Business Finance

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OBJECTIVE

The study sought to evaluate the effectiveness of cash management policies at Hunyani Flexible Products (HFP) using data from 2000-2010. Other objectives of the study were to identify the key processes and models in cash management; examine the impact of poor cash management on the overall company performance and come up with strategies that can lead to an effective cash management system. The descriptive survey method was used to solicit information from the respondents and a case study approach was used. The research study was confined to respondents at Hunyani. Flexible Products where a sample of forty (30) respondents was drawn. Data was obtained through interviews, administering questionnaires and by observations. From the research findings, it was established that there is a high deficiency of an effective cash management policy although some attributes of an effective management system were present. The study found that there is a positive relationship between the level of cash flow and the profitability of the company. The research concluded that, cash management is a culture that forms part of the strategy of companies and depends more on managers themselves than the characteristics of companies.

INTRODUCTION
Over the past years, Zimbabwean economy had been unstable due to a number of reasons including political instability. This instability worsened between 2007 and 2008 resulting in cash flow problems for most business organizations hence cash management challenges to corporate financial managers. The economic environment was characterized by hyperinflation with prices rising each and every second affecting the time value of money. However, the advent of the year 2009 marked an improvement with the introduction of multi-currency system as inflation was to some extent wiped out. In business, all motives for holding cash which include transaction, precautionary and speculative seemed to be of little importance. It was very difficult for companies to hold cash to satisfy the transactionary motive. Hirt (2002) states that, the transactionary motive is the need to hold cash to satisfy the normal disbursement and collection activities associated with the firm’s ongoing operation. Many companies were having negative cash flows which resulted in difficulties in funding business commitments such as paying suppliers, meeting payroll demands and paying taxes. Holding inadequate amount of cash or cash equivalent interrupted the normal flow of most business activities. There was also failure by most business organisations to satisfy the precautionary motive. Holding cash for precautionary motive, assumes management, needs cash for emergency purposes when the cash flows are less than what is projected (Tobin, 2006). It was difficult for firms to cover for any unexpected needs for cash by acting as a preventive balance. Moreover, due to inaccurate safety margins by many firms, they experienced financial difficulties with organizations failing take advantage of unexpected investment opportunities. It was also difficult for organisations to satisfy the speculative motive. According to Wright (2002) speculative motive is holding cash to take advantage of additional opportunities such as a bargain purchase. Although, the year 2009 showed marked improvement due to the stability of the economy, the researchers noted that, some organisations were still in financial difficulties thus unable to take advantage of investment opportunities. Effective cash management is the fundamental starting point to ensure that the company’s finances are in strong position but this subject is often given insufficient attention. Due to non synchronicity of cash inflows and outflows, the outflows may be more than the inflows and the inflows may be more than the outflows at a particular point in time. This needs regulation because, left to itself, cash flow is apt to follow a monotonic pattern and showers of cash may...
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