Gbenga Segun Akinwande , pp. 81. MAM/Sektionen för Management, 2010.
Title: Working Capital Management in Telecommunication sector: A case study of VGC telecoms
Author: Gbenga Segun Akinwande
Supervisor: Anders Hederstierna
Department: School of Management, Blekinge Institute of Technology
Course: Master’s thesis in business administration, 15 credits (ECTS).
Background and Problem Discussion: The efficient management of working capital is very vital for a business survival. This is premised on the fact having too much working capital signifies inefficiency, whereas too little cash at hand signifies that the survival of business is shaky.
Purpose: The purpose of this research is to study the working capital management in the small and medium scale businesses, using VGC Telecoms Company as a case study, so as to establish factors influencing working capital performance; examine how cash management, inventory management and trade credit management affects working capital management; company effectiveness in converting working capital to ready money; how working capital management impacts on the problem of slow development and to offer recommendations on possible ways of improving working capital management
Method: Literatures bordering on different areas of working capital management were reviewed. Thus, this research employed qualitative and quantitative analysis; and semi- structured questions were drafted based on the issues raised from the review of various literatures. In addition, materials from journal articles, textbooks, working papers and industry practitioners are put into consideration. The use of internet and e-mails to send out questions were explored where appropriate. Analysis on the company’s financial statement was carried out in order to verify my findings.
Theory: In this research, the theory section looks at various concepts that come up when analyzing the consequences of working capital management for company value and the factors that influence a company’s working capital management performance. I have therefore chosen the most common concept for the theory section. I have also tried to create a theoretical understanding for the company’s sensitivity to a workable WCM policy
Analysis: In the analysis of the research findings, I employed qualitative approach to the data analysis whereby the impacts of the poor WCM on the company were discussed in depth.
Conclusion: The findings corroborate the postulation of Weston et al that a company’s investment in working capital is a substantial percentage of its total investment. In case of VGC Telecoms, it is as high as 65 percent. An inefficient and ineffective management of this investment will result in slow pace of development and ultimately to the business failure. The performances of the company in the different spheres of working capital management were scored as follows:-
• Cash management – 65.4 percent
• Inventory management - 78.6 percent
• Trade credit management and financing decisions - 60.0 percent
This is an average performance of 68 percent. That is, the company’s performance is above average. This is a good performance.
The financial statements as interpreted reinforce the validity of this result. The liquidity ratios are high; the collection period is short; and the cash cycle is not quite expansive. This makes it possible to sustain sufficient cash flow for the smooth running of the business.
The management of working capital impacts on liquidity, investment portfolio and profitability. All these three factors are decisive in the growth or failure of a business. Hence, good performances in working capital management affects these decisive factors favourably and thus, contribute to growth and success of the business.