EFFECTS OF CASH MANAGEMENT ON FINANCAIL PERFORMANCE PRIVATE SECONDARY

SCHOOLS IN SOMALIA.

(A CASE STUDY TOW DISTRICTS IN MOGADISHU)

ABSHIR NUR MOHAMED

A RESEARCH PROPOSAL SUBMITED TO THE DEPARTMENT OF BUSINESS AND ECONOMICS IN

THE COLLEGE OF HUMAN RESOURSE DEVELOPMENT IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF A DEGREE OF MASTERS OF BUSINESS ADMINISTRATION

(ACCOUNTING) AT JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY

SEPTEMBER 2016

I
 DECLARATION

This research proposal is my original work and has not been presented for a degree in any other University.

Signature: ………………………………. Date: ………………………….

ABSHIR NUR MOHAMED

HD333-C005-1475/2014.

This research proposal has been submitted for the examination with my approval as the University Supervisor.

Signature: …………………………… Date: …………………...........

SUPERVISOR

MR: NAGIB OMAR

II
 DEDICATION

This piece of work is dedicated to my dear parents, for all that they have sacrificed to raise me up and direct me in the
right path of life

III
 ACKNOWLEDGEMENT

All praise is to Allah, who made it possible for me to complete this research project successfully, and for granting me direction, protection,

wisdom and knowledge in making this project. Secondly, I would like to acknowledge and appreciate the support that I have received from

my supervisor, Nagb Omar for his academic and professional guidance. My sincere appreciation also goes to JKUAT university management,

my lecturers at the College of Human Resource Development (CHRD) at the Jomo Kenyatta University of Agriculture and Technology

(JKUAT), for their support and fair criticism of this work so far. Additionally, I also would like to express my sincere gratitude to the

colleagues: Ali Abdi Sheikhdon, and Abdirizak Salah Turyare. Special thanks to my parents and family members for their support, patience,

understanding and encouragement that enable me in completing this project.

IV
 TABLE OF CONTENTS
DECLARATION.................................................................................................................................................................................................. II

LIST FIGURES ................................................................................................................................................................................................ VIII

DEFINITION OF TERMS................................................................................................................................................................................. XI

CASH PLANNING ............................................................................................................................................................................................. XI

CHAPTER ONE ................................................................................................................................................................................................... 1

INTRODUCTION................................................................................................................................................................................................. 1

1.1. BACKGROUND INFORMATION ............................................................................................................................................................. 1

1.2. STATEMENT OF THE PROBLEM. .......................................................................................................................................................... 3

1.3.1 .SPECIFIC OBJECTIVES.......................................................................................................................................................................... 4

1.5 .JUSTIFICATIONS ........................................................................................................................................................................................... 5
1.6 .SCOPE OF THE STUDY.............................................................................................................................................................................. 5

1.8 .SIGNIFICANT OF THE STUDY ................................................................................................................................................................ 5

CHAPTER TWO .................................................................................................................................................................................................. 7

LITERATURE REVIEW .................................................................................................................................................................................... 7

2.1 INTRODUCTION........................................................................................................................................................................................... 7

FIGURE 2.1: CONCEPTUAL FRAME WORK ............................................................................................................................................. 10

2.3.1 CASH PLANNING .................................................................................................................................................................................... 11

2.3.5 FINANCIAL PERFORMANCE .............................................................................................................................................................. 13

2.3.5.1 MEASUREMENT OF FINANCIAL PERFORMANCE .................................................................................................................... 14

2.3.5.2Profitability: ........................................................................................................................................................................................ 14
2.3.4.3 Return on Equity ............................................................................................................................................................................... 15
2.4 EMPIRICAL LITERATURE REVIEW .................................................................................................................................................... 16
2.6 RESEARCH GAPS ......................................................................................................................................................................................... 18
2.7 SUMMARY OF LITERATURE REVIEW .......................................................................................................................................................... 18
METHODOLOGY ............................................................................................................................................................................................. 19

3.2 RESEARCH DESIGN .................................................................................................................................................................................. 19

3.3TARGET POPULATION .................................................................................................................................................................................. 19
3.4 SAMPLING FRAME ................................................................................................................................................................................... 20

3.5 SAMPLE SIZE AND SAMPLING TECHNIQUE .................................................................................................................................... 20

3.6 RESEARCH INSTRUMENT............................................................................................................................................................................. 21
3.7 DATA COLLECTION PROCEDURES..................................................................................................................................................... 22
3.8 PILOT OF STUDY .......................................................................................................................................................................................... 22
3.9.1 QUALITATIVE ANALYSIS .......................................................................................................................................................................... 24
3.9.2 QUANTITATIVE ANALYSIS........................................................................................................................................................................ 24
RESEARCH FINDINGS AND DISCUSSION................................................................................................................................................. 25

V
4.1 INTRODUCTION......................................................................................................................................................................................... 25

4.3 RELIABILITY AND VALIDITY ............................................................................................................................................................... 25

4.3.1 RELIABILITY ANALYSIS ............................................................................................................................................................................ 25
4.4 DESCRIPTIVE STATISTICS..................................................................................................................................................................... 26
4.4.1 DEMOGRAPHIC DATA ............................................................................................................................................................................... 26
4.4.2 RESPONSE OF GENDER DISTRIBUTION ..................................................................................................................................................... 26
4.4.3 RESPONSE OF AGE GROUP ........................................................................................................................................................................ 26
4.4.4 RESPONSE OF LEVEL OF EDUCATION ....................................................................................................................................................... 27
4.4.5 YEARS OF EXISTENCE ............................................................................................................................................................................... 27
4.5 STUDY VARIABLES FINDINGS ............................................................................................... ERROR! BOOKMARK NOT DEFINED.

4.5 STUDY VARIABLES FINDINGS .............................................................................................................................................................. 28

4.5.1 CASH BUDGET ........................................................................................................................................................................................... 28
4.6 MULTIPLE REGRESSION ANALYSIS ................................................................................................................................................... 30
4.6.2 ANALYSIS OF VARIANCE...................................................................................................................................................................... 32
4.6.3 REGRESSION COEFFICIENTS .................................................................................................................................................................... 32
CHAPTER FIVE ................................................................................................................................................................................................ 35

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .................................................................................................................... 35

5.1 INTRODUCTION......................................................................................................................................................................................... 35

5.2.1CASH PLANNING AND FINANCIAL PERFORMANCE ................................................................................................................... 35

5.2.2 CASH BUDGETING AND FINANCIAL PERFORMANCE ............................................................................................................... 35

5.2.3 CASH CONTROL AND FINANCIAL PERFORMANCE ................................................................................................................... 36

5.2.4 CASH COLLECTION AND FINANCIAL PERFORMANCE ............................................................................................................ 36

5.3 CONCLUSIONS ........................................................................................................................................................................................... 36

5.4 RECOMMENDATIONS.............................................................................................................................................................................. 37

REFERENCES .................................................................................................................................................................................................... 38

QUESTIONNAIRE............................................................................................................................................................................................. 40

VI
 LIST OF APPENDIXES

APPENDIX I: QUESTIONNAIRE…………………………………………………………………………………………………………....41
APPENDIX II: WORK PLAN………………………………………………………………………………………………………………...45
APPENDIX III: RESEARCH BUDGET………………………………………………………………………………………………….......46

VII
 LIST FIGURES
Conceptual frame work…………………………………………………………………………………………………………………………10

VIII
 LIST TABLES

Table 3.1 Population…………………………………………………………………………………………………………………………….17

Table 3.2 Target Population……………………………………………………………………………………………………………………..19

Table 4.1 Reliability Analysis…………………………………………….………………….…………………………………………….........26

Table 4.2 Gender Distribution……………………………………………………………….…………………………………………………..27

Table 4.3 Age Group…………………………………………………………………………………………………………………………….27

Table 4.4 Level of Education . …………………………………………………………………………………………………………………..28

Table 4.5 Year of Existence…………………………………………………………………………………………………...…………………28

Table 4.6 cash budget……………………………………………………………………………………………………………………………29

Table 4.7 cash planning…………………………………………………………………………………………………………………………30

Table 4.8 cash control………………………………………………………..…………………………………………………………………30

Table 4.9 cash collection………………………………………………………..………………………………………………………………31

Table 4.10 Financial Performance……………………………………………………………………………………………………………..31

Table 4.11 Model Summery…………………………………………………………………………………………………………………….33

Table 4.12 Analysis of Variances………………………………………………………………………………………………………………33

Table 4.13 Coeficience. ………………………………………………………………………………………………………………………..34

Table 4.14 Correlation………………….……………………………………………………………………………………………………….35

IX
 LIST OF ACRONYMS

PSS: Private Secondary Schools

FPENS: Formal Private Education Network in Somalia

UNESECO: United Nations Educational Scientific and Culture Organization

WFB: World Fact Book

JKUAT: jomo Kenyatta University of agriculture and technology

ROE: Return on Equity

X
 DEFINITION OF TERMS

Cash management Cash management is an essential tool which aims at establishing the financial position of the
organization.(Pandey 2005) notes that it is a set of guidelines established by management to ensure that
the organization has optimal cash balance at any time to meet the organization goals,

Cash planning
According to Pandey (2003) cash planning is a technique used to plan and control the use of cash. It
involves preparation of forecasts of cash receipts and payments so as to give out an idea of the future
financial requirements
Cash budget
Cash budget is a tool used to manage the cash flow of a business. This is a budget that is focused on the
cash coming into the business and the cash that leaves the business.effective cash budget enhances
growth which in turn produces increased profitability.
Financial performance
Although “performance” may appear to be an easy concept, a unique definition in the literature does not
exist. Moreover, academics often use special definitions tailored to fit the individual research purposes
(Langfield-Smith, 1997). The financial performance is often measured using traditional accounting Key
Performance Indicators such as Return On Assets, Operating Profit margin, Earnings Before Interest and
Tax, Economic Value Added or Sales growth (Ittner&Larcker, 1997; Fraquelli&Vannoni, 2000;
Crabtree &DeBusk, 2008

XI
 ABSTRACT

This study tried to investigate how private schools can properly manage their cash in an “optimal way”. This optimal
way is defined in this study as the most profitable way, so the most optimal way of managing cash flow in this study is
leading to the highest profitable to the private schools. However, it was reported that among the problems that affect
private schools in Mogadishu leading to their failure were negative cash management and poor record keeping at
International Education. This leaves the gap that is poor cash collection fees from the students and payment to pay
teachers, operating expenses and miscalculate the actual time to collect student’s overdue accounts receivables, in
which the researcher caused to in investigate about the impact of cash management on profitability of Private schools
with a case study of secondary schools. The general objective of the study is to investigate the effects of cash
management on profitability of private schools in Mogadishu, Somalia.Population is the total collection of elements
about which we wish to make interferences The population under the study included specific categories of individuals
selected from the private schools in Mogadishu. Research instrument used in the Data collection is questionnaire to
measure the variable(s), characteristic(s), or information of interest, often a behavioral or psychological characteristic.
Proceeding from general to specific research questions, makes the research activities in any project more focused - in
terms of data needed to answer the research questions. Hence questions associated with data collection are some of the
most important in any research enquiry. Data collect from the questionnaire was analyzed, summarize, and interpret
accordingly with the aid of descriptive statistical techniques such as total score and simple percentage. In the process of
data analysis the researcher was used descriptive and statistical analysis with the help of the SPSS computer package to
analyze the data. The regression was computed to determine the extent that each variable of cash management
influenced on the dependent variable (Private schools financial performance). After data processing, statistical
techniques of data analysis like SPSS were used to determine the relationship between cash management and financial
performance in Private schools.

XII
 CHAPTER ONE

INTRODUCTION

1.1. Background information

Cash management is an essential tool which aims at establishing the financial position of the
organization.( Pandey 2005) notes that it is a set of guidelines established by management to ensure that
the organization has optimal cash balance at any time to meet the organization goals, cash recovered
should be matched with cash spent on services so that there is no unused cash balances.Cash
management had a growing importance in the past years and number of factors has brought serious
attention to the importance of cash management. Swing in interest rates on both borrowed and invested
funds to get business away from basics and into a go-go mind set with the temptation to make big
money through stock issues; to the economic malaise of the 1970s when businesses had to scratch harder
to make money.

Then financial institutions, many troubled by problems in the 1980s, have aggressively marketed cash
management services that were previously beneath their dignity or capability. Examples are cash
collection lockbox services, electronic (cashless) payment services, online transaction capability, and
sophisticated cash investment programs. All the above have made the “cash management” very
important in business profitability. (Peter and Heyler, 2003)

In Africa, It has been 15 years since the original Cash Management Handbook was written, and much
has changed since then. Cash management is now a household term with frequent articles in the media
about its growth, innovation, and changes of technology that can be used cash management such as
email money transfer (EMT).According to (Pandey 2004) cash planning is a technique used to plan and
control the use of cash. It involves preparation of forecasts of cash receipts and payments so as to give
out an idea of the future financial requirements. Therefore the management of the school needs to
determine the schedules of monthly disbursements and collection schedules of creditors. with efficient
cash planning system, the financial needs of the school was met, with reduced possibility of the cash
balances which lowers the school’s profitability and cash deficits which can lead to school’s failure .

Cash budget is a summary statement of the firm projected time period and it is the estimation of how
much cash the company was produced in the future that enables it to ascertain whether it generates
enough cash, not only to cover its current operating needs, but also to finance new acquisitions of capital
goods or other capital projects (Matassi, 2008, p. 7; de Caux, 2005, p. 106) Preparation of cash budget is
one of the sure ways of measuring a firm’s liquidity over a period of time. According to Brigham and
Houston (1999) cash budget refers to a table showing cash flows (receipts, disbursements, and cash
balances) for a firm over a specified period of time. This information helps the financial manager to
determine the future cash needs of the firm, plan for the financing of these needs and exercise control
over cash and liquidity of the organization (Kakuru2003).

Cash control is the overall attitude and actions of management regarding control system of cash in the
entity. A strong control is one with tight budgetary control over cash received, cash banked, cash
1
cheques, and effective control cash balances, cash brought down. According to Hamilton (2001) an
oblivious aim of a school is to control and manage its cash affairs in such a way as to keep cash balance
at a minimum level and invest surplus cash in investmentopportunities.

Cash allocation is that the Sources of cash should clearly be highlighted and cash should be allocated
accordingly, for example cash paid in line with supply of essential requirements used in the school
should be used to acquire such requirements or materials. Cash collection is the recovery of cash from
private schools or individual with which you have issued an Invoice. Unpaid bills are considered
outstanding. Bills are always issued with terms of payment and Cash can be expedited by collection
systems that provide for advance billing and payment.

Cash management is essential for every business as it would contribute towards increasing profitability,
future planning and sustainability (Patel, 2010). Cash Management Essentials is a suite of cash
management solutions that can help you gain better control over your daily financial activities.Puxty and
Dodds (2013), it is essential to keep some of the organization’s resources in cash due to generally
recognized motives for holding cash by business unit. Cash management is concerned with the
management of cash flow that is to say inflow and outflow of cash, this seeks to archive control of cash
by paying obligations like meeting organizational needs (Kakuru 2001), The indicators of cash
management include cash planning which is a technique use to plan and control the use of cash, safety
that is to say there should be one to authorize use of cash, cash control, cash allocation and cash budget.
Cash managers should practice effective cash management through different aspects which include: cash
budgeting, optimal cash balance, long term cash forecasting, reports for control monitoring collections
and receivables, options for investing surplus funds and strategies for investing surplus funds. (Chandra,
2004)

Profitability is the organization’s desired state where turnover is greater than input cost (Bogess 2008).
According to (Kakuru2006) profitability is the ability of a firm to earn returns on investment. The higher
the cash balances are in a business, the more returns or profitability was fore gone. The indicators of
profitability include return on assets, return on capital employed and sufficient cash flows.Cash
management techniques applied by private schools include paying school fees in the banks using school
bank slips, students paying directly to the school safety.(Kategaya 2001) argues that the public seems
interested in the developments in secondary schools where he cited a big number of private students
that have shown steady progress for example Green Hill Academy, Sir Apollo Kagwa.Somalia has
adopted the education system with eight years of primary education four year of secondary before the
state collapsed in 1991; education was free and compulsory for children between the ages of six to
thirteen in Somalia.

some Somali educated intellectuals established privately owned educational institutions who privately
run schools merged to form what has come to be known as Education Umbrellas such as
FPENS.UNESCO has increased primary school enrolment with the adopted minimum standards of
quality primary education and to improve access to post-primary education for Somali children and
youth, including technical, vocational education.

2
There are new eleven education umbrellas that predominantly run schools (primary and secondary) in
the whole of the South Central Somalia in which there are some private schools that use cash
management systems but more as an administrative tool than as something integrated into profitability
and outcomes.

According to (Foulks 2005) Effective cash management enhances growth which in turn produces
increased profitability, however some private schools continues to close down due to weak cash
management for example St John in Bombo -Luweero district (New Vision 20th 2008).Private schools
are located in Mogadishu have been discovered that large number of private schools failures in the past
has been blamed on the inability of the financial manager to plan and control the cash management.

1.2. Statement of the problem.

Cash management techniques are adopted by organizations in order to ensure effective investment of
cash and to achieve profitability both in the short run and long run (Dodds 2009)But despite the
adoption of these cash management techniques, still most present organizations run bankrupt to the
extent that some are even closed due to poor cash management. Cash is the lifeblood of all growing
Organizations and is the primary indicator of organizational health. The effect of cash flow is real,
immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled
and put to work (Marie, 2001). Efficient cash management means more than just preventing bankruptcy
but improves the profitability and reduces the risk the school is exposed to, (Maness and John, 2002
Cash management is generally acknowledged as the single most pressing concern of Private schools.

Somalia Private schools are the educational institutions owned and operated entirely by private and not
governmental authority; fees are charged to students attending them by collecting cash on hand not
depositing quickly to bank accounts and that is a problem for the enhancement and Financial
Performance of private schools, most of Somalia private schools do not have bank accounts to deposit
the huge cash received from students.

Private schools are located in Mogadishu districts have been discovered that large number of schools
failures in the past has been blamed on the inability of the financial manager to plan and control the cash
management that caused not be profitable because of lack enough cash to pay the obligations., such as
salaries and another benefits of the teachers to meet school success in terms of its mission, goal and
objectives. It is therefore imperative that school leadership put in place mechanisms to ensure that
proper cash management practices are followed in the schools.These private schools are not practicing
cash management to eliminate surplus cash in safety box in the schools by depositing the huge cash to
the bank account immediately and that leads cash to be stolen and they are not performing well enough
to be profitable due to the lack of proper cash management practice.

This study was tried to investigate how private schools can properly manage their cash in an “optimal
way”. This optimal way is defined in this study as the most profitable way, so the most optimal way of
managing cash flow in this study is leading to the highest profitable to the private schools. However, it
was reported that among the problems that affect private schools in Mogadishu leading to their failure

3
were negative cash management and poor record keeping at (Abdinoor, Abdullah 2008) International
Education. This leaves the gap that is poor cash collection fees from the students and payment to pay
teachers, operating expenses and miscalculate the actual time to collect student’s overdue accounts
receivables, in which the researcher caused to in investigate about the impact of cash management on
Financial Performance of Private schools with a case study of secondary schools.

1.3 .General objectives.

The general objective of the study is to investigate the effects of cash management on profitability of
private schools in Mogadishu, Somalia

1.3.1 .Specific objectives.

The specific objectives of the study include:

1. To establish the effects of cash control on financial performance of private schools in Mogadishu,
Somali.

2. To evaluate the effects of cash planning on financial performance of Secondary private schools in
Mogadishu, Somali.

3. To determine the effects of cash budgeting on financial performance of private schools in Mogadishu,
Somali.

4. To investigate the effects of cash collection on financial performance of private schools in

Mogadishu, Somali.

1.4. Research Questions.

1. What is the effect of cash planning on financial performance of private schools in Mogadishu,
Somalia?

2. What is the effect of cash control on financial performance of private schools in Mogadishu, Somalia?

3. What is the effect of cash budgeting on financial performance of private schools in Mogadishu,
Somalia?

4. How does cash collection effects on financial performance of private schools in Mogadishu, Somalia?

4
1.5 .Justifications

After having seen the unprecedented number of private schools failure in many Somali Regions
specifically those in Mogadishu and noticeable private schools profitability despite the huge cash on
hand in many schools, it became a paramount importance to investigate why such failure and how
proper cash management can improve the private schools profitability.

Findings of this study are useful to the following groups of people;

1) Results of the study will give owners/managers of private schools in Mogadishu insight information
related to the need for effective cash management by considering it as a life-blood of the business which
becomes source of internal financing.

2) Findings of the study also may contribute to available literature by helping future researchers and
students get references for further studies on related areas.

3) It is first to conduct such study concerning forces contributing school failure in target area and the
best mechanism to improve school profitability.

1.6 .Scope of the study

The study was limited to cash management techniques, factors that determine profitability and the role
of cash management on profitability. This study will focus on one of the main districts of Mogadishu
called Hoddon and Howlwadag. This will be selected because these two districts host the largest schools
in Mogadishu. In addition to that the required respondents of the study are easily accessible in that place
in order to get the needed information.

1.7 .Limitation of the study

The major limitation of this study is as follows;

Security is most challenging limitation that poses difficulties in study, under the study population scope
security is very weak which is very dangerous to both researcher and respondents and limits the free
movement of researcher to seek the needed information of the study.Schools environment is also another
challenging because there is no financial system working in Somalia especially in study population
(Mogadishu) where everything works in haphazard way which also limits the study outcomes.

Despite these challenges which can lower the validity and reliability of the study, the researcher decided
to continue this study due the importance to conduct this study and due to the willingness of the
researcher to be defiant aggressively to come up the expected objectives in the study by using the most
suitable techniques in such circumstance.

1.8 .Significant of the study

1. The study enabled schools to appreciate the importance of cash management techniques.

5
2. The research helped the researcher to improve on her research skills for example in proposal writing
and data analysis.

3. The study provided as reference and guidance to further students and researchers.

6
 CHAPTER TWO

LITERATURE REVIEW
2.1 introduction
This chapter contains these sections: theoretical review, conceptual review variables which contains
cash management on profitability, and it will also discuss empirical review, critique of literature and
research gap.

2.2 Theoretical Framework

Cash Management originally means the management of liquidity in order to meet their dayto-
day commitment (Collins & Jarvis, 2000). There are many companies that do not put enough focus on
managing the liquidity of the firm. The result of poor focus on cash management often means that the
financial assets are bound. Instead of being bound, it could be used to invest for example in material.
According to recent studies they found that small businesses have a poor cash management attention
(Denver, 2005)
Modeling can also be useful in predicting the optimal amount of cash on hand to maximize cash flow
and minimize interest expense. The most common models are the Baumol cash model and Miller-Orr
cash model.

2.2.1 Baumol Model

Baumol Model Developed by William Baumol it is a derivative of theEconomic order quantity (EOQ)
model. It is used to determine the optimal amount of cash to hold in a predictable environment. It treats
cash as inventory and buying and selling investment transactions as ordering costs. The objective is to
minimize the fixed cost of buying and selling investment transactions and minimize the opportunity cost
of holding too much cash. Just like in EOQ Baumol is a two-step formula. Step one is to determine the
optimal transaction size. Step two is to determine the optimal number of transactions in a period.
Average cash holdings would be one half of the optimal transaction size.
Jarrad (2000) explaining the treatment of cash management problem by Baumol in 1952, noted that
Baumol treated cash management problem as an inventory management problem where he applied
techniques developed for inventory optimization to the problem of covering transactions demand for
cash. Having optimal cash balance basically involves a tradeoff between the opportunity costs of
holding too much cash and the transaction costs of holding too little cash. Ross et al (2011) stated that
the Baumol model can be used to determine the target cash balance that a firm should hold at any given
time. The optimal (target) cash balance is found where the opportunity costs equal the trading costs.
Baumol (2012) developed the “Revenue Maximization Hypothesis”. This theory stated that after a
minimum amount of profits have been reached firms that operate in an oligopolistic market will aim for
sales revenue maximization and not profit maximization. This means that the firm will produce beyond
the profit maximizing level of output. This can be tested by looking at the number of firms which have
a minimum profit constraint.
Baumol suggested that firms are more interested in sales for various reasons. Falling sales may make it
difficult to raise finance and may offer a negative impression of the firm to potential buyers and
distributors. Executive pay is often linked more closely to sales than to profits. Baumol was not

7
suggesting that firms attempted to maximize sales because it may lead to greater market share and
profits in the long run. In this model sales maximization was the ultimate objective. Baumol (2012)
developed his model to include advertising and his model predicts that a sales revenue maximizing firm
will advertise, no less than, and most likely more than, a profit maximizing firm – as additional money
spent on advertising will lead to more sales – the only constraint is one of minimum profit. Baumol
makes no attempt to test this assumption empirically and offers no support for the validity of the
hypothesis.
The model was developed from a profit maximizing frame; price and output were determined by the
intersection of the marginal revenue and marginal costs curves. Total costs increase as the mangers
waste money, therefore, the profits left to be paid, as dividends to shareholders, are less than they would
be under profit maximization.Baumol model of cash management trades off between opportunity cost or
carrying cost or holding cost & the transaction cost. As such firm attempts to minimize the sum of the
holding cash & the cost of converting marketable security. Baumol model of cash management helps in
determining a firm's optimum cash balance under certainty. It is extensively used and highly useful for
the purpose of cash management. As per the model, cash and inventory management problems are one
and the same.
William J. Baumol developed a model (The transactions Demand for Cash: An Inventory Theoretic
Approach) which is usually used in Inventory management & cash management.

2.2.2 Miller-Orr Model

Pandey (2010 ) stressed that Miller Orr model overcame the shorting comings of Baumol model as it
allows for daily cash flow fluctuation and assumes that net cash flow are normally distributed .Unlike
the Baumol Model, this model allows for uncertainty cash flows and safety stocks (precautionary
balance). According to Marsh (2009), “The Miller-Orr model imposes upper and lower limits which
trigger buy/sell actions in order to bring cash balances back to an optimal ‘return point’ ”. In doing this,
it constrains the upward and downward movements of cash to within ‘acceptable limits’. The model
allows the company to set the lower control limit while the model determines the higher control limit
and the average cash balance.
Marsh further explained that an organization will either buy or sell securities for cash to return its cash
balance to a normal return point. When the cash balance reaches the upper limit, an organization will
buy securities in order to lower the cash balance to the return point. Likewise also, when the cash
balance reaches the lower limit, an organization will sell securities to have the cash balance back at the
return point. Jarrad (2000) also explained that the approach of Miller and Orr in 1966 was to assume that
the underlying problem facing the manager is to keep enough cash on hand to meet daily transactions
demand, while minimizing the opportunity cost of not holding a return yielding asset. He further
explained that Miller and Orr focused their model on maintaining two boundaries; the upper and lower
boundaries. If the upper boundary is crossed, it will trigger a transfer out of cash into an interest bearing
asset and if the lower boundary is crossed, it will trigger a transfer into the cash account.
According to Brealey, Myers & Allen, 2008. Cash management is the process of ensuring that
businesses have good cash balances to ensure that they continue to stay in business. Thus prudent cash
management ensures that a small business would be able to honour its debt obligations as and when they
fall due and also to facilitate the responsibility of the firm to pay for its upcoming expenses. Cash comes
8
into the business from limited sources, mainly through cash and credit sales and advance payments from
clients.
Cash management involves managing the monies of the firm in order to maximize cash availability. It
includes policies and procedures adopted by the management of an entity to assist in achieving the
management policies, laws and regulations of cash, the prevention and detection of fraud and error,
promoting orderly, efficient operations (Van Horme2005).
According to Pandey (2003) cash is the money that a firm can disburse without any restriction and the
term cash includes coins, currency and cheques held by the firm and balances on its bank accounts.
Sometimes near cash items such as marketable securities or bank time deposits are also included in cash.
Pandey(2003)noted that cash management is concerned with management of cash flows into and out of
the firm, cash flow within the firm and cash balances lent by the firm at a time of financing deficit
surplus cash.
Cash management can be seen from two different perspectives depending on how many responsibilities
it includes: basic cash management (Treasury Management) and Advanced Cash management.
Specifically Basic cash management handles actual cash management at companies, and one of its main
functions is to establish the optimum cash level so that payments can be made and received for proper
operations of the company. The Second concept includes not only Treasury management per se but also
other tasks such as treasury forecasting, negotiation and establishment of relationships with financial
institutions and financial risk management. (Leire, et al 2008)
Basic cash management refers to that part of working capital that makes up the optimum level needed by
the company. However, if the profit opportunities available in the process cash flow creation are to be
maximized, this scope must be broadened to take operational decisions in optimum cash levels are
influenced by other factors outside the restrictive concept of "treasury" (Pidando, 2001).
Cash management is the stewardship or proper use of an entity's cash resources. It serves as means to
keep an organization functioning by making the best use of cash or liquid resources of the organization.
The function of Cash management at the U.S Treasury is threefold; to eliminate idle cash balances
because every dollar held as cash rather than used to augment revenues or decrease expenditures
represent a lost opportunity, timely deposit collections as having cash in hand is better than having cash
accounts receivables since is most liquid compared to accounts receivables and it's risk, proper timely
disbursements, some payments must be made on specified or legal dates. (Avnish, 2009).
According to Westerfield and Jordan (2013), the basic objective of cash managementm is to keep the
investment in cash as low as possible while still operating the firm’s activities efficiently and effectively.
business must maintain cash balances to meet day-to-day transactions and to take advantage of
opportunities that may come it way. This is very crucial for smooth and reliable business operations.
They assert that an enterprise can also increase its net cash flow by slowing down disbursements. Ross,
Westerfield and Jordan (2004) indicate that cash disbursements (payments) come in four basic
categories and these include payment of accounts payable, wages, taxes and other expenses, capital
expenditure and also long-term financing expenses. The importance of keeping cash balances by Private
Schools cannot be taken for granted. Moyer, Maguigan and Kretlow (2001) submit the effective cash
management is particularly important for small firms for the following reasons:

9
To prepare financial statement plan to support application for bank loans; Because of limited access to
capital, a cash shortage problem is both difficult and more costly for small firms to rectify than for larger
firm; Many entrepreneurial firms are growing rapidly; they have a tendency to run out of cash. Growing
sales require increases in inventories and accounts receivable, thereby using up cash resources; and
Entrepreneurial firms frequently operate only a minimum of cash resources because of the high cost of,
and limited access to capital.

2.3 Conceptual frame work

Conceptual frame work is a diagram of proposed causal linkage among a set of variables believed to be
related to particular problem. The variables are in the boxes while the relationships are shown by arrows
as shown below. Cash management is the practice of planning and controlling cash flows into
and out of the business, cash flows within the business, and cash balances held by a business at a point
in time (Pandey, 2004). Efficient cash management involves the determination of the most
favorable cash to hold by considering the trade-off between the opportunity cost of holding too much
cash and the trading cost of holding too little (Ross et al., 2008 cited in Nyabwanga, et al.,
2011.
Cash management consists of taking the necessary actions to maintain adequate levels of cash to
meet operational and capital requirements and to obtain the maximum yield on short-term investments.
Uwuigbe, Uwalomwa and Egbide (2011) observed that cash management assumes more
significance than other current assets because cash is the most important asset that a firm holds.

Figure 2.1: Conceptual frame work

Cash planning
 Forecast of cash receipt
 Forecast of cash
Financial Performance

Cash budget  Maximising shareholder wealth

 Return on capital employed
 Cash inflows
 Cash outflows  Shareholder return and profits
 Profitability
 Sufficient cash flows
Cash collection
 Reduction the period of payment
 Reducing the collection float

Cash control
 Documentation of Procedures
 Safeguarding Cash

Independent variable Dependent variable

10
2.3.1 Cash planning
According to Pandey (2003) cash planning is a technique used to plan and control the use of cash. It
involves preparation of forecasts of cash receipts and payments so as to give out an idea of the future
financial requirements. Therefore the management of the school needs to determine the schedules of
monthly disbursements and collection schedules of creditors. with efficient cash planning system, the
financial needs of the school will be met, with reduced possibility of the cash balances which lowers the
school’s profitability and cash deficits which can lead to school’s failure. He further notes that a cash
budget is the most significant device used to plan for and control cash receipts and payments.

2.3.2 Cash budget

Cash budget is a tool used to manage the cash flow of a business. This is a budget that is focused on the
cash coming into the business and the cash that leaves the business. Moore, William and Longenecker
(2010) believed that the cash budget is most important to a small business. The cash budget is used to
foresee and overcome cash flow difficulties when there is little cash available or to indicate that there is
excess cash inflow available to make investments
A cash budget is a summary statement of the firm projected time period. This information helps the
financial manager to determine the future cash needs of the firm, plan for the financing of these needs
and exercise control over cash and liquidity of the organization (Kakuru2003). The researcher is
wondering whether private schools actually budgets for inflows and outflows of cash.Preparation of cash
budget is one of the sure ways of measuring a firm’s liquidity over a period of time. According to
Brigham and Houston (2014) cash budget refers to a table showing cash flows (receipts, disbursements,
and cash balances) for a firm over a specified period of time. Cash budget therefore, identifies all the
cash receipts components and a schedule that tracks cash payments to suppliers with respect to
purchases. Cash budget,
According to Marfo-Yiadom (2009), is the most significant device to plan for and control the cash
receipts and payments. The total cash payments in the subtracted from the total cash receipts for period
which may result into cash deficit or surplus for the period. Where the cash receipts exceed the cash
payments the resultant is cash surplus. On the other hand where the cash receipts fall short of the cash
payment then it gives rise to cash deficit and must be addressed accordingly. The cash budget is a
measure that establishes the cash position (deficit or surplus) of a firm given the cash inflows and
outflows over the period under consideration.
2.3.3 Cash collection
Külter, and. Demirgüneş (2007), noted that cash collection systems aim to reduce the time it takes to
collect the cash that is owed to a firm. Some of the sources of time delays are mail float, processing
float, and bank float. Obviously, an envelope mailed by a customer containing payment to a supplier
firm does not arrive at its destination instantly. Likewise, the payment is not processed and deposited
into a bank account the moment it is received by the supplier firm. And finally, when the payment is
deposited in the bank account oftentimes the bank does not give immediate availability to the funds.
These three "floats" are time delays that add up quickly, and they can force struggling or new firms to
find other sources of cash to pay their bills (Lazaridis, 2006).

11
A school can conserve cash and reduce its requirements for cash balances if it can speed up its cash
collections. A number of methods are designed to speed up the collection process and they include the
following;
Reducing the period it takes for payment from clients to reach the account of the school. According to
Kakuru (2001) the school could use a system of pre-authorized debts where an arrangement is made in
advance that clients could automatically transfer funds from the client account to the school account at a
specified future date.
Reducing the collection float; according to Pandey (2003),the collection float is the total time it takes a
cheque to reach the business, from the time it is put in the mail by the client to when cash is actually
available for use in the school. Usually this is affected by the time the cheque spends in transit (mailing
float), the time it takes the school to process the cheques internally (processing float) and the time it
takes the clearing process of the banking system. This can be managed efficiently by two ways i.e. using
a lock box system and billing up multiple collection centers. The main advantages of a lock box system
are that the bank handles the remittance prior to deposit at a lower cost and cheques are deposited
immediately upon receipt of remittances and their collection process starts soon than if the school would
have processed them for internal accounting purposes prior to their deposit (Mills 2007).
Mills (2007), in his discussion, he recognized that lock box system involves a cost to run and therefore
the school will only be profitable if the benefits of its use exceed the cost of financing it.

2.3.4 Cash control

This is the overall attitude and actions of management regarding control system of cash in the entity. A
strong control is one with tight budgetary control over cash received, cash banked, cash cheques, and
effective control cash balances, cash brought down. According to Hamilton (2001) an oblivious aim of a
school is to control and manage its cash affairs in such a way as to keep cash balance at a minimum
level and invest surplus cash in investment opportunities.
Examples of procedures illustrating good cash control system.
Control over cash received. This is where the school safeguards against possible interceptions between
receipt and opening of the post for example using a looked mail box and restricting access to the keys.
Control over petty cash expenses should be budgeted for, that is to say petty cash should be reconciled
by an independent person and the level and location of cash floats should be laid down formally and
based on the needs of the organization.
Sources of cash should clearly be highlighted and cash should be allocated accordingly, for example
cash paid in line with supply of essential requirements used in the school should be used to acquire such
requirements or materials.
Puxty and Dodds (2002), it is essential to keep some of the organization’s resources in cash due to
generally recognized motives for holding cash by business unit. The need to hold cash may be attributed
to motives like transaction motive in order to protect profitability positions of school, for precautionary
motive that is cash is needed to Cashion the school against any unforeseen problems like failure of
electric system, emergency work force problems which have a negative implication on the school’s
profitability and speculative motive where the school maintains cash balances in order to take advantage
of any profitability venture that may unexpectedly crop up.
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According to puxty and Dodds (1999), it is essential to keep some of the organization’s resources in
cash by any business unit. The need to hold cash may be attributed to the following motives, the
transaction motive, precautionary motive and speculate motive.
Transaction motive recognized that the organization has to carryout daily transactions in order to protect
its profitability position. Cash is needed to pay labor, materials and utilities in order to ensure smooth
operations (Kakuru 2001).
Precautionary motive, cash is needed to Cashion the organization against any unforeseen problems like
failure of emergency work force problems, failure of electric system and such problems have negative
implications on the organizations profitability. Therefore the availability of cash resource mitigates their
effects and keeps the organization profits in balance (mantilla et al 1999).
For speculative motive the organization maintains cash balances in order to take advantage of any
profitability venture that may unexpectedly crop up like a sudden fall in price of scholastic materials.
Once the organizations cash is stripped. It will not be able to take on such advantages and additional
incomes and savings from such events will be lost ( Puxty and Dodds 1999)
According to van Horne (2005), the purpose of managing cash balance is to avoid having idle cash
reserves or having deficits that cannot be invested preferably in short term ventures like treasury bills
and other forms of commercial paper. Since investments are near cash, the liquidity of the organization
is not comprised by the investment plan while profitability is also enhanced. The investment selected for
this purpose should meet the following criteria.
They should be safe in that search for profitability does not increase the risks of liquidity. The
instruments should have a low default risk so that interest and principle repayment will be realized
(Kakuru 2001). He further notes that such investments in Uganda include fixed accounts and
government treasury bills. Investments can easily and quickly be converted into cash with minimum
possibility of a loss.
In case of deficits, arrangements for financing should be in advance to avoid hurried solutions which rob
the business of the opportunity to strike a fair deal and hence acquiring the resources at costs higher than
those of the decisions that were taken in a relaxed atmosphere (Pandey 2003).

2.3.5 Financial performance

Although “performance” may appear to be an easy concept, a unique definition in the literature does not
exist. Moreover, academics often use special definitions tailored to fit the individual research purposes
(Langfield-Smith, 1997). The financial performance is often measured using traditional accounting Key
Performance Indicators such as Return On Assets, Operating Profit margin, Earnings Before Interest and
Tax, Economic Value Added or Sales growth (Ittner&Larcker, 1997; Fraquelli&Vannoni, 2000;
Crabtree &DeBusk, 2008). The advantage of these measurements is their general availability, since
every profit oriented organization produces these figures for the yearly financial reporting
(Chenhall&LangfieldSmith, 2007). However, balance sheet manipulations and choices of accounting
methods may also lead to values that allow only limited comparability of the financial strength of
companies. Ratios are best used when compared or benchmarked against another reference, such as an
industry standard or "best in class" within the industry. This type of comparison helps to establish

13
financial goals and identify problem areas. Vertical and horizontal analysis can also be used for easy
identification of changes within financial balances.

2.3.5.1 Measurement of financial performance

Financial performance measurement is a fundamental building block of TQM and a total quality
organization. Historically, organizations have always measured performance in some way through the
financial performance, be this success by profit or failure through liquidation. However, traditional
performance measures, based on cost accounting information, provide little to support organizations on
their quality journey, because they do not map process performance and improvements seen by the
customer. In a successful total quality organization, performance will be measured by the improvements
seen by the customer as well as by the results delivered to other stakeholders, such as the shareholders
according to Garrison et, al(2012).
Profitability was defined by Mugerwa (2005) as an income earned in the excess of the input cost after a
sale of service or product. Balunywa (2003) observed that present traditional economists take profit
maximization as the objective of a firm. He further said that some scholars have a different view as they
think profit making as not as inclusive as that of maximizing shareholders wealth. However Balunywa in
his view noted that any good performed organization should be able to realize profits.
Griffith (2001) in agreement with Baluywa(2003) noted that business profitability is the justification of
its good performance. In deed profits of a business are the end result of operation and indication of its
good performance.
Kimbowa (2003) noted that organizational profitability is affected by factors such as cost of input,
management of cash flows, government policy and borrowing culture. If the school relies more on loans,
costs such as interest rates will not be avoided and this has a negative impact on profitability.
Kakuru (2003) provided that organizational profitability is affected by the cost of capital. In this case the
cost of capital is usually increased by related dividends and interest rates from providers.
Eugen (1995) noted that default risk is one of such factors that threaten organizational profitability. The
greater the default risks the higher the interest rates lenders charge on loans and the lesser the
profitability. Contrary the chances of default, the lesser the interest rate charged, the cheaper the cost of
capital, the higher the profitability that will be earned on capital.
According to Lipsey (2012) organization profitability is affected by many factors and this include
change in demand, change in prices of both inputs and output such as capital and labor4 then level of
staff productivity.
According to Pearce II and Robinson Jr (2002) profitability is the main goal of a business organization.
No matter how it is measured or defined, profit of a long period of time is the clearest indication of
firms’ ability to satisfy the principle claims and desires of employees and stake holders.
2.3.5.2Profitability:
The word 'profitability' is composed of two words, namely; profit and ability. The term profit has
already been discussed at length in detail. The term ability indicates the power of a firm to earn profits.
The ability of an enterprise also denotes its earning power or operating performance. Also, that the
business ability points towards the financial and operational ability of the business. So, on this basis

14
profitability may be defined as ―the ability of a given instrument to earn a return from its use"'1
Weston and Brigham defines profitability as "the net surplus of a large number of policies and decisions.
A Profit is financial benefit that is realized when the amount of revenue gained from a business activity
exceeds the expenses, costs and taxes needed to sustaintheactivity. According to MantileEtaal (1995),
Hamilton (2001) and van Horne (2003) one of the primary objectives of a cashier is to maintain a sound
liquid position of the school in order to meet motives of holding cash. In this case the amount of cash
balance will depend on the risk return trade off. The school maintains optimum neither just enough, nor
too much, nor too little cash balance. Optimum cash balance under certainty; BaumolsModel.This model
provides a formal approach for determining the schools optimum cash balance under certainty. The
school attempt to minimize the sum of holding cash and cost of converting marketable securities to cash
and guarantee profitability (Pandey 2003 and Hamiliton (2001). The limitation of Baumol is that it does
not allow cash flows to fluctuate. School uniformly do not use their cash balances nor are they able to
predict daily cash out flows and inflows.
With an efficient cash planning system, financial needs of the school will be met with reduced
profitability of idle cash balances which lowers the schools profitability and cash defeats which cause
schools failure (Kakuru 2001)
The purpose of managing cash balance is to avoid having idle cash reserves or having deficit that cannot
be covered easily (Kakuru 2003). If surplus cash balances are invested near cash forms, the illiquidity of
the school will not be compromised by the investment and profitability will be enhanced.
According to Pandey (2003) cash management should ensure that firm’s illiquidity should sound as
profitability grows. Pandey noted that there is no advantage in paying sooner than greed. By delaying
payments as much as possible, the school makes it as a source of fund which is interest free but earning
the school some income. . Thus delaying payments enables the school to realize extra profits from
retained funds.
According to Kakuru (2001) if cash management concentrates on boosting the liquidity, high balances
of cash will be maintained. However the higher these balances are, the more profitability will be fore
gone. This is risky especially to people who expect profitable ventures. On the other hand if cash
management seeks to boost profitability, investments are highly risky but profitable and the business is
threatened as there will be no cost to meet the operating obligations as they fall due. If care is not taken
profitability will be short lived as the school will be forced to close due to illiquidity.

2.3.4.3 Return on Equity

Return on equity a firm’s net income divided by its common book equity. This ratio is the accounting
rate of return earned on the common stockholders’ investment.(Arthur J. Keown, 2014). The most
important ratio is the ROE, or return on equity, which tells us how much stockholders are earning on the
funds they provide to the firm. When ROE is high, the stock price also tends to be high; so actions that
increase ROE generally increase the stock price. Other ratios provide information about how well assets
such as inventory, accounts receivable, and fixed assets are managed and about the firm’s capital
structure. Managers use ratios related to these factors to help develop plans to improve ROE.(Eugene F.
Brigham &

15
Joel F, 2009). The advantage of the DuPont system is that it allows the firm to break its return on equity
into a profit-on-sales component (net profit margin), an efficiency-of-asset use component (total asset
turnover), and a use-of-financial-leverage component (financial leverage multiplier). The use of the
DuPont system of analysis as a diagnostic tool is best explained using. Beginning with the rightmost
value—the ROE—the financial analyst moves to the left, dissecting and analyzing the inputs to the
formula in order to isolate the probable cause of the resulting above-average (or below-average) value.
For the sake of discussion, let’s assume that Bartlett’s ROE of 12.6 percent is actually below the
industry average.ROE is primarily the consequence of slow collections of accounts receivable, which
resulted in high levels of receivables and therefore high levels of total assets. The high total assets
slowed Bartlett’s total asset turnover, driving down its ROA, which then drove down its ROE. By using
the DuPont system of analysis to dissect Bartlett’s overall returns as measured by its ROE, we found that
slow collections of receivables caused the below-industry-average ROE. Clearly, the firm needs to
manage its credit operations better.(Zutter, 2012 ).
2.4 Empirical Literature Review
A study by Kwame (2007) established that the setting up of a cash balance policy ensures prudent cash
budgeting and investment of surplus cash. This finding agreed with the finding by Kotut (2003) who
established that cash budgeting is useful in planning for shortage and surplus of cash and has an effect
on the financial performance of the firms. The assertion by Ross et al.(2011) that reducing the time cash
is tied up in the operating cycle improves a business profitability and market value furthers the
significance of efficient cash management practices in
Improving business performance.Dong and Tay Su (2010) also attempted to investigate the relationship
existing between profitability, the cash conversion cycle and its components for listed firms in Vietnam
stock market. Using a descriptive cross sectional design, their findings showed a strong negative
relationship between profitability, measured through gross operating profit, and the cash conversion
cycle and all of its components. This means that as the cash conversion cycle increases, it will lead to
declining of profitability of a firm. Therefore, the managers can create a positive value for the
shareholders by handling the adequate cash conversion cycle and keeping each different component to
an optimum level.Ali, et al (2013), studies the association between various earnings and cash
management measures of firm performance and stock returns in Iran. They used the simple and multiple
regressions to analyse the data for a period of nine consecutive years from 2003 to 2011. The study
revealed that company’s performance and cash flow have a s earning based measures are more related to
stock returns and depict the company performance better than cash flow measures in some companies
with higher accruals.
Thanh and Nguyen (2013), carried out a study on the effect of Banking Relationship on financial
performance in Vietnam. They used the multiple regression to analyses the data, using a sample of 465
companies listed in Vietnam observed in period 2007 to 2010. The study revealed that firm performance
decreases as the number of bank relationships increases. Additionally, the study also indicates that cash
management has negative relationship with firms, return on equity, while assets have negative
association with return on assets.
Chikashi (2013), carried out an investigation of comprehensive income and firm performance. The case
of the electric appliances industry of the Tokyo Stock Exchange. The researcher uses the data for the
16
fiscal year of 2009 to 2011 and employs the pooled regressions (Panel data regression analyses). The
study revealed that cash management and financial performance have a significant negative relationship.
In addition, comprehensive incomes published by the firms were superior to other earnings or cash flow
variables in predicting their future stock returns.
Zhou, et al (2012), examined the relationship between free cash management and financial performance
evidence from the listed Real Estate Companies in China. They used principal component analysis and
regression analysis on the data from 2006 –2011 of all listed real estate companies in China. The study
revealed that the free cash management of a company is negatively liner –correlated to its financial
performance too much free cash management will lead the financial performance to decline.
Khoshdel (2006), studied the relationship between free cash flows and operating earning with stock
returns and growth of net market values of operating assets in Tehran Stock Exchange. The researcher
tests the hypotheses via Pearson correlation and simple linear regression method. The study revealed
that there is a positive meaningful relationship between operating earning with return on equity, return
on assets, and growing of net market values in operating assets.
Watson (2005), examined the associated of various earnings and cash flow measures of firm
performance and stock returns. The researcher used simple and multiple regressions to analysis the data.
The study revealed that cash management and financial performance have a significant negative
relationship. Thus a company, whose performance is acceptable according to managements and
shareholders opinion, may not be acceptable in social aspect.
The review of empirical literature from Management disciplines and the theoretical and empirical
literature from Finance show that the relationship between cash management and performance is
complex and is affected by intervening and contingent variables. Taken together, the evidence and
arguments presented above seems to suggest that unmanaged cash schools should perform less well than
managed cash schools, and highlycashmanaged schools should perform better than moderately cash
managed schools.

2.5 Critique of Literature Review

Baumol Model Developed by William Baumol it is a derivative of the EOQ model. It is used to
determine the optimal amount of cash to hold in a predictable environment. It treats cash as inventory
and buying and selling investment transactions as ordering costs. The objective is to minimize the fixed
cost of buying and selling investment transactions and minimize the opportunity cost of holding too
much cash. Just like in EOQ Baumol is a two-step formula. Step one is to determine the optimal
transaction size. Step two is to determine the optimal number of transactions in a period. Average cash
holdings would be one half of the optimal transaction size,
So the researcher will agree Baumol Model based on predicting company of cash to hand. Miller-Orr
Model This model seeks to overcome the shortcomings of the Baumol model. It determines the optimal
amount of cash to hold in an unpredictable environment. It extends the Baumol model in that it tracks
both inflows and outflows of cash, allows inflows and outflows on an irregular and unpredictable basis
and establishes two trigger points - the lower cash level at which securities must be sold to replenish
cash and the upper cash level at which surplus cash should be invested. The researcher disagree miller-

17
or model because of it has access cash flow on hand also it’s not good for business performance also it’s
not consider security transaction of a cash access.

2.6 Research Gaps

Most of the literatures that researcher reviewed focus on the study variables in certain situations which is
rather different from that of the current study. Reviewed literatures refer to a situation where mostly all
financial institutions exists such as banks, investment institutions, government policy, chamber of
commerce, labor union etc. This current study deals with a situation where no enabling factors such
security, financial institutions, law and order. So that is why this study is very important because it
investigates the study variables (cash management & performance of small business) in practical way.
This is the gap current study aims to fill and specifically it explains deeply how these variables impact
each other in such situations where there are no enabling factors whereas the other old studies focused
generally the casual relationship between the factors which is not convincing all situations for these
variables.
2.7 Summary of Literature Review
Cash flow is the life blood of all businesses and is the primary indicator of business health. It is
generally acknowledged as the single most pressing concern of most private schools. The effect of cash
flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected,
controlled and put to work. (Robert A. Cooke, 2003) cash is king! Cash availability is the lifeblood of
the organization. With it, assuming there is proper management and economical, efficient, and effective
operations, the company can grow and prosper—without it the organization perishes. Like the absence
of water to anything living, the absence of cash to the business means death—slow, torturous, physically
painful, and mentally agonizing. Profit is a periodic measure, calculated monthly, quarterly, and
annually. Cash, however, is a daily concern. (Heyler& Peter B. 2003) cash management impact on
business performance is based on different models such as that of Baumol which recognized the
similarities between cash and inventory management. He extended the economic order quantity (EOQ)
model to examine its implications to cash management. The Baumol model assumes the cash manager
invests excess funds in interest bearing securities and liquidates them to meet the firm’s demand for
cash. As investment returns increase, the opportunity cost of holding cash increases and the cash
manager decreases cash balance.

18
 CHAPTER THREE
METHODOLOGY
3.1Introduction

In this chapter the researcher presents the methods that were used in data collection, analysis and
presentation. This included the research design, study area and population, sampling frame design and
technique, and instruments, data processing, analyzing of the study.

3.2 Research Design

Burns and Grove (2003) 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”. Polit et al (20011) describes a
research design as “a plan that describes how, when and where data are to be collected and analyzed.

Parahoo, 2006) describes a research design as “a plan that describes how, when and where data are to be
collected and analysed”. (Polit& Beck, 2012) define a research design as “the researcher’s overall for
answering the research question.

The research design of this study will be quantitative design. And clear definition of the details of the
quantitative makes the desired statistical analyses possible, and almost always improves the usefulness
of the results. The overall data collection and analysis plan considers how the quantitative design
factors, both controlled and uncontrolled, fit together into a model that will meet the specific objectives
of the experiment and satisfy the practical constraints of time and money. The data collection and
analysis plan provides the maximum amount of information that is relevant to a problem by using the
available resources most efficiently.

Understanding how the relevant variables fit into the design structure indicates whether the appropriate
data will be collected in a way that permits an objective analysis that leads to valid inferences with
respect to the stated problem. The desired result is to produce a layout of the design along with an
explanation of its structure and the necessary statistical analyses. (Burns & Grove 2003)

3.3Target Population

Population is the total collection of elements about which we wish to make interferences

(NachamiasandNachmias (2000).The population under the study included specific categories of

individuals selected from the private schools in Mogadishu. These people who are entrusted with
financial responsibility, Such as Accountants and principals of the Private secondary schools, because
they are responsible the financial managements the school.

According to (Lavrakas, 2008) define a population as any finite or infinite collection of individual
elements. Target population refers to the entire group of individuals or objects to which researchers are
interested in generalizing the conclusions (Ngumi, 2013), this research targeted the accountants and
principals of private schools in Hoden and Howlwdag Districts, which have the biggest population in
Mogadishu. The exact number of all Private schools in thes two districts is 15 private secondary schools

19
registered in Umbrellas, such as FPENS and SAFE. The area was selected because the majority of
Private secondary schools in Mogadishu are located in Two Districts.

Table 1: target population

Types of secondary schools Number of accountants %

&principles
(1)Adult Commercial 8 5%
(2)Somali youth league (SYL) 8 5%
(3)Alblal school 8 5%
(4)Iftin School 8 5%
(5)Mumtasz school 8 5%
(6)Said Amir school 8 5%
(7)Al-mufid school 7 4%
(8)Hayan school 7 4%
(9)Express school 7 4%
(10)Al-huda school 6 3%
(11)Mugdishu school 6 3%
(12)Hammer School 6 3%
(13)Alimra school 6 3%
(14)Al-wadan school 6 3%
(15) Al-Hidaya School 6 3%
Total 105 100%

3.4 Sampling frame

Slovene’s formula was used to this study to determine the sample size. Slovene’s formula for obtaining
the sample size. Denoting by n the sample size, Slovene’s formula is given by

N= 105 n=?

N=? = = = 5I.23≈ 51. So the sample was 51

3.5 Sample Size and Sampling Technique

The sample technique of this study was simple random sampling; a random sample is a sub-set of units
that are selected randomly from a population. A random sample represents the general population or the
conditions that are selected for the experiment because the population of interest is too large to study in
its entirety. Using techniques such as random selection after stratification or blocking is often preferred.
An often-asked question about sampling is: How large should the sample be? Determining the sample
size requires some knowledge of the observed or expected variance among sample members in addition
to how large a difference among treatments you want to be able to detect.

20
 Table 2: sample distribution of accountants and principals of Private Secondary schools.

Type of Private Numberof % Number

schools Accountants of staff
/principals selected
(1)Adult 8 5 4
Commercial %
(2)Somali youth 8 5 4
league (SYL) %
(3)Alblal school 8 5 4
%
4)Iftin School 8 5 4
%
(5)Mumtasz 8 5 4
school %
(6)Said Amir 8 5 4
school %
(7)Al-mufid 7 4 3
school %
(8)Hayan school 7 4 3
%
(9)Express 7 4 3
school %
(10)Al-Huda 6 3 3
school %
(11)Mogadishu 6 3 3
school %
(12)Hammer 6 3 3
School %
(13)Alimra 6 3 3
school %
(14)Al-wadan 6 3 3
school %
(15)Al-Hidaya 6 3 3
School %
Total 105
100% 51

3.6 Research Instrument

Research instrument used in the Data collection is questionnaire to measure the variable(s),
characteristic(s), or information of interest, often a behavioral or psychological characteristic. Research
instruments can be helpful tools to your research study. Because the information needed can be easily
and quickly gathered from the respondents, and also it can target respondents in widely dispersed
locations, in questionnaire development, the research objectives and previous studies about effect of
cash flow management and business performance provided a base for the questionnaire development in
this study Cooper (2003).

The research questionnaire was involved Financial Performance of Private Schools in Mogadishu-
Somalia. The questionnaire translates the research objective into specific questions. The answers to

21
those questions provide the data for testing the research hypothesis. Questions must also interest the
respondents enough that they provided the information. The first step in designing a questionnaire is to
create a conceptual model. This includes specifying the research problem; the purpose of the research,
the research design, the variables and hypothesis, and operational definitions and valid and reliable
measures of the variables, as well as the intended population, and the plans for data analysis.The second
step is to produce the questionnaire. This includes writing the introduction, the statement of informed
consent, and the questions and responses, as well as designing the overall format ("look and feel") of the
questionnaire. The third step is to pre-test the questionnaire, to revise, and to conduct a pilot test of how
the questionnaire was used.

3.7 Data collection procedures

Proceeding from general to specific research questions, makes the research activities in any project more
focused - in terms of data needed to answer the research questions. Hence questions associated with data
collection are some of the most important in any research enquiry.

It is fairly common for a Research Plan to be divided into two stages: Pre-empirical and empirical
stages. The first stage is where you start with the research question, go through what others have done,
modify your own research question(s) and set some kind of hypothesis or theory. The second stage is
that part of your research where you decide on your research design i.e. qualitative or quantitative or a
combination of both and assemble your conceptual framework. These stages was informed by such
decisions like:

What kind of data is required to test the hypothesis/theory? From whom to collect the data? And what
procedures need to be followed to collect that data?

3.8 Pilot of Study

A pilot study is a trial run of the major study. Its purpose is to check the time taken to complete the
questionnaire, whether it is too long or too short, too easy or too difficult and to check the clarity of the
questionnaire items, and to eliminate ambiguities or difficulties in wording (Cohen et al 2002). A pilot
study was conducted to test the questionnaire for reliability. Six respondents (N=6) with similar
characteristics to the research sample who are not part of the main study interviewed. Following the
pilot study, some ambiguous questions were rephrased to give greater clarity and some questions were
discarding, as they proved irrelevant.

Validity is the accuracy and meaningfulness of inferences, which are based on the research results.
Validity is the degree to which an instrument measures what it is supposed to measure for a particular
group. The instrument for this study that is the questionnaire guide was validated by the supervisor. Also
a content validity index formula was used to calculate the validity of the instrument

3.8.1 Validity

Validity is the extent to which an instrument measures what it is supposed to measure and performs as it
is designed to perform. It is rare, if nearly impossible, that an instrument be 100% valid, so validity is

22
generally measured in degrees. As a process, validation involves collecting and analyzing data to assess
the accuracy of an instrument. There are numerous statistical tests and measures to assess the validity of
quantitative instruments, which generally involves pilot testing. The remainder of this discussion focuses
on external validity and content validity.

External validity is the extent to which the results of a study can be generalized from a sample to a
population. Establishing eternal validity for an instrument, then, follows directly from sampling. Recall
that a sample should be an accurate representation of a population, because the total population may not
be available. An instrument that is externally valid helps obtain population generalizability, or the
degree to which a sample represents the population.

Content validity refers to the appropriateness of the content of an instrument. In other words, do the
measures (questions, observation logs, etc.) accurately assess what you want to know?

This is particularly important with achievement tests. Consider that a test developer wants to maximize
the validity of a unit test for 7th grade mathematics. This would involve taking representative questions
from each of the sections of the unit and evaluating them against the desired outcomes.

3.8.2 Reliability

Reliability can be thought of as consistency. Does the instrument consistently measure what it is
intended to measure? It is not possible to calculate reliability; however, there are four general estimators
that you may encounter in reading research: Inter-Rater/Observer Reliability: The degree to which
different raters/observers give consistent answers or estimates. Test-Retest Reliability: The consistency
of a measure evaluated over time.Parallel-Forms Reliability: The reliability of two tests constructed the
same way, from the same content. Internal Consistency Reliability: The consistency of results across
items, often measured with Cronbach’s Alpha.

3.9 Data processing and analysis

The data, after collection, has to be processed and analyzed in accordance with the outline laid down fo
the purpose at the time of developing the research plan. This is essential for a scientific study and for
ensuring that we have all relevant data for making contemplated comparisons and analysis. Technically
speaking, processing implies editing, coding, classification and tabulation of collected data so that they
are amenable to analysis. The term analysis refers to the computation of certain measures along with
searching for patterns of relationship that exist among data-groups. Thus, “in the process of analysis
conflicting with original or new hypotheses should be subjected to statistical tests of significance to
determine with what validity data can be persons (Selltiz, Jahoda and others) who do not like to make
difference between processing and analysis. They opine that analysis of data in a general way involves a
number of closely related operations which are performed with the purpose of summarizing the collected
data and organizing these in such a manner that they answer the research question(s). I, however, shall
prefer to observe the difference between the two terms as stated here in order to understand their
implications more clearly.

Data collect from the questionnaire was analyze, summarize, and interpret accordingly with the aid of
23
descriptive statistical techniques such as total score and simple percentage. In the process of data
analysis the researcher was used descriptive and statistical analysis with the help of the SPSS computer
package to analyze the data. The regression was computed to determine the extent that each variable of
cash management influenced on the dependent variable Financial Performance.

3.9.1 Qualitative Analysis

In qualitative studies, the researcher was interested in analyzing information in a systematic way in order
to come to useful conclusions and recommendations. In qualitative studies, researchers’ obtained
detailed information about the phenomena being studied, and then try to establish patterns, trends and
relationships from the information gathered. Qualitative aims at providing basic information without
proof of it. Before processing the responses, data preparation was done on the completed questionnaire
by editing, coding, entering and cleaning the data. Data collected was analyzed by using descriptive
statistics. The descriptive statistical tools helped in describing the data and determining the respondents'
degree of agreement with the various statements under each factor. Data analysis will be done with the
help of SPSS version 16.0.

3.9.2 Quantitative Analysis

Whereas qualitative analysis aims at providing basic information, quantitative analysis goes further to
test the theories in the theoretical framework behind the study and prove or disapprove it. For this kind
of a study, there is need to go further and test hypothesis. The multiple regression analysis was used to
explore the relationship between Cash Management and as the independent variables and Financial
Performance as the dependent variable. Pearson's product moment correlation analysis was also used
and it's a powerful technique for exploring the relationship between variables. Correlation coefficient
was used to analyze the strength of the relations between variables.Correlation coefficients were
calculated to observe the strength of the association. A series of multiple regression analysis (standard
and step wise) was used because they provide estimates of net effects and explanatory power. Analysis
of variance (ANOVA) was used to test the significance of the model. R2 is used in this research to
measure the extent of goodness of fit of the regression model. The regression model is indicated as
shown as Follows: Y=β0+β1x1+ β2x2+ β3x3+e

Where:-

Y = represents the dependent variable, financial performance

β0… β3 are the Regression Coefficient

X1 = Profitability

X2 = Return on capital Employed

X3 = sufficient cash flows

e = Stochastic term

24
 CHAPTER FOUR

RESEARCH FINDINGS AND DISCUSSION

4.1 Introduction

In this chapter, raw data from the questionnaires was analyzed and interpreted. Various tests were used to test
the relationship between variables, level of significance, reliability and random distribution of data.
Specifically, I used Cronbach's alpha test, descriptive statistics test, Pearson Bivariate correlation and Multiple
Regression analysis (standard and stepwise). The independent variables of the study Cash planning, cash
budget, cash control, cash collection and how they affected the dependent variable which was financial
performance of Private schools of Two Districts in Mogadishu.

4.2 Response Rate

From the data collected, out of the 51 questionnaires administered, 50 were filled and returned, which
represent 99 % response rate. This response rate is considered satisfactory to make conclusions for the study.
Mugenda and Mugenda (2003) observed that a 50% response rate is adequate, 60% is good, while 70% rated
very good. This implies that based on this assertion, the response rate in this case of 74.33% is therefore very
good. The recorded high response rate can be attributed to the data collection procedures for instance, the
researcher pre-notified the potential participants for the survey, the researcher administered the questionnaire
with the help of research assistants through drop and pick method and follow up calls were also made to
clarify queries as well as to prompt the respondents to fill the questionnaire. These methods facilitated the
whole process of data collection hence the high response rate

4.3 Reliability and Validity

Prior to exploring and describing the relationship between cash planning, budgeting, control and cash
collection, and financial performance of private secondary schools in Mogadishu. The measures were
examined and assessed to gauge reliability and validity.

4.3.1 Reliability analysis

Cronbach’s alpha was used to determine the internal reliability of the questionnaire used in this study. Values
range between 0 and 1.0; while 1.0 indicates perfect reliability Cronbach Alpha value is widely used to verify the
reliability of the construct. Therefore, Cronbach Alpha was used to test the reliability of the proposed constructs.
The findings indicated that cash planning had a coefficient of 0.775, Cash budget had a coefficient of 0.718,
Cash control of 0.765, Cash control of 0.762, and financial performance of 0.848. The results indicate that the
questionnaire used in this study had a high level of reliability. These tables indicate that each of the items relates
to the identified factor and that the coefficient alpha value of the identified factor was not increase if some of the
items are left out. Basically, reliability coefficients of 0.765.and financial performance obtained a coefficient of
0.762. All constructs depicted that the above the suggested value of 0.7 thus the study was reliable (Mugenda
and Mugenda (2003). On the basis of reliability test it was supposed that the scales used in this study is reliable
to capture the constructs.

25
 Table 4.1: Reliability Statistics
Variables Cronbach's Alpha Comments
Cash planning 0.775 Accepted
Cash budgeting 0.718 Accepted
Cash Control 0.765 Accepted
Cash Collection 0.762 Accepted

4.4 Descriptive Statistics

This section outlines the demographic data, gender, years of existence and key players in the industry.

4.4.1 Demographic data

The study sought to establish the demographic data of the respondents. The researcher begun by a general
analysis on the demographic data obtained from the respondents which included; the gender, duration of existence
and the key players in the industry. This research targeted 105 participants in regard to establishing the effects of
cash management on financial performance of private schools in Mogadishu. And 51 questionnaires were
generated.

4.4.2 Response of Gender distribution

The descriptive statistics of the study indicated that 40 (78%) of the respondents were men while the remaining
11 (22%) were women, this clearly shows that the industry is male dominated as indicated in table 4.2.

Table 4.2 Gender of distribution

Frequency Percent

Valid Male 40 78
female 11 22

Total 51 100.0

4.4.3 Response of age group

From the table 4.3, shows that 20 (39.2%) of private schools have been in existence for at least 20-30 years, 16

(33.37%) have been in existence for 30-40 years and 14 (26.45%) have been in existence for & above years.

These results are consistent with Visvanathanm et al, (2006), who state that private schools in Mogadishu

Somalia. This clearly indicates that majority of the private schools have been there for long.

26
 Table 4.3 age group

Frequen Percent
cy
Valid 20-30 20 39.2
30-40 16 33.37
40&above 14 27.45

Total 51 100.0

4.4.4 Response of level of education

The descriptive statistics of the study Table 4.4 indicated that there are numerous levels of education in the

organization. Most of the respondents 10 (19.6%) . Most of the respondents highlighted the Private Schools in

Mogadishu Somalia. As one of the secondary level, the respondents indicated 20 (39.21%) as bachelor degree, the

respondents highlighted as Master Degree 17 (33.33%) other respondents indicated and obtained.4 (7.84%) PHD

these results show respondents' opinion and the level of education in the organization.

Table 4.4 level of education

Frequency Percent

Valid Secondary 10 19.6

Bachelor 20 39.21
Master 17 33.33
PHD 4 7.84
Total 51 100.0
4.4.5 Years of existence
From the Table 4.5, shows that 25 (49.1%) have been in existence for less than 5 years, 15 (29.41%) have been
in existence for 5-10 years and 7 (13.72%) and 4 (7.84%) have been existence for above 15 years. These
results are consistent with, who states that private schools have emerged as the major educational institutions
occupations of mankind and in ancient times economically and socially backward people were employed in
this profession. This clearly indicates that majority of the private schools have been there for long.

Table 4.5 Years of existence

Frequency Percent

Valid Less than 25 49.1

5years
5-10years 15 29.41
10-15years 7 13.72
above15years 4 7.84
Total 51 100.0

27
4.5 Study Variables Findings

The following presents the findings on the various study variables. The effects of of Cash Management on
Financial performance are mixed. Three recent reviewers (Datta, Rajagopalan and Rasheed 2000, Hoskisson
and Hitt 2003, Kerin, Mahajan and Varadarajan 2000), broadly conclude: the empirical evidence is
inconclusive; models, perspectives and results differ based on the disciplinary perspective chosen by the
researcher; and the relationship between Cash Management on financial performance is complex and is
affected by intervening and contingent variables . Some studies claim Cash management on financial
performance produces higher schools performance better than highly student’s schools (Christensen and
Montgomery 2004, Keats 2004, Michel and Shaked 2003, Rumelt 2001, 2002, 1986).

4.5.1 Cash budget

The study sought to establish the effects of price cash management on financial performance in Private
secondary schools. From the findings indicated in table 4.6 most of the respondents agreed that that the
Schools Budgets I pay communication with the determinants of the needs I received on my network a mean of
1.10, the respondents agreed Private schools allocate cash to safe guard organizational objectives. Due by a
mean of 1.92 and a mean of 1.90 was obtained the school allocates cash to safe guard organizational
performance same as mean of 1.57 the network should always put more effort to understand the specific
customers’ needs.
Table 4.6 cash budget

Statement N Mean Std. Deviation

school budgets for all operations in order to determine the 51 1.10 .300
needs of the school
Private schools allocate cash to safe guard organizational 51 1.92 .337
objectives
The school allocates cash to safe guard organizational 51 1.90 1.136
Performance
The network should always put more effort to understand the 51 1.57 .500
specific customers’ needs

4.5.2cash planning

The study sought to establish the effects of Cash management on financial performance of private secondary

schools in Mogadishu Somalia From the findings indicated in table 4.7. Respondents agreed that The School plan

for cash with an aim of establishing financial position of the school about depicted by a mean of 1.49, the

Respondents agreed schools plans to give dividends to shareholders every year. Due by a mean of 2 and a mean of

1.04 was obtained School Cash planning to determine the level of profitability in Private schools. Same as mean of

28
1.51 the respondent the school provides social responsibility i.e. sponsoring sports, providing scholarships,

development initiatives

Table4.7 Cash planning

Statement N Mea Std.

n Deviation
The School plan for cash with an aim of 5 1.49 .505
establishing financial position of the school 1

schools plans to give dividends to shareholders 5 2.00 .000

every year 1
School plans Cash to determine the level of 5 1.04 .196
profitability in Private schools 1
The school provide social responsibility i.e. 5 1.51 .505
sponsoring sports, providing scholarships, 1
development initiatives
4.5.3. Cash control
Number of questions were asked to determine how cash control of private secondary schools in Mogadishu
Somalia. Respondents agreed that Cash Receipt is sufficiently documented in the school as mean of 1.90 the
department does not have unauthorized bank accounts or charge accounts a mean of 1.51. And also agree a mean of
1.78 Daily collections are held in a secure manner. Respondents agreed. Although “Vouchers are made on a daily
For Cash control./ The School has policy for cash control a mean of 1.02, a unique definition in the literature does
not exist. Moreover, academics often use special definitions tailored to fit the individual research purposes (Mattile,
2006).
Table 4.8 Cash control
Statement N Me Std.
an Deviation
Cash Receipt is sufficiently documented In the 5 1.90 .300
school 1
The department does not have unauthorized bank 5 1.51 1.206
accounts or charge accounts 1
Daily collections are held in a secure manner 5 1.78 .808
1
Vouchers are made on a daily For Cash control./ 5 1.02 .140
The School has policy for cash control 1

4.5.4 Cash collection

The study sought to establish the effects cash management on financial performance of private secondary schools in
Mogadishu Somalia From the findings indicated in table 4.9 the respondents agreed the school keeps cash balance
to capture sudden opportunities at all. With a mean of 2.31 being obtained. These results are consistent with the

29
findings obtained on Awareness is the first step in collections in your school. a mean of 1.90. The respondent also
agreed Investigative and analytical techniques are used for credit collection approval a mean of 1.51. The primary
responsible for collections is to collect the money as close to the terms of the obligation as possible obtaining a
mean of 1.73.
Table 4.9 Cash collection

Statement N Mea Std. Deviation

n
The school keeps cash balance to 5 2.31 .905
capture sudden opportunities 1
Awareness is the first step in 5 1.90 .361
collections in your school 1
Investigative and analytical techniques 5 1.51 .505
are used for credit collection approval 1
The primary responsible for collections 5 1.73 .827
is to collect the money as close to the 1
terms of the obligation as possible

4.5.5 Financial performance

A number of questions were asked to determine how secondary schools gets sound profit from their activities in
Mogadishu Somalia. Respondents agreed The School gets sound profit from the activities, obtaining a mean of
1.49. The respondents agreed that Schools have enough market share that can ease it to be the leading institutions of
this field obtaining a mean of 1.92. And similarly a mean of 1.53 It is difficult to measure the profitability of The
Private school. Respondents also agreed. The return on equity for the projects is satisfactory to the stakeholders
Moreover, academics often use special definitions tailored to fit the individual research purposes (Langfield-Smith,
1997). Financial performance is often measured using traditional education Key financial Performance.
Table 4.10 Financial performance
Statement N Me Std.
an Deviation
The School gets sound profit from the 51 1.49 .505
activities
Your School has enough market share that 51 1.92 1.129
can ease it to be the leading institutions of
this field
It is difficult to measure the profitability of 51 1.53 .504
The Private school.
The return on equity for the projects is 51 1.78 1.172
satisfactory to the stakeholders

4.6 Multiple Regression Analysis

Multiple regression analysis was performed to assess the effects between the dependent variable (Financial

30
 Performance) and the independent variables (Cash management) and to test the research hypotheses on the cash
budget management determinants on financial performance multiple regression analysis was conducted in order
to establish the best combination of independent (predictor) variables would be to predict the dependent
(predicted) variable and to establish the best model of the study (Cooper & Schindler, 2013).

Multiple regressions is an extension of simple linear regression. It is used when we want to predict the value of a
variable based on the value of two or more other variables. The variable we want to predict is called the dependent
variable (or sometimes, the outcome, target or criterion variable). The variables we are using to predict the value of
the dependent variable are called the independent variables (or sometimes, the predictor, explanatory or regress or
variables).

For example, you could use multiple regressions to understand whether exam performance can be predicted based
on revision time, test anxiety, Alternately, you could use multiple regressions to understand whether daily cigarette
consumption can be predicted based on smoking duration, age when smoking, smoker type, income and gender
started. Multiple regressions also allow you to determine the overall fit (variance explained) of the model and the
relative contribution of each of the predictors to the total variance explained. For example, you might want to
know how much of the variation in exam performance can be explained by revision time, test anxiety, lecture
attendance and gender "as a whole", but also the "relative contribution" of each independent variable in explaining
the variance. This "quick start" guide shows you how to carry out multiple regressions using SPSS Statistics, as
well as interpret and report the results from this test. However, before we introduce you to this procedure, you
need to understand the different assumptions that your data must meet in order for multiple regression to give you
a valid result.
4.6.1 Model summery

Model summary is a summery that describes how far the in dependent variables explain the dependent variables
that mean the greater R value has the great number the greater independent variables explain with dependent
variable. In order to test the research hypotheses, a standard multiple regression analysis was conducted using
financial performance the dependent variable, and the four investigations determine effect of cash budget, cash
planning, cash control and cash collection of the financial Performance.
In order to test the research hypotheses, a standard multiple regression analysis was conducted using value
addition as the dependent variable, and the four cash management determinants of financial performance cash
budget, cash planning, cash control and cash collection as the predicting variables. Tables 4.10, 4.11 and 4.12
present the regression results. From the model summary in table 4.6.1, it is clear that the adjusted R2 was
0.987indicating that a combination of cash budget, cash planning, cash control and cash collection explained
97.3% of the variation in the Financial Performance of Private schools in Mogadishu, Somalia.

31
Table 4.11 Model Summary

Mode R R Square Adjusted R Std. Error of the Estimate

l Square
1 .98 .975 .973 .07405
7a

4.6.2 Analysis of Variance

Analysis of Variance (ANOVA), as the name implies, is a statistical technique that is intended to analyze variability
in data in order to infer the inequality among population means. This may sound illogical, but there is more to this
idea than just what the name implies. The ANOVA technique extends what an independent-samples t test can do to
multiple means. The null hypothesis examined by the independent samples t test is that two population means are
equal. If more than two means are compared, repeated use of the independent-samples t test was lead to a higher
Type I error rate (the experiment-wise α level) than the α level set for each t test.
Table 4.12 Analysis of Variance
ANOVAb
Model 1 Sum of df Mean F Sig.
Squares Square
Regression 9.883 4 2.471 450.523 .000a
Residual .252 46 .005
Total 10.135 50

a. Predictors: (Constant), cash collection, cash budgeting, cash control, cash planning
b. Dependent Variable: financial performance

From the ANOVA table 4.11, it is clear that the overall standard multiple regression model (the model involving
constant(cash collection, cash budgeting, cash control, cash planning) is significant in predicting how cash
collection, cash budgeting, cash control, cash planning determine Financial Performance of the Private schools
Mogadishu Somalia. The regression model achieves a degree of fit as reflected by an R2 of 0.987 (F = 450.523; P =
0.00 < 0.05.
4.6.3 Regression Coefficients
Table 4.13 presents the regression results on how cash collection, cash budgeting, cash control, cash planning
determine financial Performance of Private schools in Mogadishu, Somalia. The multiple regression equation was
that: Y= β0+β1X1+β2X2+ β3X3 + ε and the multiple regression equation became: Y = -.587 -.039X1 -.010X2-
.279X3+ 1.692X4.As depicted in table 4.13, p < . 0.05). There was Strong positive and significant effects of Cash
Management on financial performance (β = 1.133; t = 20.784; p < 0.05). There was strong positive effects of cash
control on financial performance (β = --.008; t =. -3.100; p > 0.05). However, there was negative but significant
effects of cash collection on financial performance (β = -.021; t =. -.194.

32
Table 4.13 Regression Coefficients

Coefficientsa
Model 1 Unstandardized Standardized t Sig.
Coefficients Coefficients

B Std. Error Beta

(Constant) .587 .107 5.48 .000

7
Cash 1.692 .081 1.133 20.7 .000
planning 84
Cash .039 .046 .021 .859 .095
budgeting
Cash control .010 .053 .008 .194 .037

Cash .279 .090 .162 3.10 .003

collection 0

a. Dependent Variable: financial performance

4.6.4 Correlation Analysis
Pearson Bivariate correlation coefficient was used to compute the correlation between effect of Cash Management
the independent variables and financial performance the dependent variable .According to Sekaran (2008), this
relationship is assumed to be linear and the correlation coefficient ranges from -1.0 perfect negative correlations to
+1.0 perfect positive relationships. The correlation coefficient was calculated to determine the strength of the
relationship between dependent and independent variables (Kothari, 2013).
From table 4.14, the results generally indicate that except for Cash planning, other independent variables (Cash
planning Cash budgeting Cash control and Cash control) were found to have positive significant correlations on
Financial Performance at 0.05 level of significance.
There was a weak positive but insignificant correlation between cash planning and financial performance (r = 984 *,
P > 0.05).

33
Table 4.14Correlation
Correlations
CP CB CC CC FP

CP Pearson Correlation 1 .017 .794 .884* .984**

** *

Sig. (2-tailed) .904 .000 .000 .000

N 51 51 51 51 51

CB Pearson Correlation .017 1 .192 -.057 .052

Sig. (2-tailed) .904 .178 .693 .719

N 51 51 51 51 51

CC Pearson Correlation .794** -.192 1 .789* .760**

*

Sig. (2-tailed) .000 .178 .000 .000

N 51 51 51 51 51

CC Pearson Correlation .884** .057 .789 1 .832**

**

Sig. (2-tailed) .000 .693 .000 .000

N 51 51 51 51 51

FP Pearson Correlation .984** .052 .760 .832* 1

** *

Sig. (2-tailed) .000 .719 .000 .000

N 51 51 51 51 51

**. Correlation is significant at the 0.01 level (2-tailed).

34
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction
This chapter accordingly summarizes the findings in line with the objectives, draws conclusions and makes
the necessary recommendations. Areas of further study that may enrich the study area are also suggested.

5.2 Summary of Findings

The general objective of this study was to investigate the Cash management of Financial Performance in
Somalia with specific focus of Private schools in two Districts of Mogadishu, Somalia. Specifically, this study
investigated the effects of Cash planning, Cash Budgeting, Cash Control and Cash collection of the Private
schools. The study employed a survey research design in data collection. This research employed quantitative
data collection method whereby data was gathered by the use of closed ended questionnaires which were self-
administered. Factor analysis was used to assess the validity and Cronbach alpha to assess reliability of the
questionnaire. Multiple regression analysis was performed to assess the Effects between the dependent variable
(Financial Performance) and the independent variables (Cash planning, Cash Budgeting, Cash Control and Cash
Collection) and to test the research hypotheses on the Cash Management of Financial Performance in Private
Schools in Mogadishu, Somalia with specific focus on the two Districts in Mogadishu, Somalia.

5.2.1Cash Planning and Financial Performance

The first research objective was to find the effect of cash planning on financial performance of Private
secondary schools in Mogadishu, Somalia. Various methods analytical methods were used to arrive at the
findings. These methods included descriptive statistics, correlation analysis and regression analysis. The
findings indicated that cash planning has high effect on financial performance of Private secondary schools in
Mogadishu, Somalia.

The study had a hypothesis that cash planning affect financial performance of Private secondary schools in
Mogadishu, Somalia. The results revealed that cash planning was statistically significant in explaining Financial
Performance of Private secondary schools in Mogadishu, Somalia.

Is a Educational institution’s capacity to meet its cash and obligations without incurring unacceptable losses?
Cash Planning is dependent upon the institution’s ability to efficiently meet both expected and unexpected cash
flows and collateral needs without adversely affecting either daily operations or the financial condition of the
Private schools.

5.2.2 Cash Budgeting and Financial Performance

The second research objective was to examine the effect of Cash Budget on financial performance of Private
secondary schools in Mogadishu, Somalia. Various methods analytical methods were used to arrive at the
findings. These methods included descriptive statistics, correlation analysis and regression analysis. The
findings indicated that was mechanism established on cash budget and contributed high on financial
performance of Private secondary schools in Mogadishu, Somalia.

The study had a hypothesis that cash budget affect financial performance of Private secondary schools in

35
Mogadishu, Somalia. The results revealed that cash budget was statistically significant in explaining Financial
Performance of Private secondary schools in Mogadishu, Somalia.

5.2.3 Cash Control and Financial Performance

The Third research objective was to examine the effect of Cash control on financial performance of Private
secondary schools in Mogadishu, Somalia. Various methods analytical methods were used to arrive at the
findings. These methods included descriptive statistics, correlation analysis and regression analysis. The
findings indicated that was mechanism established on Cash control and contributed high on financial
performance of Private secondary schools in Mogadishu, Somalia.

The study had a hypothesis that Cash control affects financial performance of Private secondary schools in
Mogadishu, Somalia. The results revealed that Cash control was statistically significant in explaining Financial
Performance of Private secondary schools in Mogadishu, Somalia.

5.2.4 Cash Collection and Financial Performance

The fourth research objective was to establish the effect of Cash control on financial performance of Private
secondary schools in Mogadishu, Somalia. Effective Cash Collection require well regulated sector, since the
financial risk exposure is very high. There is need to revamp the role of the regulator especially creating its
awareness levels since most of the members seemed not to understand the mandate of the regulator.
5.2.6 Financial performance of Private secondary Schools.

The study sought to establish effect of Cash Management on financial performance of Private secondary
schools in Mogadishu, Somalia. Descriptive statistic, regression analysis and ANOVA were conducted. The
results showed that the growth of Private Schools in Mogadishu, Somalia, in terms of profitability has been
growing tremendously for the last seven years, there was an increase in awareness level of the need of the
institution and also member was on a growing trend, membership tripled but loans only doubled during the
same period of analysis and there was a huge increase of products offered by Private Schools in Mogadishu,
Somalia that facilitated locking in members to the institutions.

It was possible to conclude from the study findings that there was improved and increased financial
performance of Private Schools in Mogadishu, Somalia across the years. The performance indicators had all
increased in number and growth. This implies that the employees and members of the Private Schools in
Mogadishu, had embraced the idea of joining Private Schools in Mogadishu, Somalia and using their products
fully.
5.3 Conclusions
Conclusions were arrived at the influence of independent variables (cash Planning, Cash Budget, control, and
Cash collection), and dependent variable of financial performance of Private Schools in Mogadishu, Somalia
based on the findings of the study.

The conclusions were based on the objectives of the study that cash management drivers had a significant
influence on financial performance of Private Schools. The results established that cash management drivers
were found to significantly and positively influence financial performance. When all the stated variables were
tested in the regression model they were found to have a significant relationship between themselves and
financial performance of Private Schools. Cash control management was the driver which had the highest effect
on financial performance of Private Schools followed by cash collection and cash management. The findings of
36
 the study established that Private Schools were operating under a highly competitive environment between
them. However, this moderate result revealed that there were all variables which were influencing the financial
performance of Private Schools in Mogadishu- Somalia.

5.4 Recommendations
Based on the findings of the study, the researcher recommends that the Private schools adopt cost leadership
strategy. The empirical evidence from this study infers that cost leadership has significant effect on performance
of Private Schools The results of this study thus provides a valuable reference for top Private Schools in
Mogadishu in terms of implementing cost leadership strategy as this would help them achieve competiveness
and improve their performance.

1. It was found that management policies influenced cash control management. It is recommended to the Private
Schools management to ensure that the Schools have put in place policies and procedures to be adhered to
during trade credit.
2. There is need for the Private Schools in Mogadishu to increase their control to collections fees as it was
founded that cash collection positively affects the financial performance of Private Schools in Mogadishu.
3.Management should in still discipline upon itself by ensuring good financial performance, promote
technological progress and increase its paid up capital regardless of the statutory requirements so that the
continued existence of the organization’s is not jeopardized after undergoing cash management.

4. Management should not only undertake cash management in order to improve operation and sustain failing
Institutions but also improve their competitiveness and financial performance.

5. Management should come up with a sound strategy towards cash control and cash planning; budgeting
management so as to prevent the problem of mismatching investments and also the quality of liquidity should
be enhanced.

6. Management should put into consideration the degree of transferability and cash invested in so that these
assets can provide liquidity to the firm with ease.
5.5 Areas for further research

The general objective of this study was to investigate the cash management effects of financial performance in
the private schools in Muggadishu, Somalia with specific focus of two districts in Mogadishu. Specifically, this
study investigated the effects of cash planning practices, cash budgeting, cash control and cash collection on
financial performance of private schools in Mugadishu,Somalia. These effects are not exhaustive hence further
research can be carried out to unearth other cash management effects of financial performance of private
schools in Mugadishu,Somalia.. Secondly, further studies need to be carried out to identify industry based
challenges cash management that these educational industries face and how best these challenges can be
addressed to enhance growth and financial performance of the private sector in Mugadishu, Somalia.This
research particularly assessed the contribution of cash management and financial performance. Areas that need
further research are:

i) School management and professionalism

ii) Private salary scale
iii) Examination setting in private schools vis-à-vis setting in government schools
iv) Resource efficiency and effectiveness in private schools
37
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39
 APPENDIX I

QUESTIONNAIRE

Dear respondent,

I am a student of Jomo Kenyatta University of agriculture and technology carrying out an academic research ON
EFFECT OF CASH MANAGEMENT FINANCAIL PERFORMANCE OF PROIVATE SCHOOLS IN
MOGADISHU-SOMALIA selected PRIVATE SECONDARY SCHOOLS in Mogadishu-Somalia, you have been
purposively selected to participate in the study and I therefore kindly request you to provide an appropriate answer by
filling the questionnaires properly. The answers provided was only used for academic purpose and was treated with
extreme confidentiality.

NB: Do not write your name anywhere on this paper.

Section (A): Profile of the respondents

Dear sir/madam,
Please tick in the blanks in front of your appropriate response

Gender:

a) Male CHAPTER THREE

b) Female
METHODOLOGY
Introductions
Age group
In this chapter the researcher presents the methods that were used in data collection,
20-30 30-40 40 & above
analysis and presentation. This included the research design, study area and population,
sampling design and size, and instruments, data processing, analyzing of the study.

3.1 Research Design

Level of education
Burns and Grove (2003) define a research design as “a blueprint for conducting a study
1) Secondary 2) Bachelor degree 3) Master Degree 4) PHD
with maximum control over factors that may interfere with the validity of the findings”.
Polit et al (20011) describes a research design as “a plan that describes how, when and
where data are to be collected and analyzed.
Experience Parahoo, 2006) describes a research design as “a plan that describes how, when and
where
How long have you beendata are to
working in be
the collected
school? and analysed”. (Polit & Beck, 2012) define a research

1)Less 5years design as “the

2)5-10 yearsresearcher’s overall
3)10-15 for answering
years the research
4)Above 15 yearsquestion.
The research design of this study will be quantitative design. And clear definition of the
details of the quantitative makes the desired statistical analyses possible, and almost
always improves the usefulness of the results. The overall data collection and analysis
plan considers how the quantitative design factors, both controlled and uncontrolled, fit
together into a model that will meet the specific objectives of the experiment and satisfy
the practical constraints of time and money. The data collection and analysis plan
40
provides the maximum amount of information that is relevant to a problem by using the
available resources most efficiently.
Understanding how the relevant variables fit into the design structure indicates whether
the appropriate data will be collected in a way that permits an objective analysis that
SECTION (B): QUESTIONS OF CASH MANAGEMENT
INDEPENDENT VARIABLE

Direction: Please write your rating on the space before each option which corresponds to your best choice. Kindly use
the scoring system below:

Response Mode Rating Description Legend

Strongly Agree (1) Very high SA

Agree (2) High A

Neutral (3) N

Disagree (4) Low DA

Strongly Disagree (5) Very low SD

SECTION C: CASH [email protected]

1 school budgets for all operations in order to determine the SA A N SD D

needs of the school

2 Private schools allocate cash to safe guard organizational

objectives

3 The school allocates cash to safe guard organizational

objectives

4 The network should always put more effort to understand

the specific customers’ needs

SECTION D: CASH PLANNING

1 The School plan for cash with an aim of establishing SA A N SD D

financial position of the school.

2 schools plans to give dividends to shareholders every year

3 School plans Cash to determine the level of profitability in

Private schools

4 The school provide social responsibility i.e. sponsoring

sports, providing scholarships, development initiatives

41
SECTION E: CASH CONTROL

1 Cash Receipt is sufficiently documented In the school. SA A N SD D

2 The department does not have unauthorized bank accounts or

charge accounts

3 Daily collections are held in a secure manner

4 Vouchers are made on a daily For Cash control./ The School

has policy for cash control.

SECTION F: CASH COLLECTION

1 The school keeps cash balance to capture sudden opportunities SA A N SD D

2 Awareness is the first step in collections in your school,

3 Investigative and analytical techniques are used for credit

collection approval

4 The primary responsible for collections is to collect the money

as close to the terms of the obligation as possible

THE DEPENDENT VARIABLE

SECTION G: FINANCIAL PERFORMANCE

1 The School gets sound profit from the activities SA A N SD D

2 Your School has enough market share that can ease it to be the
leading institutions of this field.

3 It is difficult to measure the profitability of The Private school.

4 The return on equity for the projects is satisfactory to the

stakeholders.

42
APPENDIX II: WORK PLAN

November H2015
September 2015

February 2016

August 2016
ACTIVITY

July 2016
june2016
may2015
Identification of research
topics and PROBLEM
STAMENT

Writing of chapter one

Writing of chapter two

Writing of chapters 1-3

and binding of research
proposals

Writing of chapter four

Writing of chapter five

43
APPENDIX III: RESEARCH BUDGET
This is an estimated budget of the amount the researcher expects to spend on carrying out and presenting the project.

Activities Costs($ USD)

Travelling expenses $45

Internet services $175

Printing costs $50

Miscellaneous $59

Total $329

44