Effect of working capital management practices on a firm’s performance: The case of El-Shadai financial services, Ada-Ghana
Onesimus Kwashie Dorkpah, Reindolf Yao Nani Adzido Patil, Emmanuel Kwame Ahiave, Dr. Oliver Edward Dzogbede
Working capital performance provides critical insight into the state of company’s financial position. As an important indicator of financial fitness, the availability of the company’s working capital is one of the first items a lender will examine on a statement of financial position. The working capital evokes a range of meanings, for the purpose of this study; it is the net liquid assets (current assets minus current liabilities) available to a firm to meet its liquidity needs. The purpose of this project was to assess the effect of working capital management practices on a firm`s performance: the case of El-Shadai Financial Services. Questionnaires were used to collect data from 45 respondents. It was generally found that working capital management practices are not very efficient in the Institution. This can open avenues for fraud and expose the institution to more risks in the future leading to low minimum capital threshold. The problem of poor working capital management resulted to cash flow crisis highlighted by an organization exceeding its agreed overdraft limit, failing to pay suppliers on time, and being unable to claim discounts for prompt payment. The defective credit policy and slack collection period which led to high incidence of bad debts came to light through examination of daily operation books. Statistical tables were used to analyse the data. Analyzing current situation gives direction to what kind of plans have to be put in place to free tied-up capital. The researchers drew the management`s attention to identifying the firm`s investment priorities particularly those that are crucial in sustaining businesses in the long run. The researchers created awareness to management that they should sacrifice to channel a chunk of their funds to finance and achieve these priorities that will enable them to generate extra cash or profits to plough back into other sectors of their industries. We recommended that management should constitute a Working Capital Management Committee that would be responsible for the formulating of policies that facilitate the effective management of working capital in the Organization. The committee must insist on the use of matching working capital policy.