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- THE IMPACT OF STRATEGIC MANAGEMENT ON ORGANISATIONAL PERFORMANCE. (A CASE STUDY OF NIGERIAN BREWERIES PLC)
- PACKAGING AS A TOOL OF ACHIEVING HIGHER PROFITABILITY IN A MANUFACTURING COMPANY (A Study of Nigeria Bottling Company)
- WORKERS MOTIVATION AND ORGANISATIONAL PERFORMNCE IN NATIONAL CENTER OF ECONOMIC MANAGEMENT AND ADMINISTRATION
- EFFECT OF TALENT MANAGEMENT ON ORGANISATIONAL PERFORMANCE (A CASE STUDY OF NESTLE NIGERIA LIMITED)
- THE IMPACT OF RETENTION OF EMPLOYEE ON ORGANISATIONAL SUCCESS IN LAGOS STATE MINISRY OF EDUCATION
- IMPACT OF RETENTION OF EMPLOYEE ON ORGANISATIONAL SUCCESS IN LAGOS STATE MINISRY OF EDUCATION
- WORKERS MOTIVATION AND ORGANISATIONAL PERFORMANCE IN NATIONAL CENTER OF ECONOMIC MANAGEMENT AND ADMINISTRATION
DEBT MANAGEMENT AND ORGANISATIONAL SUCCESS (A Case Study of 7up Bottling Company)
Debt can be talked of when group of societies economic positions suffer inefficiency. It is the state or time measure of the organization or individual economic position. At the down of the modern economic life, it has been observed that one can be debtor and get stands to meet his current liabilities provided it is well managed. This research work drives into the business meaning of debt, analyzing its management in business organizations. The success of its efficient management in an organization. The research did not relent in their effort to point out where and why the impact of debt is felt mostly in business life. It has found that the debt exist through the life of the time of a business organization from the initial capital outlay in the time of further expansion in daily transaction of either with the supplier or the cessation or liquidation. A close look at the 7up bottling company plc, Lagos, the research has employed both primary and secondary sources of data. Primary sources involves oral interview, the use of practical or personal observation form sources documents while secondary sources on the other hand are the data sources form published textbooks, journals, national duties. Observation also reveals that one can be a debtor as well as a creditor. A good financial manager can source fund by debt, invest it to make a profit before the maturity of the debt. To do this, some speculative factor can be considered and handled so that balance or breakeven of the risk and return can be sought for and a fairly equilibrium is met.
TABLE OF CONTENTS
Certification --- -- --- --- --- --- --- --- i
Dedication --- -- --- --- --- --- --- --- --- ii
Acknowledgement --- -- --- --- --- --- --- --- iii
Table of Content --- -- --- --- --- --- --- --- iv
Abstract--- -- --- --- --- --- --- --- --- --- viii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study --- --- --- --- --- --- 1
1.2 Statement of the Problems --- --- --- --- --- --- 5
1.3 Research questions--- --- --- --- --- --- --- 7
1.4 Objective of the Study --- --- --- --- --- --- 8
1.5 Statement Hypotheses --- --- --- --- --- --- --- 9
1.6 Scope of the Study --- --- --- --- --- --- --- 10
1.7 Significance of the Study --- --- --- --- --- --- 10
1.8 Limitation of the Study --- --- --- --- --- --- 11
1.9 Operation of Definition of Terms --- --- --- --- --- 12
CHAPTER TWO: LITERATURE REVIEW
2.1 Meaning of Debt Management --- --- --- --- --- 14
2.2 Analyzing Debt Management in Relation to Organization
Working Capital --- --- --- --- --- --- --- 15
2.3 Cost of Capital in Relation to Debt Management Technique --- 16
2.4 Different School of Thought in Debt Management --- --- 23
2.5 Different Types of Debt Management --- --- --- --- 25
2.6 Debt a Management in Financing Organization Capital
Structure --- --- --- --- --- --- --- --- --- 32
2.7 Cost of Debt Capital in Business Organization --- --- --- 32
CHAPTER THREE: RESEARCH METHOD
3.1 Research Design --- --- --- --- --- --- --- 34
3.2 Population of the Study --- --- --- --- --- --- 34
3.3 Samples/Sampling Technique --- --- --- --- --- 34
3.4 Instrumentation --- --- --- --- --- --- --- --- 35
3.5 Method of Data Collection --- --- --- --- --- --- 35
3.6 Method of Data Analysis --- --- --- --- --- --- 36
CHAPTER FOUR: DATA PRESENTATION ANALYSIS AND DISCUSSION
4.1 Data Presentation --- --- --- --- --- --- --- 37
4.2 Test of Hypotheses --- --- --- --- --- --- --- 44
CHAPTER FIVE: SUMMARY CONCLUSION AND
5.1 Summary --- --- --- --- --- --- --- --- --- 47
5.2 Conclusion --- --- --- --- --- --- --- --- 48
5.3 Recommendations --- --- --- --- --- --- --- 49
5.5 Suggestion for Further Research --- --- --- --- --- 49
1.1 Background of the Study
In modern-day business setting, debt is seemingly inevitable sometimes it emanates from short fund convenience with the prevailing trade terms. Debt does not occur only when money is borrowed. It equally occur where there is exchange of goods and services with a deserved payment so each time goods or services are exchanged with a different of its financial obligation there is incidence of debt.
A good business may not always write to finances the commencement of his business from his personal savings, if he does, so many things may happen. Either that the business is under financed or the business is foregone, likewise a business firm for one version or the other may not finance through equity aware only. The management may wish to source the fund through debt. Event extra fund for expansion or for speculative purposes. Hence, this project work looks into the analysis of debt in a dual perspective.
I. In the accumulative of fund, either for the commencement or expansion and
II. In trading relationship (trade debt)
i. At the commencement of a consciences organization, the owners try to maintain a favourable capital structure ordinarily, it is normal for the business owners (equity holder) to finance the business. But more often the funding of a business goes beyond that. The choice of the capital structure and the funding technique is left at the mercy of the financial managers. On doing so however, he doesn’t overlook or neglect the major organizational objectives, maximization of the owners wealth.
ii. Business organizations usually strive to achieve a number of objectives. These corporate objectives provide a set of criterial upon which financial decisions organization seek to achieve by obtaining fund from various sources and investing some reasonably. It is import to recognize that various types of funds raised has its own cost and each has certain risks. For example, loans(secured and unsecured), debentures, preferences and ordinary shares. Loans raised by the security organizations asset trends to have fairly low rates of interests although they imply certain risks. Failure to meet the terms of the loan on the due date would empower the tender to confiscate the said assets with potentially catastrophic consequence for the borrower.
iii. In contrast, an unsecured loan on which no assets is pledged, though escaped the last cited risk cost higher. It has higher cost than the former preference share on the other hand, may have a relatively annual rate but its payment is binding irrespective of whether profits are made or not ordinary share however has no fixed charge as such, it dividend depends on the periodic business profit yet excessive use of equity shares is determine to the organizational control, it is not technically handled when the equity share is used in marginal funding of the firm, it is only advisable when the return from the issue is such that share prices would increase. One would not expect an issue of share to be made with an expectation that share price would fail since that would reduce shareholders wealth. So it can be said that the minimum return required from a new issuer is that which would leave the share price at its present level since it is one of the organizational objectives to maximize the equity holders, wealth and random use of ordinary shares tantamount this. The management would have no option than to restart to debt financing to complement equity. This is one of the reasons why debt financing is most inevitable in the capital structure of a business organization of today. Then with the attendant risk and return relationship, the financial manager always seek for a fair equilibrium to the best interest of the firm for its survival and for attainment of its set objectives.
iv. Trade Debt: With the exception of most types of retaining commercial sales are usually made on credit. This means that cash settlement legs sometimes behind the delivery of the goods or the consumption of the service to which the payment relates. The main reason for these practices are attributed to the present commercial tradition for convenience and to the buyers and even to the sellers. This trading terms heads to debt but it is encouraged for the following reasons
a) The recipient will need to assure himself that the goods are satisfactory prior to payment
b) Additional safeguard will need to be introduced with regards to the cash collected.
Even when and where it would be reasonable practicable to pay on delivery, customers are reluctant to forgo the traditional credit period. Since they do so, it would increase their own financing costs.
The practice of allowing credit has thus come to be widely accepted as normal. The use of credit however has certain costs associated with it and the analyzing debt management requires a clear identification and balancing of these various costs. To achieve this however, the financial manager and the management had to consider the costs under two categories:
a) Cost of allowing credit
b) Cost of refusing credit
1.2 Statement of the Problems
Debt has implication in the life of every business organization. Poor analysis of debt management affects a firm adversely. It could be recalled that the effective capital structure of a firm emaciate from the ability of a financial manager and the management to blend debt with equity. It is pertinent to note that many businesses have gone into compulsory liquidation due to poor analysis, which leads to poor debt management. The cost of capital therefore shall be bargained with critical consideration of the organization Internal Rate of Return (IRR). On the sale relationship, the credit term shall be determined with an absolute review of the overall business environmental factor. While resisting debt for its risks, the goodwill of the customer shall not be overlooked entirely. This work tends to deal with debt in its relation with a business organization. it brings about a number of problems which includes among others:
I. The cost of capital in financing market is an extra charge to the business organization. Such a cost eats deep into the owners fund.
II. Secured debts do not only affect the liquid assets of the firm but also dare to extend its effects into the fixed assets of the firm.
III. Preference share has a fixed periodic charge, which accumulates in considerate of whether a profit is made or loss suffered. This gives a firm an adverse concern especially during an unfavorable business atmosphere.
IV Inability to meet the financial obligation of a business organization eventually lead to the organizational liquidation, which is an economic death of the firm as an entity. In the business tending policy, a firm tries as much as possible to minimize credit for the following reasons:
a) It brings about bad debt, which is a deadly disease to a business.
b) Later settlement of debt in beating the stipulated credit return destabilizes the liquid stability on the firm and eventually leads to bad debt.
c) Protected debt denies the business organizations the chance of using their business opportunities as they fall due.
This project is not pessimistic to debt at all neither does it intend to criticize debt and anything about it, rather it delves into the problems and consequences of debt and analyzing its management situation. Despite the above cited deaneries, debt has a number of merits. In the optical structure, some financial managers commend debt financing for the following reasons:
I. Difficulties in raising ordinary share capital.
II. Peoples reluctance to spearhead risks
III. For expansion and speculative purpose, that debt funding is preferable since further use of equity may dilute the control of the firm.
IV. It may even affect the price of the stock properly handled.
On the transactional terms, absolute refusal of credit for debt aversion has its own averse effects:
a) It reduces the sales volume and hence the profit prospects.
b) It affects the goodwill of the business hence firms in the face of its customer and degrades its inedibility in market scene.
c) The firm can only stand in an absolutely monopolistic market and tis is verily obtainable.
1.3 Research Questions
(i) How does debt financing bring about an optimal capital structure in a business organization?
(ii) Will good analysis of trade debt management help measure an effective working capital management in every business organization?
(iii) What effort will be made to reach every latent problems inherent in analyzing debt management in areas of organizational capital structure?
(iv) How does the important element in decision about resources helps to finance the ambiguity surrounding concept of the cost capital?
1.4 Objective of the Study
From the view of things, it is self evident that modern business can hardly survive and meet the objectives and expectations of the interested parties without debt. Debt on the other hand cannot be purged on its attendant merits and demerits. Since the impact of is being felt from the inception of a business (from commencement) to the cessation date (the day it is wound up). The financial manager starts his decisions on debt from the settings of the capital structure. Sometimes the business may need additional expansion or for speculative purpose. These came as an opportunity to the firm, which the management may not like to miss. But very often, the retained earnings may not be enough to carter for this as such the fund is sourced externally.
In the trading activities of the firm, credit cannot be eliminated completely. The firm can either be a recipient, a giver or both. This is possible in its relation with its suppliers and customers. And wherever there is a creditor, there must be a debtor so credit and debt are just like two sides of a coin. So in an economic system, “what cannot be avoided must be managed”. So this research will take a closer look into the strategies of analyzing debt management situation, relate some to the contemporary business environment in Nigeria with a particular overview or reference to 7up Bottling Company PLC, Lagos, their trading terms collection period, the incidence of bad debt and capital tied down as a result of delay in debt collection.
1.5 Statement of Hypotheses
In a continued effort to reach an appreciable equilibrium in the problems and consequences of debt and its effective management, I (researcher) employed a selected statistical to enable reach a fair conclusion.
In the light of the above, therefore the following major hypothesis have been formulated. Hypothesis mean a tentative statement made by researcher, subject to test with a view to forming basic study a phenomenon. These hypothesis when tested, can equally place the researcher on the solid ground of drawing his conclusion and a subsequent recommendation.
1. Effective debt financing does not bring about an optional capital structure in business organization.
2. Good analysis of trade debt management is not good measure of an effective working capital management in a business organization.
1.6 Scope of the Study
The scope of the study concerned was on debt management and organization success with much concerned to 7 up bottling company PLC Lagos however, for further reference and clarity, emphasis are made from other reasons and these are considered vital, thus such emphasis are on profitability, solvency, flexibility, conservation and control.
1.7 Significance of the Study
The significance of analyzing debt management situation is as broad as the scope of the business in question and its economic environment and as length as the life of the business poor or financial management in a business organization is first evidenced in its liquidation. This is the reason why the researcher endeavours to look into a firm and consequences of debts.
In the capital structure of a firm, the debts prospect of the organization project is to be considered and a careful decision made to avoid setting off with a long toot. These are the areas this work look into in a trading business firm, the role marketing manager and financial manager of deciding on the organizational credit policy is brought to light with dare recommendation. This work tend to strike a fair balance in their turn and risks of debt. This will be of great importance to the interest groups and prospective scholars in the field. This is done through review of the past, which is related to the present and employed in the recommendation for a better future.
1.8 Limitation of the Study
Analyzing debt management situation is not a shallow topic to be handled haphazardly, it is not only technical but also sensitive and broad.
For the purpose of this project, it is restricted to the business organization. It excluded every non-business concern. Also for what to time resources, 7up Bottling Company, Lagos is sampled out as base for the research work. So many factors are deemed to militate against quicker and easier completion of this work.
These among others:
Cost: inadequate fund may stunt this work beyond our taste, lack of fund(money) may also affect not only the period of the research but also its quality. To exult everything about analyzing debt management and organization success and come out of legacy for the posterity, one needs to travel far and near. At least one ought to touch various industries in the four basic geographical area of the country.
Time: Time is as costly as money, it is ever easier facing financial problems than time. Time lost as hardly regained. Financial markets do exist but time existed for time. With school academic calendar, the period for the research work is too short, putting other courses into the budget.
Sources Of Facts: This research has convince me that so many authors share almost the same view on the topic as such are going to a library having about five textbooks of different authors, at least you find out that they are saying the same thing in different tongue, invariably you are having a book or more.
Reluctant to Co-Operate: The management of some business organizations are too reluctant to disclose the required information and more so, when it comes to disclosing or exposure of the organizational books record. The idea equally affected the quality of facts given in the research. Some do paths pact to suit their firm.
1.9 Operational Definition Of Terms
Debt: Money or something owned by or someone – a liability or an obligation.
Management: The process of planning, organizing, heading and controlling the work of organization members and of using all available organization resources to reach stated organizational goals.
Debtor: One who owes the liability or obligation.
Credit: Trust or confidence in a buyer’s ability intention to pay at the same future time, exhibited by out rushing him with goods and services without present payment.
Capital Structure: Debt or equity relationship, it is configuration of equity capital and loan capital in the long term financing of an organization.
Equity: The risk bearing portion of the long term capital of a business organization.
Working Capital: The Portion of an organization’s assets which is not invested in fixed assets or obligation to pay current liabilities, but is available to fund day to day working needs.