this is mostly influenced by the trade –offs
As Gallagher (2000) puts it, “cash management involves a trade-off between the need for
liquidity and desire for profitability. The more a firm holds cash, the more liquid it
becomes, however piling up funds to sustain liquidity will prevent fund from being
The firm is, therefore, expected to maintain an optimum cash balance which is neither too
small nor large. A cash balance is said to be in its optimum position when the transaction
cost and risk of holding a smaller cash balance is equivalent to the opportunity cost of
Financial theorists have developed mathematical models to help firms find an optimal
“target’’ cash balance, between the minimum and maximum limits, which equates liquidity
to profitability. (Gallagher and Andrew, 2003). Optimal cash holding levels can be
This model is based on the premise that deciding on optimal cash balance is the same as
deciding on the optimal inventory level. As Jarrad (2000) noted, Baumol treats cash
19
management problem the same as inventory management problem thereby applying
The firm is able to forecast its cash needs with certainty and receive a specific amount
at regular intervals
The opportunity cost of holding cash is known and does not change over time
The firm will incur the same transaction cost whenever it converts securities into cash
Similarly to the EOQ (Economic Order Quantity) Formula, costs are minimized when:
Marsh (2009) acknowledged that, although the model is simple to use and understand, it
might be difficult to predict accurately future cash needs using this model as it assumes
that the firm faces a constant demand for cash. He further pointed out that, the model did
not provide any allowance for buffer cash and that in a situation where the business in
question run out of cash, it could be expensive and damaging to that business.
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Pandey (2010) also stressed that the major limitation of the Baumol model is that it does
not allow the cash flows to fluctuate as practically, firms does not utilize their cash
balances uniformly neither are they able to forecast accurately their daily cash inflow and
outflows.
In an attempt to produce a more realistic approach to cash management this model was
developed. Miller and Orr (1996) provided for two (2) control limits in their model; the
The model sets upper limit (H) and lower (L) limit with the target cash balance represented
by (Z). Where the cash balance of the firm reaches the upper limit, the firm buys sufficient
securities to return the cash balance to a targeted level. On the other hand, where the firm
hits the lower limit, it sells marketable securities to bring back the balance to the targeted
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Miller Orr Model
Management sets the lower limit, and it is dependent on the firm’s attitude towards the risk
of a cash shortfall, and this in turn is influenced by both access to borrowings and on the
Spread = 3 [(3/4 × Transaction cost × Variance of cash flows) ÷ Interest rate ] 1/3
Note: variance and interest rates are always expressed in daily terms and variance =
22
2.8. Investing surplus cash
Companies may possess surplus or idle fund which may not be required for immediate use.
Such temporary surplus of cash can either be invested in a financial instrument or returned
described surplus cash as “excess amount of cash held by firm to meet its variable cash
requirement and future contingencies and advised that such money should be temporarily
Once the optimal cash balance of the firm has been determined, any surplus cash should
not be left idle. It must be invested to earn a return for the firm. As Berk et al. (2011)
rightly put it, “once a firm’s need to hold cash is reduced, funds should be invested in
short-term investment securities”. The objective of investing this temporary cash surplus is
Allman-Ward and James (2003) categorized the instruments available for short term
mutual funds.
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CHAPTER THREE
3.0 Introduction
This chapter is concerned with how data for the study was gathered. It deals with the
Research Design, Sources of Data, Population of the study, Sampling and Sampling
Techniques, Data Collection Instruments, Data Analysis Techniques and the Profile of the
Study Area
Burns and Grove (2003:195) define a research design as “a blueprint for conducting a
study with maximum control over factors that may interfere with the validity of the
findings”.
It is a detailed outline of how an investigation will take place and will typically include
how data is to be collected, what instrument will be employed, how the instruments will be
Descriptive research is a form of research that specifies, describes or reports the nature of a
research because it allows the collection of data in order to answer questions concerning
the current situation of the subject under study and it helps in determining the way things
are. A survey is defined as the method of collecting primary data based on a representative
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The research aimed at obtaining an understanding of how financial managers of the various
Halls of Residence and Hostel facilities, manage their cash to ensure proper maintenance
and possible expansion of their facilities to meet the growing demand of their services by
According to Saunders et al (2007), “a population is the full set or total number of people
that a sample can be taken from”. The population of a research consists of a collection of
all possible individuals of interest and the identification of the population of research aids
Since an essential requirement of survey research is the “explicit and equivalent definition
of the target population” (Jaeger, 1988), some boundaries were set for the selection of the
For the purpose of study, the population was made up all the residential facilities available
to student in KNUST which is estimated to be about Sixty (60) facilities. Six (6) are
traditional Halls of Residence (Owned by government) and the rest are Hostels owned by
Saunders et al (2007) refers to a sample as “a subset of the population that the researcher
has interest in and it normally describes the participants selected for the project”.
Sampling is necessary because in dealing with a large number of respondents, there is the
need to get a fair representation of the people since everybody in the study cannot be
25
studied. However, the question about the right sample size in a quantitative research is one
According to Saunders (1992) and Nwana (1990), if the size of the population is a few
hundreds, a minimum of 40% can be selected as a sample. A total of twenty (20) facilities
were, therefore, selected for the study and their respective financial managers were
required to respond to a structured questionnaire. Five (5) were Bursars of the traditional
Halls of Residence of the University and fifteen (15) were Hostels Managers.
Due to the nature of the study and the targeted population the researcher was interested in
gaining information and drawing conclusion from, a non random sampling technique
(Purposive sampling technique) was adopted in selecting the respondents for this study.
Data was collected from primary source for this study. The researcher gathered data
interview when the need arose to provide further understand and clarification for both the
26
3.5 Data Collection Method.
The data for the research was collected mainly through the administration of
questionnaires. The Researcher was around to help explain terms which were seen as
technical and this was to ensure that respondents fully understood the questions and the
Some of the responses drew the attention of the researcher to ask further questions in a
form of interview in the quest to provide current evidence on the area of research.
The researcher used Statistical Package for Social Scientist to critically analyze and
convert raw data into meaningful and comprehensive reading and understanding.
Frequency tables and percentages were generated from the responses of the Halls Bursars
and Hostel Managers and these helped the researcher to come out with the final findings of
the research.
of undulating land and pleasant surroundings. It is about seven (7) kilometers away from
“KNUST was first established as Kumasi College of Technology, which was officially
opened on 22nd January 1952 with 200 Teacher Training Students transferred from
27
Achimota to form the nucleus of the new college. Initially, School of Engineering,
and Building were established. Currently, the University has six (6) Colleges based on the
Collegiate System and Institute of Distance Learning (IDL) that run a lot of Bachelors,
There are six (6) Halls of Residence and a number of Hostel facilities in the University.
The six (6) traditional Halls of Residence are Africa, Queen Elizabeth II, Republic,
In addition to the Halls of Residence, the University also manages a number of Hostels
through the Ghana Universities Staff Superannuation Scheme (GUSSS) and they include
“The Kwame Nkrumah University of Science and Technology (KNUST) has grown in all
spheres of its life over the years. According to the vice- chancellor of the University,
Professor W.O Ellis, the University which had a student population of only 915 students in
the 1963/64 academic year as increased to as much as 32,198 in the 2012/13 academic
28
CHAPTER FOUR
4.0 Introduction.
The focus of this chapter is on the analysis of the data collected from the field of study
according to the response given by the respondents. The data which provides materials for
The researcher used two groups of respondents in order to present an objective and
accurate representation of data gathered which consisted Hall Bursars and Hostel
Managers.
Out of the 20 facilities surveyed 5 (25%) are Halls of Residence whiles the remaining 15
(75%) are Hostels. This was done to present a true and fair view of the population for this
29
4.1.2 Highest level of educational of respondents.
From table 2, it could be observed that all the respondents for this study have had some
form of formal education. Degree holders were the highest with a frequency of 13 (65%)
followed by those with HND / Diploma certificates representing 5 (25%) whiles S.S.S.C.E
Certificate holders were 2 representing (10%). This data was collected to ensure that
respondents are able to read, understand and provide the appropriate response that will be
beneficial to the study. The researcher was however available to provide further
The age distribution of the facilities shown in table 3 below is to assist in determining the
growth in the supply of residential facilities over the years. The data generated shows that
5 (25%) out of the total facilities surveyed were within the ages of 41 to 60 years. The
Researcher would like to highlight that; these facilities are mainly Halls of residence
whiles the remaining 15 (75%) which falls within the ages of 0 to 20 years are Hostel
facilities.
30
This is a clear indication that the spur in the growth of hostels facilities around the
When asked about the percentage of students the facility was able to accommodate in
relation to the total demand, 2 (10%) responded that they were able to accommodate within
30% - 49% out of the total requests from students, whiles 11 (55%) and 7 (35%) are able
to honour within 50% - 69% and 70% - 89% respectively out of the total demand.
This highlights the urgent need for expansion in these facilities so as meet its increasing
demand
31
Table 4: What is the percentage of students intake in relation to total demand?
From figure 1 below, it could be observed that the main source of cash inflow for both
Halls and Hostel is the Residential Facility User Fees (RFUF). Here the RFUF is used to
Halls receive a moderate percentage of their receipts from rent whiles this is low for
Hostels. Here, rent is used to represent all amounts received from tenants occupying spaces
When asked about funding from owners as a source of cash receipt for the facility, the
average answer from respondents from Hostels indicated that this source of funding is low
as compared to receipts from RFUF. Respondents from the Halls, on the other hand,
32
The other source represents cash inflow from non-regular source and both facilities scored
It is evidenced from the figure below, that maintenance cost constitute the highest
percentage of cash out flow for both facilities. However, whiles a fair amount of cash from
Hostels is spent on expansion, Hall do not see such expansion and this can be a
contributory factor to the acute accomodation problems students in this university face.
This is because these facilities which were built decades ago to cater few hundreds has
33
Amount spent of wages,salaries & allowances, and office consumables tend to be
relatively higher in the case of Halls than Hostels. This is because most of the staff
working in the halls are full-time employees employed by the university ususally with a
higher level of qualifications. This is however, not the case of hostels who depend
primarily on part-time employees. They rather depend highly on casual labourer and part-
time workers.
Respondent from the halls stated that they do not incur any cost on utilities (Water and
Electriticity) as this is paid for by the government. However, this represents a significant
element of cash outflow for the hostels. Although most hostels surveyed require students
to buy their own electricity credit, water bills, for example, is bourn by the hostel itself.
34
Figure 2 : Cash disbursement by facility type
When respondents were asked about the reasons why they hold cash, 20 ( 100%) said it is
for a transaction motive while 5 ( 25%) and 3 (15%) selected precautionary motive and
and this can be attributed to the fact that the derivative market in Ghana is not developed
35
Table 5: What are the reasons of holding cash?
Responses Percent of
N Percent Cases
Transaction Motive 20 71.4% 100.0%
Reasons for holding cash Precautionary Motive 5 17.9% 25.0%
Compensating Motive 3 10.7% 15.0%
Total 28 100.0% 140.0%
Source: Field Survey Data, 2015
An integral aspect of financial management is planning with forecast and budget (Mbroh,
2012). This technique identifies expected cash inflows, outflows and balances over a
specified planning horizon. According to Choyal (1990), “It is described as the heart of the
Overall, only 5 (33%) of the hostels prepare some form of cash budget as way of planning
for their cash needs while majority of them (67%) do not prepare such forecast. Upon
further enquiry, the researcher found out that these hostel managers rather depend on
business trends and guess work to predict their future cash needs. However, with the case
It should be stated that, maintaining efficient cash planning does not totally eliminate all
problems associated with cash management, but reduces the risks of financial losses.
36
Table 6: Do you prepare any form of cash forecast?
When asked about the possibility of always meeting cash targets, respondents unanimously
responded in the negative. They attributed the possible causes of this deviation to a number
of factors.
Table 7 indicates 5(25%)of their number consider no or poor forecasting as the main cause
of this variation whiles the majority of the respondent (75%) pointed to bad economic
conditions as the cause to these variations. This affirms the assertion made by both Gitman
37
Table 7: What mainly account for the deviation from cash targets?
combined question to assess their cash control practices (in terms of proper book-keeping).
Table 8 depicts all respondents from the halls (100%) keep proper books of account. The
halls are owned by the government and as such, the activities of the financial managers of
these facilities (Hall Bursars) are governed by the Financial Administration act 2003, Act
654. The regulations require Hall Bursar, among other things, to keep proper books of
accounts which are audited periodically by both internal and external auditors.
Majority of the hostels representing (80%) do not keep proper books of account. This is
because no such strict regulations apply to hostels which are owned by individuals.
However, the only 3 (20%) hostel facilities who keep proper books of accounts are
38
Table 8: Do you keep proper accounting records?
The aim of cash management is to have improving cash levels but at the same time,
maintain the right balance profitability and liquidity. To achieve this, marketable securities
are managed together with cash because they are so liquid that the firm can switch from
From table 9 below, the most popular marketable security was Bank Deposits (Fixed
This deviate from the study conducted by Marfo-Yiadom (2002) on cash management
practices, where respondent listed treasury bills, negotiable certificates of deposit and fixed
deposit following in that order of patronage as the avenue of investing their surplus cash.
39
Table 9: How is idle cash utilized?
The non-profit making nature of the halls of residence make their choice of investment
skew more toward liquidity whiles that of the hostels is skewed highly towards
profitability.
From the table below, 5 (100%) of the respondent from the Halls chose easy access to cash
as their main reason for selecting a particular type of marketable security to invest in.
Majority of the Hostel Managers (67%), on the other hand, also selected earning of interest
on their investment as the main reason for choosing a particular marketable security to
invest surplus cash. 4(27%) and 2 (7%) chose easy access to cash and sake-keeping
respectively.
40
Table 10: Reason for the choice by facility type
The mode of settling financial obligation was used by the researcher to determine how cash
Pandy (1991) maintains that a twin object of cash management is acceleration of cash
“In contemporary businesses, there are several means available for making payments,
businesses are thus required to know and use the varied means of payment available so as
to derive the related benefit(s)” (Mbroh, 2012). For example, cash payment may be
preferred when one wants to avoid the temptation of using funds earlier assigned to a
41
On the other hand, cheques is preferable when one wants to be double sure by controlling
From Tables 11, it is clear that halls depend on the issue of cheques as their major mode of
settling their financial obligation. They are however allowed to keep some amount of cash
as imprest to cater for contingencies which does not involve substantial amount. The
maximum amount of cash to be kept as imprest is approved by the Finance Officer of the
University.
Three of respondents from hostels (20%) also use cheques as their mode of payment
whiles the majority 12 (80%) settle their obligation through cash payment.
42
4.3.8 Financing cash shortage.
In times of cash crises, there are a number of options available for businesses to adopt in
order to ameliorate the situation. This include, but not limited to, issuing securities,
postponing capital expenditure, accelerating cash inflows whiles delaying cash outflows,
When respondents were asked about the means through which they fund for their cash
shortage, it was clear that majority of the hostels (53%) rely on their owners to finance
cash gaps. The options of going for loans / overdraft and delaying cash outflow both
ranked second (20% each) whiles the option of postponing capital expenditure is not well
patronized by the hostels. However, the reverse is the case for the halls where 4 (80%) of
the respondent prefer to postpone capital expenditure in times of cash crisis whiles only 1
(20%) believes delaying cash outflow is the preferable option in times of crises.
The position taking by the hall can be attributed to the fact that as part of a non-profit
making organization; halls are not obliged to make profit but rather only required to be self
43
Table 12: How is cash shortage is funded by the facility?
should be seen to have some level of authority and autonomy on finance issues in general.
This condition is, however, dependent on the qualification, experience and skills
management in the halls. The researcher gathered (through interview) that although
Bursars work together with the Hall Masters / Warden and Senior Hall Tutors as Hall
44
Administrators, they report directly to the finance officer of the University. They are
signatories to the Hall’s bank account(s) and they act on behalf of the University’s Finance
In the case of Hostels, the situation is quite different as majority of the respondents point
out that their level of influence on cash management issues are either low (47%) or
moderate (33%) whiles only 3 (20%) believe to have a high level of influence in that
regard.
What is worrying is that technically most of these Hostel Managers are seen as merely
assisting the Owners of these facilities. They therefore, have not much authority and
45
Table 13: What is your level of influence on cash management issues in the facility?
Averagely, the seasonal nature of major cash inflow as against the all-year-round cash
outflow record the highest mark as a challenge to effective cash management in both
facilities.
The researcher gathered that the major source of cash inflow, which is funds obtained from
Residential Facility User Fee, occurs ones in the academic year. However, these facilities
are required to spread this amount against various expenditure that occur all-year-round.
46
From figure 3 below, the next challenge that negatively affects both facilities is the
rise in inflation and interest rates make cash planning, control and gap financing very
difficult.
Getting adequate information on available avenues to either utilize surplus cash or finance
cash gap can also be seen as a challenge to effective cash management. Throughout the
study, it was evidenced that most financial managers were unaware of other marketable
The use of businesses fund for personal use of owners, cash management not a priority of
owners and the problem of no strict organizational policy on cash management is posses
Some respondent suggested that since the University is a major stakeholder in the hostel
business, the University should play an active role in sensitizing owners on best practices
in cash management. This is because any positive result that comes out of this sensitization
is greatly going to affect the survival and growth of these facilities which will eventually
Others also requested for a more stable economic conditions to help effective planning and
control. They further explained that, the current load shedding has forced them to incur
47
Figure 3: Challenges to effective cash management practice by facility type
4.4.1. Relevance of effective cash management on survival and growth of the facility.
Here, the researcher wanted to know whether financial managers perceive cash
management as an important factor in survival and growth of the facility and 19 (95%)
agreed to the assertion that indeed cash management is vital to the survival and growth of
their business. Their reasons mainly focused on the fact the that effective cash management
will prevent the business from being cash- strapped which was cited by Mbroh (2012) as a
48
One person (5%) was, however, of the opinion that the current economic conditions do not
make any form of management effective and that they rather depended on God for the
Table 14: Relevance of cash management on survival and growth of the facility
49
CHAPTER FIVE
5.1 Introduction.
This part of the study is in two main components. The first component presents a summary
of the major findings the data analysis that was done in chapter four and the final
Generally, this study sought to examine how cash management practices are carried out in
Based on the findings, the main source of cash inflow for the facilities is identified as cash
inflows from accommodation (RFUF) while receipts from rents and other non-regular
Facility maintenance, on the other hand, constitute a major cash outflow for both facilities
whiles the rest of cash disbursement categories remain fairly the same in both facility with
the exception of facility expansion which registers high as cash disbursement for hostels
only.
Again, the results gather from the study paints a fairly good picture for halls of residence in
terms of cash planning or forecasting. However, that cannot be entirely the case for hostels
as it is made clear that majority of the respondents here do not practice any form of cash
50
forecasting or budgeting. About 67% of hostels managers do not engage in any form of
It was also revealed that the very few who engaged in any form of cash planning were
Also, the study underscores the point that about 80% of the hostels studied do not keep
records. The effect is that proper monitoring and controlling of financial activities will be
With respect to the hall, it was observed that the bureaucratic nature in which they operate
tends to stiffen the creativity of the Hall Administrator. They prefer to follow to status-quo
rather than taking much risk as it is with their counterparts in the corporate world. With
their level of qualification and experience, the researcher believes that they can produce
The study also identified bank deposits and purchase of treasury bills as the only avenue
surplus cash are invested. This may be due to the fact that mangers do not have enough
The research revealed that the commonly used strategy adopted by the halls in times of
cash crises is to postpone capital investment whiles hostels mainly depend on supply of
51
Various factors were highlighted, through the study, as a challenge to effective cash
environment, inadequate information on available avenues to utilize idle cash and finance
cash gaps; and the seasonal nature of major cash inflow against all-year-round cash
outflow, have been cited as a challenge faced by both facilities (halls and hostels).
However, other factors were identified as a challenge peculiar to hostels facilities and they
include the use of business fund for personal dealings by owners and lack of strict
5.3 Conclusion.
The Researcher can say that, majority of hostels do not adhere to good cash management
practice although they understand its benefits and impact on the survival and growth of
their business. The very few who, however, follow a fairly good cash management practice
Cash management practice is relatively better in the halls of residence, although the
researcher is of the opinion that much improvement could be made if Bursars are
The researcher has also identified a number of challenges which needs to be address in
order to foster much compliance especially on the part of the Hostel facilities.
52
5.4 Recommendations.
On the basis of the findings that have been established and the conclusion drawn from the
study it is suggested:
Firstly, the study has revealed that the practice of good cash management practice is very
low in most of the hostel facilities. Therefore, the University as a major stakeholder should
not only focus on ensuring good security and sanitary conditions in these facilities but
should also ensure the existence good financial management practice with particular
It is therefore recommended that the University engages owners and managers of these
facilities from time-to-time to sensitize them on good cash management practices. All
other things being equal, adopting effective cash management practice can lead to growth
and expansion in the students’ intake capacity of these facilities which would help reduce
Secondly, the researcher did find that, because most hostel owners do not see the need for
proper cash management in their facilities and as such, they tend to employ people who do
not possess the requisite qualification and experience in financial management. These
managers therefore, act as mere assistants to the owners without much influence on cash
management issues.
licensing bodies to employ people with the requisite qualification and experience to handle
cash issues as the survival and growth of business is mostly dependent on it.
53
Again, a major challenge this study identified is the over- reliance on the residential
facility user fees as the only major source of cash inflow. This phenomenon puts the
facilities especially the Halls of residence in a challenging situation when it comes to cash
management.
supplement the amount received from RFUF which usually flows into the facilities once in
an academic year.
The halls should be allowed to provide certain services to the university community at a
fee. For example, they can be allowed to run shuttle business around campus and operate
secretarial businesses in their respective halls at a fee which can be added to their
internally generated funds. This will help limited their over-reliance on revenue from
RFUF.
Lastly, this study revealed that, the current economic conditions prevailing in the country
poses as a challenge to cash management in these facilities. Examples include the high
levels of inflation and the interest rate on borrowing, and the continuous depreciation of
the cedi.
Another challenge is the limited avenues through which these facilities can invest their
surplus funds or borrow on a short-term to finance cash gaps. The financial market of the
country is not well developed to provide enough options for investors and borrower. The
existence of such conditions limits any form of proper planning, controlling and
54
Government is, therefore, encouraged to make efforts with the view of addressing these
impediments. This will help contribute to the survival, growth and expansion in the
55
REFERENCES / BIBLIOGRAPHY
Allman-Ward, M., & Sagner, J. (2003), Essentials of managing corporate cash, New Jersey:
Berks, J., & Demarzo, P. (2011), Corporate finance, 2nd Edition. Pearson Education Inc.
Brealey, R. A., & Myers, S.C. (2004), Fundamentals of corporate finance 4th Edition. New
Gallagher, T. (2000), Financial Management Principle & Practice 2nd Edition New Jersey:
Gitman, L.J.; Moses, E.R and White, J.T. (1979). An Assessment of Corporate Cash
James C. Van Horne & John M. Wachowicz, Jr., (2005), Fundamentals of Financial
John K. M. (2012), “Cash Management Practices of Small Business Owners in the Cape
Coast Metropolitan Area of Ghana”. Asian Economic and Financial Review, Vol.2,
No.1,pp.40 – 58.
Kytonen, E. (2004), The cash management behaviour of firms and its structural change in
Logli, P. (1981), New Support for Small and Medium-Sized Enterprise in Developing
56
Marfo-Yiadom, E. (2002), A Survey of Cash Management Practices of Selected Firms in
Vol.3,(June), pp.165-182.
Pandey, I.M. (1993). Financial management 6th Edition. New Delhi: Vikas Publishing House
PVT Ltd.
P.K. Jain and Surendra S. Y. (2005), "Financial management practices in public sector
Richards, N.D. and Laughlin, E.L. (1980), A Cash Conversion Cycle Approach to Liquidity
Ross, S.A, Randolph W.W. & Jordan B. D. (1996), Essential of Corporate Finance, Irwin
McGraw-Hill, Inc.
Ross, W. Pandey, I.M (2004), Essentials of Corporate Finance, 4th Edition, New York:
Saunders, M. Lewis, P. and Thornhill, A. (2007,) Research Methods for Business Students,
Sodot, J.K. & Prinches, J.E (2001), Financial Management and Practices, New York: Haper
and Row.
Trochim, W.M. (2006). The Research Methods of Knowledge Base, 2nd Edition. Cincinnati:
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Watson D. And Head A. (2010), Corporate Finance: Principles and Practice, England:
Websites
http://www.ukessays.com/dissertation/literature-review/literature-review-about-cash-and-
58
APPENDIX I
KUMASI
SCHOOL OF BUSINESS
This questionnaire is solely designed for academic purposes and it seeks to gather relevant
information on how cash management practices are carried out in the various Halls of
2. Educational Background
[ ] Below 10 [ ] 11 - 20 [ ] 21 – 30 [ ] 31 – 40 [ ] 41 – 50 [ ] 51 - 60
[ ] 11% - 29% [ ] 30% - 49% [ ] 50% - 69% [ ] 70% - 89% [ ] Above 90%
59
Section B: CASH MOVEMENT
1 2 3 4 5
5. What proportion of the facility’s cash is obtained from each of the items listed below?
by the facility)
4 Others [] [] [] [] [] []
6. What proportion of the facility’s cash is spent on each of the items listed below?
3 Facility Maintenance [] [] [] [] [] []
4 Facility Expansion [] [] [] [] [] []
[ ] Yes [ ] No
..................................................................................................................................................
..................................................................................................................................................
[ ] Yes [ ] No
11. If no, what do you think highly account for the shortfall?
[ ] Yes [ ] No
61
13. How do you utilize idle cash?
14. Why do you put your idle cash in any of the items mentioned in question (19)?
[ ] Postpone capital expenditure [ ] Accelerate cash inflow and delay cash outflow
[ ] Go for Bank Loan / Bank Overdraft [ ] Obtain financial support from Owner
17. What level of influence do you have when it comes to taking decisions on cash
62
Section D: CHALLENGES TO EFFECTIVE CASH MANAGEMENT
18. To what extent do you rate each of the items listed below as a challenge to effective
Factors 1 2 3 4 5 N/A
Owners
environment
Owners
management
cash outflow
63
19. In your view, what do you think can help minimize these challenges in your
organization?
............................................................................................................................................
............................................................................................................................................
20. Do you think good and effective cash management has any bearing on the survival and
............................................................................................................................................
............................................................................................................................................
No [ ], why?
............................................................................................................................................
21. Do you have any other view(s) on how cash management practices can be
............................................................................................................................................
............................................................................................................................................
Thank you!!
64