Analysing Debt Management Technique Business Organizations In Nigeria (a Case Study Of Eastern Bottlers Limited Enugu)

ANALYSING DEBT MANAGEMENT TECHNIQUE BUSINESS ORGANIZATIONS IN NIGERIA

(A CASE STUDY OF EASTERN BOTTLERS LIMITED ENUGU)

ABSTRACT

 

Previously debt can be talked of when individual, group of society, economic position suffers inadequately it was the only time measure of organizational or individual economic expansion.

This research work delves into the business meaning of “debt” analyzing its management in a business organization. The fruit of its efficient management in an organization. The researchers did not relent in their efforts to point out where and why the impact of debt is felt mostly in business life. It has found that debt exist throughout the life of a business organization from the initial capital outlay, in the time of further expansion, in daily transactions or with the suppliers

With the close look of the eastern bottlers limited Enugu (makers of limca) the research has employed both primary source involves oral interview, the use of practical or personal observation from sourced documents. Secondary sources on the other hand are data sourced from published textbooks, journal and dailies.

Observation has revealed however, that one can be a debtor as well as a creditor. A god financial manager can source fund by debt invest it and make a profit before the maturity of the debt. To do this, some speculative factors can be considered and handled so that risk and return can be sought for and a fairly equilibrium point.

 

 

 

 

 

 

 

 

 

 

 

 

 

LIST OF TABLE

 

·        The impact of information technology on business administration and management (a case study of Nitel Enugu)

·        A critical study of management labor relations and its effect on workers productivity ( a case study of abia state transport company)

·        Analyzing debt management technique in business organization in Nigeria (a case study of eastern bottlers Ltd Enugu.

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENT

 

Title page

Certification

 Dedication

Acknowledgement

Abstract

Table of content

List of table

 

CHAPTER ONE

INTRODUCTION

1.1            Background of the study

1.2            Statement of the study

1.3            Purpose of the study

1.4            Scope of the study

1.5            Research question

1.6            Research hypothesis

1.7            Significance of the study

1.8            Limitation of the study

1.9            Definition of terms

 

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1            Debt financing in organizational capital structure

2.2            Relation to cost of capital

2.3            Relation to traditional and MM view

2.4            Analyzing debt management in relation to the organization working capital

2.5            Types of debt

           Reference

 

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1            Research design

3.2            Area of the study

3.3            Population of the study

3.4            Sample and sampling procedure / technique

3.5            Instrument for data collection

3.6            Validation of the instrument

3.7            Reliability of the instrument

3.8            Method of data analysis

          Reference

 

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1            Testing of hypothesis

4.2            Summary of result

          Reference

 

CHAPTER FIVE

5.1            Discussion of result / finding

5.2            Conclusion

5.3            Implication of the research funds

5.4            Recommendation

5.5            Suggestion for further research

          Bibliography

 

 

CHAPTER ONE

                                                         

INTRODUCTION

1.1            BACKGROUND OF THE STUDY

In contemporary business setting, debt is seemingly inevitable. Sometimes it emanated from short of fund. Convenience with the prevailing trade terms.

          Debt does not occur only when money is borrowed, it equally occurs where there is exchange of good or services with a deserved payment, each time good or services is exchange without its financial obligation there is incidence of debt, debt also occurs where there is exchange of good or service without immediate payment.

          A good business organizations may not always finance, there 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 forgone, likewise a business firm for one version or the other may not finance through equity share only. The management may wish to source the found through debt, even after the commencement the firm may further need     

Extra/additional funds for expansion or for speculative purpose. Hence, this project work look into the analysis of debt management is a dual perspective

·        In the accumulation of fund, either for the commencement of expansion and

·        In trading relationship (trade debt)

1. At the commencement of a business organization, the owners try to maintain a favorable capital structure, ordinary it is normal for business owners (equity holder) to finance the business but sometimes, the funding of a business goes beyond that, the choice of the capital structure and the funding technique is left at the control of the financial managers

However, he does not over look or neglects the major organizational objective maximization of the owner wealth. Business organization usually strives to achieve a number of objectives. These corporate objective provide a set of criteria upon which financial decision can be base in general terms of business organization seek of achieve their objective by obtaining funds from various sources and investing some reasonably it is important to recognize that the various types of fund raised, each has its own lots, and each and certain risks. For example, loans (secured and unsecured), debentures, preference and ordinary shares. Loans raised on the security organization assets tend to have fairly low rates of interest, although they imply certain risk. Failure to meet the terms of the loan on the due data would empower the tender to confiscate the said asset with potentially catastrophic consequences for the borrower.

In contract, an unsecured loan on which no asset is pledge, though escaped the last cited risk, cost higher. It has higher cost than the former.

          Prefer share on the other hand may have a relatively annual rate, but its payment is binding irrespective of whether profit is made or not

          Ordinary share however, has no fixed change as such its dividend depends on the periodic business profit, yet excessive use of equity share is determine to the organizational control it is not technically handled when equity share is used in marginal funding of a firms, it is only advisable when the returns from the issue are such that share price would increase one would not expert an issue of share to be made with an expectation that share prices will fall, since that would reduce share holder wealth. So it can be said that the minimum return required from a new issue is that which would leave the share price at its present level.

Since it is one of organization objective to maximize the equity holder’s wealth and random used or tantamount to this, the management had no option than to resort to debt financing to complement equity. This is one of the reason by debt funding id almost inevitable in the capital structure on a business organization of today. Then with attendant risk and return relationship, the financial manager always seek for a fair equilibrium to the best interest of the firm a for its survival and for attainment of its set objectives.

 

2                   trade debt

With the exception of most types of retaining commercial sales are usually made on credit.

          This means that cash settlement sometime 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 trading for convinces aid to the buyers and seller. These trading terms called debt can be encouraged for the following reason.

·        The recipient will need to assume himself that the goods are satisfactory prior to payment

·        Additional safeguards will need to be introduced with regards to cash collected

Even when and where it would be reasonable to pay on delivery customer are reluctant to forgo the traditional are reluctant to forgo the traditional credit period. Since they do so it would increase their own financial cost

     The practice of allowing credit has thus come to be widely accepted as normal the use of credit however, has certain cost associated within and the analyzing debt management requires a clear identification. To achieve this however the financial manager and the management had to consider the cost under two categories.

·        Cost of allowing credit

·        Cost of refusing credit

 

1.2            STATEMENT OF THE PROBLEM

Debt has an implication I the life at every business organization. Poorly analysis of debt management affect a firm adversely. It could be recalled that the effective capital structure of a firm emanated from the ability of the financial manager and management to blend debt eighth 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 organizational internal rate of return (IRR)

On sales relationship, the credit term shall be determined with an absolute review of the overall business environment factor. Whole resisting debt for its risks, the good will of the customers shall not be over looked entirely.

This work tends to deal with debt in its relation with a business organization it brings about a number of problem which include among others

·        The cost of capital in financial market is an extra charge to the business organization, such a cost eat deep into the owner fund

·        Secured debts do not only affect the liquidity assets of the firm but dare to assets of the firm

·        Preference share has a fixed periodic charge, which accumulate inconsiderate of whether a profits made or loose suffered this gives a firm an adverse concern especially during an unfavorable business atmosphere

·        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

     This project is not pessimistic to debt at all either does it intend to criticize debt and anything about it rather it delves into the problem and consequences of debt and analyzing its management situation.

 

1.3            PURPOSE OF THE STUDY

The main objective of this study is a follow

·        To determine how debt financing brings about optimal capital structure in an organization

·        To find out how inherent debt management problem could be solved

·        To ascertain how trade debt analysis help measure an effective working capital management in business organization

·        To identify the strategies or techniques in analyzing debt management situation in contemporary business environment in Nigeria

 

 

1.4            SCOPE OF THE STUDY

The scope of the study covered was on analyzing debt management technique in Nigeria business organization with much concerned to eastern bottlers limited. However, for further reference and clarity, emphasis are made from other reasons and these are considered vital such emphasis are profitability, solvency, flexibility, conservation and control of debt in organizations

 

1.5            RESEARCH QUESTIONS

·        How does debt financing bring about an optimal capital structure in a business organization?

·        What effort will be made to reach every latent problem inherent in analyzing debt management in areas or organization capital structure

·        How can decision about debt management help to control financial activities surrounding organization.

·        Will the analysis of trade debt management help measure an effective working capital management in every business organization?

 

1.6            HYPOTHESIS

Ho, effective debt financing does not bring about an optimal capital structure in a business organization

Hi, effective debt financing bring about an optimal capital structure in a business organization

Ho, good analysis of trade debt management is not a good measure of an effective working capital management in a business organization.

Hi, good analysis of trade debt management is a good measure of an effective working capital management in a business organization.

 

1.7            SIGNIFICANCE OF THE STUDY

1.                 This project is carried out significantly in respect of analyzing debt management techniques in business organization.

Ii   this project work is carried out as a channel of business expansion and sourcing fund through financial institutions.

2.                 Academic

This project will be of immense benefit to those who are interested in researching in other area of debt management techniques in business organization in Nigeria. Definitely, the project will service as a very useful material for those in academic

4.           Government: the government is highly interested in making policies that regulate the conduct of any business operation in Nigeria, such as Agricultural bank and community bank are set – up to help individual farmer to source loan.

5.           Monitoring business organization: this is a means of checking and controlling financial activities in the organization.

 

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.

This project is restricted to the business organization. Eastern bottlers limited Enugu (maker of Limca) is a sampled out as a base for the research work.

          There, were problem that militated against the research.

(i)                Inadequate finance: the financial requirement to make the work more thoroughly extensive was not available

(ii)             Time Frame: the time frame within which this project work is expected to be turned in is rather too short when considered again the backdrop of the fact that one hard to combine it with other academic work.

(iii)           Sources of facts: this research his convinced me that so many authors share almost the same view on this topic as such are going to a library having about ten textbook of different author at least you found out that they are singing the something in different tongue.

(iv)           Reluctant to co – operate: the management of the same business organization are two reluctant to disclose the require information and more so when it comes to disclosing or exposing of the organizational books record. The idea equally effected the quality of fact given in the research. Some do pact to suit their firm.

 

1.9            DEFINITIONOF TERMS

i.                   debt money or something owned by or owned to someone a liability or an obligation

ii.                 debtors: one who owes the liability or obliganition

iii.              management : a body of knowledge or process of planning, organizing, directing, co – ordination and controlling man, machine, money and material resources toward achieving a set objective

iv.              credit: trust or confidence in buyer’s ability intention to pay at some future time, exhibited by out rushing him with goods or services without pretend payment.

v.                 Capital structure: debt / equity relationship it is configuration of equity capital and loan capital in the long term financing of an organization

vi.              Equity: this risk bearing, porting of the ling term capital of a business organization

 

 

 

 

 

 

 

REFERENCES

 

Agulou p.s.o (1998)                          financial management Aba model academic publisher Ltd 2^nd edition

Harvey D.A and Mclaney E (1993)  core business studies finance, London. Mike Marde publish Ltd P. 89

James c. van horne (1972)                financial management New Dechi, practice hall publisher p.718

Ibid David R. Anderson (1991)        management sciences Denis J. Sveency and west publishing co. Thomas A. Williams 6^th edition

Richard A. Musgraue (1978              publish finance in theory and practice, west publishing company 6^th edition.

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