The impact of cash management on profitability of small

and medium Enterprises in case of Jimma town

JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT ACCOUNTING AND FINANCE
POSTGRADUATE IN ACCOUNTING AND FINANCE

A THESIS SUBMITTED TO THE SHOOL OF GRADUATE STUDIES OF

JIMMA UNIVERSITY IN PARTIAL FULFILMENT OF THE REQUIREMENTS
FOR AWARD OF THE DEGREE OF MASTERS OF SCIENCE IN
ACCOUNTING AND FINANCE
By

DABALA ABDANE MARDASA

UNDER GUIDANCE OF

MAIN ADVISOR: MOHAMMED S. (ASSISTANT PROFESSOR)

CO-ADVISOR: ABEBE SH (MSC.)

Aug 2022
JIMMA ETHIOPIA

i
 DECLARATION
I hereby declare that this thesis entitled “The impact of cash management on
profitability of small and medium Enterprises in case of Jimma town: A Study on
Jimma town, Oromia Regional State”, has been Carried out by me under the
guidance and supervision of Mr Mohammed S. and Mr Abebe Shantama.

The thesis is original and has not been submitted for the award of a degree or diploma in any
university or institution.

Researcher’s Name Date Signature

Dabala Abdane ____________________ ___________________

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 CERTIFICATE

This is to certify that the thesis entitled “The impact of cash management on profitability of
small and medium Enterprises in case of Jimma town: A Study on Jimma town, Oromia
Regional State”, Submitted to Jimma University for the Award of the Degree of Masters of
Science (MSc) Degree in Accounting and Finance and is a record of Valuable research work
carried out by Mr. Dabala Abdane, under our guidance and supervision

Therefore, we hereby declare that no part of this thesis has been submitted to any other
university or institution for the award of any degree or diploma.

Main Adviser’s Name Date signature

Mohammed S. (Ass.Pro.) ________________ _____________

Co-Advisor’s Name

Abebe Shantama ________________ _____________

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 Abstract

The main objective of this study was to assess the impact of cash management on the
profitability of small and medium enterprises of Jimma town. To achieve the intended
objective of this study descriptive survey research method was used with quantitative data
collecting approach through questionnaire. Primary quantitative data were collected from
250 small and medium enterprises members through questionnaire. The collected
quantitative data were analysed in percentage, mean and standard deviation. Inferential
statistics, Pearson correlation was used to analyse the relation between the independent
variable (cash management system) and dependent variable (profitability). Based on the
analysis made of the study, conclusions were made and the findings of the study were
identified. The findings of the study were: the control over the cash, collection of cash, the
time that has been planned for collection and payment and the budgetary system in
controlling over the cash were factors that was influence the profitability of SMEs members,
the cash management systems of the small and medium enterprise influence the profitability
since the result of the Pearson correlation indicated the positive relation between the cash
management of SMEs members and profitability. As the cash management system has been
well handled there is the increase in the profitability as indicated in the result of the analysis.
the result of the value of Karl Pearson’s correlation coefficients is 0.264 which implies that
there is a positive relationship between profitability of SMEs and cash management of SMEs
members. The p-value (0.000) which is statistically significant implies that the p-value also
support the existence of relationship between profitability of SMEs and cash management of
SMEs members at Jimma town. This finding that the absences of cash management system
can affect the profitability of the SMES members of Jimma town since there is evidence of a
correlation between cash management and profitability was positive. From coefficients
analysis table, the results indicate that there is a linear relationship between SMEs
profitability and cash management system. However, taking the independent variable at zero,
then a unit increase in cash management will lead to 0.033 increases in profitability. Based
on the findings recommendations were given. The factors that impact the cash management
which lead to the decrease in profitability should be identified and solutions should be given.
The level of cash management system of the SMEs members should be increased to increase
the level of the profitability their enterprises

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 Acknowledgements

I would like to express my sincere gratitude and appreciation to my main advisor Mr.
Mohamed S. and my Co-advisor Mr. Abebe Shantama who guide, assist and support me
during the process of the entire thesis. Their wide knowledge, valuable comments, and
constructive feedback given have been of great value to me. Their understanding,
encouragement, and patience have provided a good basis for the present thesis.

I also appreciate all the respondents who spend their precious time and patience in helping
me to fill up the questionnaire. It would be impossible to complete my thesis without their
honest contribution. Therefore, I truly appreciated the efforts of my respondents who kindly
and patiently provided me with useful information.

I would like to extend my acknowledgement to sample respondents of small and medium

enterprises owners since they provide me their valuable responses for this study and to my
families and those who helped me during my study in the university in one another.

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 Table of contents
Content

s
DECLARATION....................................................................................................................................i
CERTIFICATE......................................................................................................................................ii
Abstract................................................................................................................................................iii
Acknowledgements...............................................................................................................................iv
Table of contents...................................................................................................................................v
Chapter: One.........................................................................................................................................1
Introduction...........................................................................................................................................1
1.1. Background of the Study..........................................................................................................1
1.2. Statement of the Problem.........................................................................................................4
Basic research questions..................................................................................................................5
1.3. Objectives of the Study.............................................................................................................5
1.3.1. General Objective..................................................................................................................5
1.3.2. Specific Objectives.................................................................................................................6
1.4. Significance of the Study..........................................................................................................6
1.5. Scope of the study.....................................................................................................................6
1.6. Limitation of the Study.............................................................................................................6
1.7. Organizations of the Study.......................................................................................................7
Chapter: Two...............................................................................................................................7
2. Literature Review........................................................................................................................7
2.1. Definitions of SMEs in Ethiopia.......................................................................................................9
2.2. Importance of Cash Management...........................................................................................9
2.3. Definition of cash management...............................................................................................10
2.4. Cash management practices................................................................................................12
2.5.Importance of holding cash.................................................................................................13
2.6.Motives for holding cash.....................................................................................................13
a. Transaction motive:...........................................................................................................13
b. Precautionary motive:........................................................................................................14
c. Speculative motive:.................................................................................................................14

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 2.7.Cash management techniques.............................................................................................15
a. Cash planning.....................................................................................................................15
b. Cash collection....................................................................................................................16
c. Managing surplus and deficit cash balance......................................................................16
d. Cash outflows management...............................................................................................16
e. Handling creditors.............................................................................................................17
f. Cash budget........................................................................................................................17
2.7.1.Cash control ……………………………………………………………………………………………………………..18
2.7.2.Concept of profitability....................................................................................................18
2.8.Relationship between cash management and profitability...............................................19
2.10: Monetary theoretic approach to cash management.......................................................22
2.10.1.Operations research approach to cash management....................................................23
2.10.2.Financial theoretic approach to cash management......................................................23
2.11. Conceptual framework of cash management........................................................................23
2.12.Measurement of profitability............................................................................................24
CHAPTER THREE.......................................................................................................................26
3.1. RESEARCH DESIGN AND METHODOLOGY.................................................................26
3.2. Research Design......................................................................................................................26
3.3. Sources of Data.......................................................................................................................27
3.4.1. Population and sampling technique...................................................................................27
3.5. Instruments of Data collection...............................................................................................27
3.5.1. Questionnaire.......................................................................................................................27
3.6. Pilot testing of the instrument................................................................................................28
3.7. Methods of Data Analysis.......................................................................................................28
3.8. Ethical Considerations...........................................................................................................29
Chapter Four........................................................................................................................................30
RESULTS AND DISCUSSION..........................................................................................................30
4.1 Introduction...................................................................................................................................30
4.2. Demographic characteristics of respondents...............................................................................30
4.3. Profitability of small and medium enterprises..............................................................................32
4.4. Cash management system............................................................................................................33
4.5 Results of Inferential Statistics.......................................................................................................37
4.5.1. Karl Pearson’s Correlation Coefficient (r)...................................................................................37
Anova..................................................................................................................................................38
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Chapter Five........................................................................................................................................41
5. Conclusions and Recommendations................................................................................................41
5.1, Conclusion....................................................................................................................................41
5.2. Recommendation..........................................................................................................................42
REFERENCES........................................................................................................................................43
Appendix.............................................................................................................................................45
Questionnaire......................................................................................................................................45
Part one: Personal information............................................................................................................45

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 Chapter: One
Introduction
This chapter presented the closely related works of scholars and researchers that will give
information about the research topic of the study to give some points that will give
directions for the researcher. The chapter will begin with the background of the study that
will be followed by the statement of problems, objectives of the study,
significance of the study and finally scope, limitation, and organization of the paper.

1.1. Background of the Study

Small businesses are vital for employment and job creation in Ethiopia. Cash management is
an overriding consideration in understanding small businesses. Too often, businesses fail
before they have a chance to succeed because they run out of cash. Research statistical
analysis indicates that the most crucial cause of business failure is due to the lack of
planning. The second leading cause next to poor planning is the lack of cash management
practices (McMahon 2006:15). William and Longenecker (2010:11) emphasised that small
businesses are under the misconception that high revenues result in high profits, but fail to
realise that if the physical cash isn’t obtained from those revenues, businesses will have
insufficient cash to pay off expenses and will ultimately face liquidity problems.

A large number of businesses fail due to the absence of cash rather than the absence of
profits (Patel 2010). Patel (2010) also indicated that cash management practices are vitally
important for the business because it would assist in profitability, future planning and
sustainability. The practice of basic concepts of cash management will assist businesses plan
for the unforeseen eventualities that almost all businesses encounter.

The lack of support in terms of cash management knowledge and services for small
businesses forms part of the motivation for the study. A further motivation for this study is
that, to date, no previous research on this topic was found for the region concerned, i.e.,
jimma town.
This study will investigate the impact of cash management practices on the profitability of
small enterprises in jimma town. It will look at the underlying reasons why small businesses
are not managing their cash inflow and outflow. A possible resolution would be to provide
cash management assistance to these small retail businesses. This would be done to enhance
their cash management knowledge of their small business members so that these businesses
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could be more efficient in managing their cash and decision making which will enhance their
profitability and sustainability.

Cash is ready money in the bank or in the business. The flow of cash in and out of a business
over a period of time must be watched, controlled and managed. Cash is the vital component
of the working capital because it keeps a business running. It is the hub around all financial
matters centre. Thus, management of cash is crucial for the success of an enterprise. The
adequacy of cash and other current assets, together with their efficient handling, virtually
determines the survival or extinction of business concern.

It is the basic input needed to keep the business running on a continuous basis. (Abu,2005).
Cash is the basic input required to keep the business running on a continuous basis and it is
also the ultimate output expected to be realized by selling the services or products
manufactured by the firm (Pandey, 2010).Cash management is imperative in every business
organization as cash is said to be the life blood of any business (Chartered Institute of
Management Accountant, CIMA, 2002).

The essence of cash management is to ensure positive cash flow for smooth business
operational performance. Precisely, cash and marketable securities are the two components of
cash management which financial manager must maintain at low cost as possible. It forms an
integral part of working capital management. Hence, it is considered as part of the scope of a
good working capital management in modern businesses (Brealey and Myers, 2003). It is the
process of ensuring that businesses have good cash balances to ensure that they continue to
stay in business. The effective cash management can do much to ensure the success of a
business while the inefficient management can lead not only to the loss of profit but also to
the ultimate downfall of what otherwise might be a promising concern. In a nutshell, the aim
of cash management should be to maintain adequate cash position to keep the company
sufficiently liquid and to use the excess cash in some profitable ways.

Furthermore, the process of managing corporate cash has become a major challenge for most
Manufacturing SMEs, because of its significant impact on the results of a Operational
performance of Micro and Small –scale Enterprises (Attom, 2012).

The determination of problems in cash management involves identifying areas that are unique
to solving cash problems in an organization. One of the problems faced by finance managers
in managing cash is determination of appropriate source of fund for the company either to be

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used as the initial or working capital. Other challenges are identification of right investment
opportunity for idle funds, non-cash planning, and determination ofthe optimal level of cash
to be maintained by the company. More so, working capital management hasbeen cited as a
major problem for Manufacturing SMEs (Tauringana&Afrifa, 2013), few studies have been
carried out on cash management practices.

Evidence from literature showed that Effective cash management can Improve Operational
performance and ensure success of a business (Abioro, 2013; Bragg, 2004; Iggbinnosun,
2002). Howbeit, there is a dearth of literature regarding Cash Management impact on
performance of food
and beverages manufacturing in Nigeria. The question of whether cash management
influence or worsens performance in a business organisation is still worthy of further research
such as the one being undertaken in this study.

Studies reveal that Cash management is the key aspects of efficient working capital
management which involves planning and controlling cash flows into and out of the business.
It concerned with optimizing the amount of cash available, maximizing the interest earned by
spare funds not required immediately and reducing losses caused by delays in the
transmission of funds. Holding cash to meet short term- needs incurs an opportunity cost
equal to the return which could have been earned if the cash had been invested or put to
productive use. However, reducing this opportunity cost by operating with small cash
balances will increase the risk of being unable to meet debts as they fall due, suboptimum
cash balance should be found. (Wetson and Copeland, 2008).

Efficient cash management involves the determination of the optimal cash to hold by
considering the trade-off between the opportunity cost of holding too much cash and the
trading cost of holding too little (Ross et al., 2011) and as stressed by Atrill (2003), there is
the need for careful planning and monitoring of cash flows over time so as to determine the
optimal cash to hold. Abel (2008) argues that cash is crucial in every business in terms of
enhancing its survival and prosperity. Marfo-Yiadom(2002) also noted that cash is the hub
and most coveted of all the assets of any business. Good cash management can have a major
impact on working capital management of a business and overall performance of business.
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a business’s level of liquidity, its management of cash

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balance, and its short-term investment strategies (Cardaralla: toni, 2010).Strong cash
management through proper cash planning will create growth of small scale businesses.

Cash planning helps in forecasting cash inflows and out flows and thus management will
store only adequate cash needed to meet obligations. (Azmat; Samaratunge, 2009). Proper
cash management through investment of surplus cash, enhances growth of businesses as the
firm will benefit profits from invested cash and cash at hand will help to meet current
obligations (Brinchk; Hans;Gemuenden, 2011).efficient cash management means more than
just preventing bankruptcy. Itimproves the profitability and reduces the risk to which the firm
is exposed (Davidson: Charles,2008). Cash management is particularly important for new and
growing businesses, most especially manufacturing process and beverages firms.

1.2. Statement of the Problem

Small businesses are vital for economic development and employment generation.
The implementation of sound cash management practices is essential to ensure the
profitability. In any economy, small micro enterprises are playing a vital role.
However, a variety of criteria, including effective cash management skills, are critical
to their success. It's the difference between what things should be and way they are.
These small and micro enterprises cannot serve as a platform for growth and
development if they are not profitable and sustainable.

One possible reason for this occurrence is that small business memberslack the
necessary skills and instruments to increase profitability and sustainability.

Another possible reason is that they are unable to spot problem areas within their
businesses. Lack of inadequate account preparation, and bad cash management
procedures are common issues for small and micro enterprises (Naidu & Chand, 2011;
Lobel, 2013; Tagoe, Nyarko, & Anuwa-Amarh, 2005). To stay solvent, every small
and micro enterprise relies on cash management.

According to the discovered gap, small and micro enterprises membersare not using
basic financial management practices in their firms. Due to a lack of information and
competencies required to perform the assignment, this strategy is rarely used in
business. As a result, the study's goal is to determine which cash management
strategies are used by small firms and which practices are difficult for small enterprises
membersto implement. Furthermore, the research looks into whether failing to follow

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cash management procedures has an impact on a SMe’s profitability and long-term
viability.

Unvi (2014) also investigated the major causes for their failure. 46% indicated that
the major cause was business members in competence. The specific pitfalls were poor
collection and control of debtors’ payments, no knowledge of pricing, lack of planning
and budgeting, no knowledge of financing and no experience in record keeping.
The gap identified was that small business members are not performing the basic cash
management practices in their businesses. This practice is omitted in business largely due a
lack of knowledge and skills to perform the task.

Therefore, the purpose of the study is to investigate which cash management practices
are being performed by small businesses, and which practices are

Challenging for small businesses members to perform. Moreover, the study

investigates if the failure to implement cash management practices impacts on the
business profitability and sustainability.
Conducting continuous study is very important since the small and medium enterprises are
the sources of employment and sources of business that have been engaging the small and
medium members in the business activities that can be the sources of revenue for the country.
To this end the following basic research questions were designed as follows.

Basic research questions

1. What are the cash management related factors that affect profitability of the small and
medium enterprises?

2. How do the cash management systems of the small and medium enterprise influence the
profitability?

2. To what extent the cash management system of the small and medium enterprise have
influenced the profitability of small and medium enterprises?

1.3. Objectives of the Study

1.3.1. General Objective

The main objective of the study was to assess the impact of cash management on profitability
of small and medium enterprises in the case of Jimma town.

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1.3.2. Specific Objectives

Specific objectives of the study were:

 To identify the cash management related factors that affect profitability of the small
and medium enterprises.
 To assess how the cash management systems of the small and medium enterprise
influence the profitability.
 To investigate the extent at which the cash management system of the small and
medium enterprise have influenced the profitability of small and medium enterprises.

1.4. Significance of the Study

The result of this study is important for the small and medium enterprises, micro and
enterprises offices as well as for the expertise of small and medium enterprises to get
information about the impact of cash management on the profitability small and medium
enterprises in the case of Jimma town. On the basis of the information that has been obtained
from the result of this study they will jointly plan to improve the cash management of small
and medium enterprises in Jimma town. Additionally, the result of this study will be used
as the sources of information for the future researchers those who will be interested to
conduct research on this area.

1.5. Scope of the study

The main objective of study was assessing the impact of cash management on the
profitability of small and medium enterprises. The study was conducted in the selected small
and medium enterprises membersof Jimma town. The conceptual delimitation of this study
was assessing the impact of cash management on the profitability of small and medium
enterprises. The variables that were under focus in this study was delimited to cash
management components.

1.6. Limitation of the Study

Time constraint was considered as the limitation of this study since the study was conducted
side by side with regular work. The other limitation that was considered as the limitation of
study was the reluctance of sample respondents to give their responses. Additionally, the
absence of available local literatures was also considered as the limitation of the study.
However, the researcher planned his time properly to conduct the study. The researcher
6
convinced the respondents through addressing the objective of the study and its significance
for the improvement of the cash management system small and medium enterprises members.

1.7. Organizations of the Study

This study was organized in to five chapters. The first chapter dealt with introduction part
focusing on presenting, background of the study, statement of the problem, and objectivities
of the study, significance of the study and scope and limitation of the study. The second
chapter presented the closely related literature review to the topic of this study. In the third
part of this study, under research methodology of this study, research design, data source and
method of collection, population and sample design and method of data analysis were
presented. In the fourth part of this study, the collected data were analysed and presented in
tables. In the last part of this study,findings, conclusions and recommendations were
presented under chapter five of this study.

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Chapter: Two

2. Literature Review

According to (Davidson et al, 1999), cash is any medium of exchange, which is immediately
negotiable. It must be free of restriction for any business purpose. Cash has to meet the prime
requirements of general acceptability and availability for instant use in purchasing and
payment of debt. Acceptability to a bank for deposit is a common test applied to cash items.
This is a process of Planning, controlling, and accounting for cash transactions and cash
balances. It is channelling available cash into expenditures that enhance productivity, directly
or indirectly.

Small and Medium sized enterprises (SMEs) have usually been perceived as the dynamic
force for sustained economic growth and job creation in developing countries. They play
multifaceted role such as boosting competition, innovation, as well as development of human
capital and creation of a financial system. With increased urban population dynamics of Sub-
Saharan Africa (SSA), the importance of SMEs is also growing. In SSA, given the rapid
rural-urban migration and deficiency to absorb this migration, SMEs have become important
urban economic activities particularly in providing urban employment.

In similar fashion, in cities and towns of Ethiopia, SMEs and the informal sector are the
predominant income generating activities and thus they have a significant contribution to
local economic development and used as the basic means of survival (Gebre-egiziabher and
Demeke, 2004). The SME sector in Ethiopia is taken as an instrument in bringing about
economic transition by effectively using the skill and talent of the people particularly women
and youth without demanding high-level training, much capital and sophisticated technology.

The Small and Medium Enterprises informal and Small Manufacturing Enterprise sector
(SMEs) contributed value added of Birr 8.3 million in 1996. Based on the 1992/93 data, this
figure constitutes about 3.4% of the GDP, 33% of the industrial sector’s contribution and
52% of the manufacturing sector’s contribution to the GDP of the same year (Gebrehiwot,
2006). The development of the sector in Ethiopia is believed to be the major source of
employment and income generation for a wider group of the society in general and urban
youth in particular.

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The five-year Growth and Transformation Plan (GTP) of Ethiopia envisages to create a total
of three million micro and small scale enterprises at the end of the plan period (NBE, 2011).
Citing the source from the Federal Micro and Small Enterprise Development Agency
(FMESDA), the EEA Research Brief noted that a total of seventy thousand five hundred
(70500) new MSEs were established in 2011/12 employing eight hundred six thousand three
hundred (806300) people across the country. The performance is below the target set in GTP
(EEA, 2015). The financing of small and medium enterprises (SMEs) has been a topic of
keen interest in recent years because of the key role that SMEs play in economic
development and their potentially important contribution to economic diversification and
employment (Ayyagari et al., 2007 cited in Berg and Fuchs, 2013). Numerous studies have
discussed that SMEs are financially more constrained than larger firms in both developed and
developing countries.

In developing economies including Sub-Saharan Africa, SMEs are typically more

creditconstrained than large firms, severely affecting their possibilities to grow (Beck et al,
2005; Beck and Demirguc-Kunt, 2006; Beck et al, 2006; Ayyagari et al, 2008; Beck et al,
2008; Ayyagari et al, 2012). Calomiris and Hubbard (1990) noted that when the company is
smaller, the restrictions on credit are greater. Furthermore, according to Beck et al. (2006)
cited in ElSaid et al. (2013), small firms consistently report more financing obstacles than
medium and large enterprises. Smaller, younger and domestic—as opposed to foreign-owned
—enterprises report more financing obstacles even after controlling for other firm
characteristics. The probability that a small firm lists financing as a major obstacle (as
opposed to moderate, minor or no obstacle) is 39% compared to 36% for medium-sized firms
and 32% for large firms.

2.1. Definitions of SMEs in Ethiopia

According to the new Micro &Small Enterprises Development Strategy of Ethiopia (Fe
MSEDA,2011) the working definition of MSEs is based on capital and Labor. demonstrates
the definition of micro and small enterprise in Ethiopia. Definition of Micro and Small
Enterprise (MSEs) Ethiopia Enterprise level Sector Hired labor Capital Micro enterprise
Industry < 5 < 100000($6000 or £4500) Service < 5 < 50,000($3000 or £2200) Small
enterprise Industry 6-30 < birr 1.5 million ($9000 or £70000) Service 6-30 < birr
500,000($30000 or £ 23000)

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2.2. Importance of Cash Management

Studies reveal that Cash management is concerned with managing cash flows (within the
firm, in and out of the firm) and cash balances (by financing deficit or investing surplus
cash). The surplus cash has to be invested while deficit has to be borrowed. This shows that
cash management task is vehemently important for any financial manager. Firstly, cash
management seeks to accomplish cash cycle at a minimum cost. Secondly, it seeks to
maintain adequate control over cash position to keep the firm sufficiently liquid and to use
excess cash in some profitable way. This is as a result of its unproductive nature unlike fixed
assets or inventories; it does not produce goods for sales. Therefore, cash management
assumes more importance than other current assets because cash is the most significant and
the least productive asset that a firm holds. Thirdly, the management of cash if also important
because it is difficult to predict cash flows accurately, particularly the inflows, and there isno
perfect coincidence between the inflows and outflows of cash. Cash management as the basic
tool of running a business and cash forecast as the working tool of cash management.
(Chandra, 2008;Tuller, 2008; Pandy, 2010; Mauchi, 2011).

Furthermore, cash management has helped to develop some techniques to manage cash
affairs in such a way as to keep cash balance at a minimum level, anticipate the future cash
flows, need of the firm, reduce the possibility of idle cash balances and cash deficits. (Pandy,
2005).

2.3. Definition of cash management

cash management refers to the management of an entity’s cash to ensure sufficient cash to
sustain the entity’s daily operations, finance continued growth and provide for unexpected
payments while not unduly forfeiting profit owing to excess cash holdings (bartlett et al.
2014:850).according to pandey (2004), as cited by akinyomi (2014:32), cash management is
defined as a practice of the ability of controlling the cash inflows and outflows in a business.
it also entails the ability to establish the cash balances that are held in a business at all times.
uwuigbe, uwalomwa and egbide (2011:49) indicated that cash management entails taking the
needed precautionary measures to ensure that adequate cash levels are maintained in the
business so that the operational requirements could be met. .8According to aliet (2012), cash
management is the management of cash to maximise the cash held in the business that is
not invested in buying inventory or fixed assets. it essentially is the management of cash to
avoid the risk of the business becoming insolvent. this study added that cash
10
management is a rather broad term that refers to the collection, management of cash as well
as the payment of cash from the business.
From these definitions, it is evident that cash management is the ability of controlling the
cash in the business by reducing the cash outflows and maximising the cash inflows.
consequently, the business will have sufficient cash available to meet operational
requirements and avoid the risk of becoming liquidated. cash management is the ability to
identify and implement precautionary measures to ensure that sufficient cash balances are
maintained in the business.
According to (Davidson et al, 1999), cash is any medium of exchange, which is immediately
negotiable. It must be free of restriction for any business purpose. Cash has to meet the prime
requirements of general acceptability and availability for instant use in purchasing and
payment of debt. Acceptability to a bank for deposit is a common test applied to cash items.
This is a process of Planning, controlling, and accounting for cash transactions and cash
balances. It is channeling available cash into expenditures that enhance productivity, directly
or indirectly.

According to the free cash flow theory of cash management (Huseyin, 1991), the

management has the responsibility of holding cash to gain control over it in making
investment decisions which can affect a business entity. Therefore, this will improve the
financial performance of the business entities.

In addition, Cash is ready money in the bank or in the business. It is not inventory, it is not
accounts receivable (what you are owed), and it is not property. These might be converted to
cash at some point in time, but it takes cash on hand or in the bank to pay suppliers, to pay
the rent, and to meet the payroll. Profit growth does not necessarily mean more cash.
(Davidson et al, 1999)

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis: it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm. The firm
should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s
manufacturing operations while excessive cash will simply remain idle. Without contributing
anything towards the tint’s profitability. Thus, a major function of the financial manager is to
maintain a Sound cash position. (Pandey, 2007)

11
Cash is the money which a firm can disburse immediately without any restriction. The term
cash includes coins, currency and cheques held by the firm, and balances in its bank accounts.
Sometimes near-cash items, such as marketable securities or bank times deposits, are9 also
included in cash. The basic characteristic of near-cash assets is that they can readily be
converted into cash. Generally, when a firm has excess cash, it invests it in marketable
securities. This kind of investment contributes some profit to the firm. (Hampton, 2001)

Cash management concepts Waltson and Head (2007) explained Cash management as the
concept which is concerned with optimizing the amount of cash available, maximizing the
interest earned by spare funds not required immediately and reducing losses caused by delays
in the transmission of funds.

According to Zimmerer et al (2008) cash management is the process of forecasting,

collecting, disbursing, investing, and planning for cash a company needs to operate smoothly.
They further added that cash management is a vital task because it is the most important yet
least productive asset that a small business owns. A business must have enough cash to meet
its obligations or it will be declared bankrupt. Creditors, employees and lenders expect to be
paid on time and cash is the required medium of exchange.

However, some firm retain an excessive amount of cash to meet any unexpected
circumstances that might arise. These dormant cash have an income-earning potential that
members are ignoring and this restricts a firm’s growth and lowers its profitability. Investing
cash, even for a short time, can add to company’s earning. Proper cash management permits
the members to adequately meet cash demands of the business, avoid retaining unnecessarily
large cash balances and stretch the profit generating power of each dollar the business owns
(Zimmerer et al, 2008).

Cash management is particularly important for new and growing businesses. (Jeffrey P.
Davidson et al, 1992) indicated in their book that cash flow can be a problem even when a
small business has numerous clients, offers a superior product to its customers, and enjoys a
sterling reputation in its industry.

Companies suffering from cash flow problems have no margin of safety in case of
unanticipated expenses. They also may experience trouble in finding the funds for innovation
or expansion. Finally, poor cash flow makes it difficult to hire and retain good employees.

12
Westerfield et al, 1999 noted that it is important to distinguish between true cash
management and a more general subject of liquidity management. The distinction is a source
of confusion because the word cash is used in practice in two different ways.

First, it has its literal meanings, actual cash on hand. However, financial managers frequently
use the word to describe a firm’s holdings of cash along with its marketable securities, and
marketable securities are sometimes called cash equivalents or near cash. In our distinction
between liquidity management and cash management is straightforward, they added.

2.4. Cash management practices

The control and structure of something might be regarded as management. cash management
is the process of ensuring that an entity's cash is sufficient to support daily operations, finance
future growth, and cover unforeseen expenses (bartlett et al. 2014:850). cash management is
the process of managing a company's cash balances in order to maximize the availability of
cash that isn't invested in fixed assets or inventory while avoiding insolvency. uwuigbe,
uwalomwa and egbide (2011) indicated that cash management entails taking the needed
precautionary measures to ensure that adequate cash levels are maintained in the business
so that the operational requirements could be met. according to aliet (2012), cash
management is the management of cash to maximize the cash held in the business that is
not invested in buying inventory or fixed assets.

2.5. Importance of holding cash.

bobitan and mioc (2011) emphasized the importance of cash management practices by saying
that cash management embodies all incomes and payments made within a certain period,
highlighting potential inconsistencies which can appear for that period. all activities of any
business are expressed in numbers because numbers are the language of business.. the
ability to understand the value of these numbers will ultimately indicate the ability to
understand the business. consequently, mcmahon (2006:137) stated that "when you are out of
cash, you are out of business".
according to alfred (2007), as cited by akinyomi(2014), the importance of managing cash in a
business comprises of the following advantages:
Managing cash helps in achieving liquidity in a business and proper control;

It assists in the planning towards reducing cash expenses and increasing cash receipts to
ensure the business is liquid;
Proper managed cash is vital as the future cash flow behaviour cannot be predicted, therefore,
13
it’s essential to plan; and
Through proper controls of cash, procedure could be implemented to cater for innovations for
cash receipts and cash payments in the business.bobitan and mioc (2011: 302) emphasized
the importance of cash management practices by saying that cash management embodies all
incomes and payments made within a certain period, highlighting potential inconsistencies
which can appear for that period. good cash management is necessary because too much
cash is costly, as one is paying interest on cash that is not needed. too little cash is also
costly, because businesses are missing out on discounts or opportunities because of a lack of
cash or silently liquidating the business by not promptly replacing inventory due to
shortage of cash (mcmahon 2006).

2.6. Motives for holding cash

Cash management is the management of the cash balances of a concern in such a manner as
to maximize the availability of cash not invested in fixed assets or inventories and to avoid
the risk of insolvency. according to keynes there are three motives for holding cash: the
transactions motive, the precautionary motive, and the speculative motive.

a. Transaction motive:

This necessitates that the company keep cash on hand in order to carry out its daily
operations. The requirement to keep cash for this purpose stems from the fact that cash
receipts and payments are not perfectly timed. recognizing that the company must conduct
daily transactions in order to safeguard its profitability, cash is required to pay for labor,
materials, and utilities to ensure that operations run smoothly (kakuru 2001).. pandey
(2002) asserted that corporate firms hold cash for transactional motive; these firms need
cash to make payments like purchase, wages and other operating expenses like taxes and
dividends. he explained that the need to hold cash would not rise if there was perfect
synchronization between cash payments and cash receipts. he further noted that the
transactions motive mainly refers to holding cash to meet anticipated payments whose
timing is not perfectly matched with cash receipts.

b. Precautionary motive:

this entails keeping cash on hand in the firm to cover unpredictable future events such as
the failure of an emergency workforce, a power outage, and other issues that have a
detrimental impact on the organization's revenue. therefore, the availability of cash resource
mitigates their effects and keeps the organization profits in balance (mantilla et al 1999).
according to keynes, the precautionary-motive pays regard to a company’s need to provide

14
for unsuspected expenses and unforeseen opportunities of advantageous purchases. the
strength of the precautionary-motive is determined by the risk of a sudden contingency and
the probability of a profitable acquisition. thus, if a firm operates in a highly volatile sector
of activity, its precautionary cash holding will be higher than that of firms which act in a
less risky environment. according to the precautionary motive, the cash holdings of
financially constrained firms should increase when cash flows are higher. in other words,
financially constrained firms should have a positive cash flow sensitivity of cash.

c. Speculative motive:

This involves holding cash for investment purposes. Speculators invest in near cash assets.
The organization maintains cash balances in order to take advantage of any profitability
venture that may unexpectedly crop up like a sudden fall in price of scholastic materials.
once, the organizations cash is stripped, it will not be able to take on such advantages and
additional incomes and savings from such events will be lost ( puxty and dodds
1999).smith (2000), identified that cash management is concerned with management of
both cash inflows and cash outflows and that inside the firm, the cash balance held by
the firm at point of time by financing deficit or investing surplus cash. more so nickson
(2001) stated that cash management is very important in corporate firms.

This is because it is through cash inflows in form of revenues that expenses incurred in
financial period are settled. so these firms to meet such operating expenses like rent,
electricity, salaries and wages should keep some cash at hand. cash management practices
are the most crucial task for business managers. the business becomes insolvent when it
fails to pay back the money owed time previously, which is the primary reason for
bankruptcy among small businesses. the prospect of such an implication should force
businesses to efficiently manage their cash with precaution. proper cash management
prevents bankruptcy thereby increasing profitability and sustainability of businesses
(mbroh 2012:40). proper and efficient cash management is imperative to recently
established and growing of small businesses.

2.7. Cash management techniques

15
 According to pandey (2010), good cash management is essential because cash is the
most crucial current asset for business operations. the company should have enough
cash on hand, but not too much. cash shortages will interrupt business operations, while
surplus cash will sit idle, contributing little to the bottom line. as part of cash
management, he advised the following:

a. Cash planning

cash management can be done on a daily, weekly, or monthly basis. the frequency
period is determined by the size of the company. cash planning, according to pandey
(2003), is a technique for planning and controlling the usage of cash. it entails the
creation of cash collections and payments predictions in order to provide an estimate of
future financial requirements. as a result, the business's management must define the
monthly disbursement plans and creditor collection timetables. the financial needs of
the business will be fulfilled with an efficient cash planning system, which reduces the
likelihood of cash balances, which lowers business profitability, and cash deficits,
which can lead to business failure. he further notes that a cash budget is the most
significant device used to plan for and control cash receipts and payments.

a cash budget is a summary statement of the firm projected time period. this information
helps the financial manager to determine the future cash needs of the firm without
proper cash flow management techniques you could find yourself running short of cash
just when you need it the most. that could leave you unable to pay suppliers, develop
the marketing plan you need or even pay your employees. fortunately there are a
number of techniques companies can use to maximize cash flow management and keep
the business running smoothly.

b. Cash collection

A manager can conserve cash and reduce its requirements for cash balances if it can
speed up its cash collections. a number of methods are designed to speed up the
collection process and they include the following;reducing the period it takes for
payment from customers and reducing the collection float; according to pandey (2003),
the collection float is the total time it takes a cheque to reach the business, from the time
it is put in the mail by the customer to when cash is actually available for use.

16
c. Managing surplus and deficit cash balance.

The purpose of managing cash balance is to avoid having idle cash reserves or having
deficits that cannot be invested preferably in short term ventures like treasury bills and
other forms of commercial paper (van holme 1995). since investments are near cash, the
liquidity of the organization is not comprised by the investment plan while profitability
is also enhanced. the investment selected for this purpose should meet the following
criteria.there should be safe in that search for profitability does not increase the risks of
liquidity.

the instruments should have a low default risk so that interest and principle
repayment will be realized (kakuru 2001). investments can easily and quickly be
converted into cash with minimum possibility of a loss and in case of deficits,
arrangements for financing should be in advance to avoid hurried solutions which rob
the business of the opportunity to strike a fair deal and hence acquiring the resources
at costs higher than those of the decisions that were taken in a relaxed atmosphere
(pandey 2003).

d. Cash outflows management

Generally different scholars argue that cash disbursements should be delayed as much
as possible without hurting corporate image of the organization or defaulting on the
obligations of the organization. the principle is that cash should be paid only at moment
when delay is no longer necessary and possible and non-beneficial (kakuru 2001, van
horme 1995, pandey 2003). the way of delaying disbursements that were generally
agreed upon by above scholars include;predicting banking habits of the work force
and paying out the wage bill accordingly. wages should not be paid in advance
when workers are willing to accept delayed payments. during this period the business
will be able to make profits out of that money. in the same payments should be cheque
as the bank clearance will always delay for some days.Maximizing the disbursement
float through selecting geographical disbursement bank. this bank should be such a way
that cheques drawn on them will maximize the days the cheques remain uncollected. e:
handling debtors.newly formed, growing businesses are susceptible to cash flow
difficulties (borgia, burgess and shank 2003:38). the authors indicated that each
business spends cash in order to receive cash. it’s just that the wait in between can be

17
 long and costly for the business. promptly receiving the cash owed by debtors could
actually be the determining factor of whether or not the business closes down.

e. Handling creditors

in a traditional credit sale system, when the transaction takes place, the customer takes
possession of the product. thereafter, the customer makes regular instalments on the
amount due. these instalments are made within the debtors’ collection period set by
the business. this instalment is inclusive of an interest fee charged on the purchase
price. the customer continues to pay the instalments until the account is paid in full
(sapong 2010).

f. Cash budget

a cash budget is a tool used to manage the cash flow of a business. this is a budget that
is focused on the cash coming into the business and the cash that leaves the business. it
is the tool that forecasts the cash receipts and cash payment of the business, and
determine the closing balance of cash and cash equivalents held by the business at the
end of each period. moore, william and longenecker (2010:584) believed that the cash
budget is most important to a small business.

The cash budget is used to foresee and overcome cash flow difficulties when there is
little cash available or to indicate that there is excess cash inflow available to make
investments. a cash budget is defined as an instrument used to alert business owners on
problems such as cash shortages as well as the opportunities that could arise from cash
surpluses (amoako, marfo, gyau and asamoah 2013:188-191).
from the above definitions, it can be deduced that the cash budget is an essential
planning tool to enable businesses to detect surpluses and shortages so that
businesses can take the necessary remedial measures to sustain profitability.

2.7.1. Cash control

This is the overall attitude and actions of management regarding control system of cash
in the entity. a strong control is one with tight budgetary control over cash received,
cash banked, cash cheques, and effective control cash balances, cash brought down.
According to hamilton (2001) an obvious aim of a business is to control and manage its
cash affairs in such a way as to keep cash balance at a minimum level and invest

18
 surplus cash in investment opportunities. it can include the following:control over cash
received; control over petty cash expenses should be budgeted for, that is to say petty
cash should be reconciled by an independent person and the level and location of cash
floats should be laid down formally and based on the needs of the organization.

2.7.2. Concept of profitability

the word “profitability” refers to earnings of companies that are generated from
revenues and after deducting all expenses incurred during a given period. lord keynes
remarked that profit is the engine that drives the business enterprise. it is considered as
one of the most important goals that management of every company strives to achieve
and without it companies will ceased. it is the index to the economics progress.

more & brinker (2002), defined profitability as the difference between the revenue
generated and the costs incurred to produce the same revenue during a given accounting
period so that to him corporate firms should aim at increasing sales revenue and reduce
costs incurred so that they achieve the desired levels of profitability. in support to
brinker, pandey (2002) defined profitability as the difference between revenues and
expenses over a period of time (usually a year) where profit is the ultimate output of a
company.

according to patel (2004), profitability is the difference between the firms revenues
realized from the sale of product or service and the expenditure incurred relating to
the same accounting period, and he further elaborated that the firm should aim at
minimize operating expenses while as increasing on the sales revenues which
automatically leads to profitability in these firms. balunywa (1995) observed that
present traditional economists take profit maximization as the objective of a firm. he
further said that some scholars have a different view as they think profit making as not
as inclusive as that of maximizing shareholders wealth. however balunywa in his view
noted that any good performed organization should be able to realize profits, also
noted that business profitability is the justification of its good performance. in deed
profits of a business are the end result of operation and indication of its good
performance.

according to pearce ii and robinson (2002) profitability is the main goal of a business
19
 organization. no matter how it is measured or defined, profit of a long period of time is
the clearest indication of firms’ ability to satisfy the principle claims and desires of
employees and stake holders.

2.8. Relationship between cash management and profitability

a cash management system incorporates features such as robbery protection and timed
fund transfers, as well as bill and coin processing technology and its own operating
system. today's cash management systems connect to corporate networks to make data
exchange and system management easier (proimos, 2009). the cost of a cash
management system is quickly recouped due to the system's continual savings. what
appears to be a "cost" quickly becomes a "profit generator," yielding annualized cash
and non-monetary savings.

typical cash management solutions pay for themselves in 6 to 9 months, with savings
continuing indefinitely (ross, 2003). Retailers, according to westerfield (2003), have
discovered recurrent cash savings in a variety of sectors. specifically, internal theft is
dramatically reduced (cash received but not deposited into the safe); detection and
rejection of counterfeit currency; and reduced armored car requirements. the latest and
most exciting area of cash savings is now being gained through the retailer receiving
“provisional credit” for funds in the cash management systems and not yet deposited in
the bank.

non-cash savings include a drastic reduction of management time previously required to

reconcile the transaction log with cash and preparation of bank deposits, as well as
instant accounting and deposit preparation. deploying a cash management system
involves support and coordination among multiple departments including finance,
operations, it, security and loss prevention to improve profitability in a company
(raheman, 2007). picking the right cash management provider who can coordinate the
physical and technological installation of the system can significantly expedite and
smooth the process of ensuring profit maximization. each department should carefully
consider features and functionality that will be required for a successful deployment and
utilization of cash management which also increases profitability.

efficiency in cash management is so vital for especially production- firms whose assets
20
are mostly composed of current assets (horne and wachowitz, 1998) as it directly affects
liquidity and profitability of any firm (raheman and nasr, 2007). according to (kargar
and bluementhal 1994) bankruptcy may also be likely for firms that put inaccurate
working cash management procedures into practice, even though their profitability is
constantly positive.

hence, it must be avoided to recede from optimal working capital level by bringing
the aim of profit maximization in the foreground, or just in direct contradiction, to
focus only on liquidity and consequently pass over profitability. working capital is also
a major external source of capital for especially small and medium sized and high-
growth firms. these firms have relatively limited access to capital markets and tend to
overcome this complication by short-term borrowing.

working capital position of such firms is not only an internal firm-specific matter, but
also an important indicator of risk for creditors (moyer et al., 1992). higher amount of
working capital enables a firm to meet its short-term obligations easier. this results
increase in borrowing capability and decrease in default risk because it involve stringer
cash management policies to reduce losses. so, it is possible to state that efficiency in
cash management affects not only short-term financial performance (profitability), but
also long-term financial performance (firm value maximization).

for basic cash management concepts, combining working assets like as receivables and
inventories with cash and cash-equivalent assets is nonsensical. furthermore, the
aforementioned traditional ratios are meaningless in terms of cash flows, despite the fact
that cash flows are critical to assuring profitability (myers, 2003).
cash conversion cycle is closely related to operational cycle and is simply determined
by adding inventory period to accounts receivables period and then subtracting accounts
payables period from it (mclaney, 1997). it focuses on the time it takes for raw materials
and other inputs to be acquired and for cash to be received from the sale of goods
(arnold, 1998). trade activities of a firm can be considered as a process in circulation
where cash is converted into assets and assets into cash (raheman, and nasr, 2007). cash
available for trade activities of the firm has an important multiplier effect due to its
turnover ratio. higher cash turnover ratios enable managers to minimize short-term

21
investments whose rates of return are relatively lower compared to long-term
investments and consequently increase profitability.
studies regarding cash management by nasr (2007) revealed that cash management
policies are mostly related with improving models to determine optimal liquidity and
cash balance, rather than analyzing underlying reasons of relationships between
liquidity, working capital management practices and profitability. though foundations
and assumptions of these models are not well-established in terms of applicability,
cash management procedures inform managers about problems related with working
capital management practices (johnson and aggarwal (1998).
in a study by myers (2003), about working capital management practices in retailing
firms, it has been concluded that there is a reverse relationship between cash
management cycle and profitability. however, soenen (1993) contradicts the same idea
as he noted that in case of overlooking industrial differences, there does not exist any
statistically constant relationship between cash conversion cycle and profitability cash
mismanagement affects profitability negatively.
according to the findings of another study from a different perspective, it has been
concluded that the effect of cash conversion cycle on profitability is stronger than
the effect of current ratio on it (eljelly, 2004). myers (2003) noted that cash
management techniques employed by a given company will influence the level of
profitability in that particular company.
in case of that firm may gain some advantages like monopoly or bargaining
power due to growth as a reflection of economies of scale (külter and demirgüne ş,
2007), a positive relationship between growth and profitability is expected. cash out
flows and in flows always vary in one period .cash out flows will exceed cash inflows
due to numerous expenditure such as payment for taxes, dividends, seasonal
inventory buildings.
once cash out flows exceed incomes a danger of illiquidity will most likely a rise. if
the company does not have near cash assets to convert and meet such payments,
profitability will be threatened. in another period cash inflows might exceed cash out
flows there by creating excessive liquidity and idle cash. lynch (2003) noted that one
of the major aims of cash management is to accelerate cash inflows and delay cash
out flows. however lynch warned that both positions have associated dangers. once cash
inflows are accelerated, the costs of management and cash collection will most likely

22
reduce while profitability will be enhanced, however the reduction of the credit
period might negatively affect sales which most likely reduce profits. lynch (2003)
further noted that delaying cash out flows may result in an ethical issues and costs.
over delaying to pay staff salaries and wages may result in to resentment of work, low
morale, low productivity, and low productivity, high labor turn over, strikes, frauds and
theft which increase operating costs that reduce profitability.
according to pandey (2003) cash management should ensure that firm’s illiquidity
should sound as profitability grows. according to kakuru (2001) if cash management
concentrates on boosting the liquidity, high balances of cash will be maintained.
however the higher these balances are, the more profitability will be fore gone. this is
risky especially to people who expect profitable ventures. on the other hand if cash
management seeks to boost profitability, investments are highly risky but profitable
and the business is threatened as there will be no cost to meet the operating obligations
as they fall due.

2.10: Monetary theoretic approach to cash management

According to kytonen (2002) monetary economists are interested in the cash

management of firm; their objective has been to describe the mechanism of the demand
for money by firms, because it differs from the behaviour of other economic agents. he
is of the opinion that researchers have tried to find a stable relationship between the
quantity of money and its determinants in order to forecast most intensively investigated
areas. both long and short run behaviour have been examined on the macro and micro
level. he asserts that demand for money investigates decisions made in the cash
management process. he explained how attanasio et al (2002) used microeconomic data
on households to estimate the parameter of the demand for currency derived from a
generalized baumol-tobin model.

2.10.1. Operations research approach to cash management

several operational models have been developed to optimize the cash-marketable-

security split depending on the firm's cash needs, the predictability of these needs, the
interest rate on marketable securities, and the cost of a cash-to-marketable-security
transfer and vice versa (kytonen, 2002). the deterministic baumol-tobin (1952) and
stochastic miller-orr inventory models are the two most widely accepted basic
transaction models in the financial literature (1966).
23
 2.10.2. Financial theoretic approach to cash management

kytonen (2002) opined that in financial theory, researchers are interested in how cash
and other liquid assets affect firm value and the optimal capital structure of a firm.
financial theory considers the cash management problem in the framework of the
evaluation and capital structure of a firm. The suggested that, cash management as a
representative for the liquidity management, can be linked to financial theory by
considering its importance in an imperfect market. according to him this can be done,
by adding cash balances to the financial theoretic models, such as the capital asset
pricing model (capm) or the modigliani-miller (m&m) model. the effects of the
inclusion of cash balances in these theoretical models show the importance of liquid
assets for the value of a firm (through the systematic risk component) and for the
optimal capital structure (through the liquidity slack concept).
2.11. Conceptual framework of cash management
cash management forms an integral part of working capital management. Hence, it is
considered as part of the scope of a good working capital management in modern
businesses (brealey, myers & allen, 2008). cash management is the process of
ensuring that businesses have good cash balances to ensure that they continue to stay in
business. thus prudent cash management ensures that a small business would be able to
honour its debt obligations as and when they fall due and also to facilitate the
responsibility of the firm to pay for its upcoming expenses. cash comes into the
business from limited sources, mainly through cash and credit sales and advance
payments from clients. however, as depicted in figure 1, the obligations of businesses
are numerous (purchases, payment of wages and salaries and taxes).
figure 1: conceptual framework: cash management model by mses
* note: c=a-b; and

where (a˃b) = surplus & (a˂b) = deficit

24
 according to ross, westerfield and jordan (1996), the basic objective of cash
management is to keep the investment in cash a low as possible while still operating the
firm’s activities efficiently and effectively. a business must maintain cash balances to
meet day-to-day transactions and to take advantage of opportunities that may come it
way. this is very crucial for smooth and reliable business operations. they assert that an
enterprise can also increase its net cashflow by slowing down disbursements. ross,
westerfield and jordan (2004) indicate that cash disbursements (payments) come in four
basic categories and these include payment of accounts payable, wages, taxes and
other expenses, capital expenditure and also long-term financing expenses
the importance of keeping cash balances by micro and small-scale enterprises cannot be
taken for granted. moyer, maguigan and kretlow (2001) submit the effective cash
management is particularly important for small firms for the following reasons:to
prepare financial statement plan to support application for bank loans; because of
limited access to capital, a cash shortage problem is both difficult and more costly for
small firms to rectify than for larger firm; many entrepreneurial firms are growing
rapidly; they have a tendency to run out of cash. growing sales require increases in
inventories and accounts receivable, thereby using up cash resources;
andentrepreneurial firms frequently operate only a minimum of cash resources because
of the high cost and limited access to capital.

2.12. Measurement of profitability

Profitability is a metric that shows how profitable a company is. profit is defined as the
difference between revenues and expenses over time. profit can be calculated in a
variety of ways. pandey (2002) discovered that utilizing profitability ratios, business
firms may quickly assess their profitability level. This, he claims, may be measured
once financial statements have been prepared. he went on to say that net profit is
calculated after deducting operating expenditures such as interest, taxes, and electricity
from gross profit, and that the net profit margin ratio is calculated by dividing profit
after tax by sales, as shown below.
net profit margin = profit after tax / sales
the higher ratio show profitability and lower ratio is not encouraged.
in support to pandey (2002), kakuru (2005) indicated that through profitability ratio, the
firm's ability to earn a return can easily be measured where he further clarified that this
return is normally a margin either by sales, a portion of capital invested or portion of

25
assets used and for net profit he also came up with the following formula.

net profit margin = earnings after tax / total sales

in his conclusion he remarked that it shows a return on every unit of sale after taking
into account both cost of sale and expenses and the higher the ratio in relation to the
industry average ratio, the higher the profitability of these firm and vice versa.
according to nkundabanyanga (2004), profitability is a return expected by the
management in relation to what it invested. to him profitability can be measured by
using.
are 1050(718 small and 332 medium
gross profit margin = gross net profit / total sales
whereas increase in gross margin in relation to the industry average indicates
reduction in cost of industry sales, which increases the profitability of the firm

26
CHAPTER THREE

3.1. RESEARCH DESIGN AND METHODOLOGY

This chapter contained the research design, the research method, sources of data, study site
and population, sample size, sampling technique, instruments of data collection, procedures
of data collection, methods of data analysis and ethical considerations.

3.2. Research Design

Research design gives the overall outline of the research and it provides a framework for the
collection and analysis of data and subsequently indicates which research methods are
appropriate (William, 2006). The purpose of using descriptive study was to collect detailed
and factual information that describe an existing phenomenon.

This research design helps to describe the existing situation of the issue. This design was
selected to examine the impact of cash management on the profitability of small and medium
enterprises in Jimma town in quantitative data collecting approach was used to answer basic
research questions. Because of that the proposed research was conducted by using
quantitative approaches.

These approaches are more concerned with the proposed research. Taking the advantages of
quantitative research approaches into account, the outcome of the quantitative was used for
this study. The findings and conclusion of the study were depending on the fully utilization of
statistical data collected and analyzed using SPSS version 21. In addition to that analysis of
organizational documents gives more relevant data to the research.

3.3. Sources of Data

The primary data were the first hand data that were used as sources of data for this study.
These primary data were collected from small and medium enterprises members.

3.4.1. Population and sampling technique

The population of the members of small and medium enterprises were selected as the sample
respondents of the study were considered as the study population of the study. Sample
respondents of small and medium enterprises members were also considered as the study
population of the study. First lottery method has been used to selected section of micro office
from eight sections in Jimma town.

27
The total small and medium enterprises members in the section of micro office in Jimma
town are 1050(718 small and 332 medium enterprises).The sample population will be
selected from the small and medium enterprises members proportionally. The sample
respondent was selected through simple random sampling from the lists of document that
have been documented in the small and medium enterprises office of Jimma town. Then 180
and 70 sample respondents of small and medium enterprises have been selected
proportionally.

3.5. Instruments of Data collection

In this study, questionnaire was used to collect data regarding the impact of cash management
on the profitability of small and medium enterprises in the case of Jimma town.

3.5.1. Questionnaire

Questionnaires are suitable for survey research it makes a research less expensive and gives
more accurate information. Because of this the researcher selects questionnaires as a part of
data gathering tools for this study. Questionnaires were five scales Likert closed ended items.
Self-developed questions were designed to collect the quantitative data.

The questions 30 close-ended were designed in English since the data will be collected from
respondents. The questionnaire will be self-developed questionnaire. Hence, closed-ended
type of questions have five rating scales, 5=strongly agree,4=agree,3=undecided,2=disagree,
1=strongly disagree.

3.6. Pilot testing of the instrument

Reliability is extent to which repeated measurements undertaken using a tool or instrument

by different individuals given similar results. Reliability is the extent to which results are
consistent over time and an accurate representation of the total population under study and if
the results of a study can be reproduced under a similar methodology, then the research
instrument is considered to be reliable. A measure is considers reliable if it would give us the
same result repeatedly. A reliability test would be performed to check the consistency and
accuracy of the measurement scales.

One of the methods to estimate the reliability of the scores on a test or measurements is
Cornbach’s coefficients alpha method. Hence, Cornbach’s coefficients alpha refers to the
extent to which there is interrelatedness among the responses to the multiple items
28
comprising in the Likert scale. Hence, as explored by Field (2009), if Alpha Coefficients was
above 0.750, consistency and suitability was high. Therefore, 250 sample respondents will be
taken from small and medium enterprises members and the designed questions were
distributed and responses were collected. The collected responses were analysed and the
reliability was checked for the self-developed questions with the standard to confirm the
reliability of data collecting instrument when the Cronbach’s coefficients alpha was above
0.750, the instrument was considered as reliable to collect data.

3.7. Methods of Data Analysis

In order to conduct data analysis quantitative was used. Data collected through close ended
question were organized in table and analysed using frequency, mean, slandered deviation
and Pearson correlation. Descriptive statistical analysis was used to analyse the data. Mean
was used to calculate the average value of the responses of the respondents. The standard
deviation was used to shows the relation that set of scores has to the mean of the sample.
Percentages and frequency distribution was used to analyse the distribution of responses for
each item of choice. Pearson correlation was used as inferential statistics to give meaningful
conclusion for the data that were analysed in descriptive statistical analysis. Pearson
correlation was used to show the relation between the dependent variable and the independent
variables. Data were analysed in SPSS 21 software.

3.8. Ethical Considerations

To make the research ethical, clear information will be given to respondents. Objective of the
study will be informed in the introductory part of questionnaires and interviews guide to the
respondents; and confirmed that confidentiality of responses will be protected. Respondents
will be informed that their participation in the study will be based on their consent. The
research is not personalized any of the respondent’s response during data presentations,
analysis and interpretations. In addition to this, all the material used for this research will be
acknowledged.

29
Chapter Four
RESULTS AND DISCUSSION
4.1 Introduction
This chapter presents the results and analysis of data that has been collected through
questionnaires. For data analysis the researcher used descriptive statistics by applying two
different techniques which are numerical summary techniques (measure of tendency and
measure of dispersion) and graphical summary techniques (Pie chart, Bar chart, Histogram),
and also inferential statistics (Pearson correlation coefficient, regression analysis) to display
an appropriate output for the variables.
4.2. Demographic characteristics of respondents
The following table 4.1 summarizes the demographic profile of respondents by sex, age,
educational level, marital status and business experiences.

Table 4.1 Frequency table for demographic profile of the respondents

Variables Categories Frequency Percent (%)

Sex Male 169 67.6

Female 81 32.4

Total 250 100.0

Age 18-25 31 12.4

26-35 159 63.6

36-45 46 18.4

Above 46 14 5.6

Educational levels Grad 6-9 6 2.4

Grade 10-12 11 4.4

Certificate in relevant profession 92 36.8

10+1 up 10+4 76 30.4

University Degree 65 26.0

Total 250 100.0

Marital Status Single 160 64.0

30
 Married 83 33.2

Divorce 7 2.8

Total 250 100.0

Business experiences 1-5 183 73.2

6-10 37 14.8

11-15 27 10.8

16 and above 3 1.2

Total 250 100.0

Source: Survey data, 2022

From table 4.1, 169(67.6%) and 81(32.4%) of the 250 respondents are male and female
respectively. The majority of the respondents (63.6%) are found within the age category of
26-35, indicates that the youngest age group were participated in the business. The second
highest age categories found between 36-45(18.4%).

From table 4.1 the number of respondents are 6(2.4%), 11 (4.4%), 92 (36.8%), 76(30.4),
65(26.0%) with their educational levels grade 6-9, grade 10-12, certificate in relevant
profession, 10+1 up 10+4, University Degree respectively. The above frequency table result
tells us most certificates in relevant professional holders are engaged to the business when we
have compared with the other educational levels, whereas the minimum number 6(2.4%) of
the respondents had lower grade levels.

From the above table 4.1 the number of the marital statuses of the respondents are single,
married and divorced are 160(64.0%), 83(33.2%) and 7(2.8%) respectively.
From table 4.1 the number of the respondents are 183 (73.2%), 37(14.8%), 27(10.8%),
3(1.2%) with their business experiences 1-5 years, 6-10 years, 11-15 years, more than 16
years respectively. The highest number which is 183(73.2%) with their business experience
1-5 years indicates that most respondents are not highly experienced in business.

Fig 4.2.1: Pie chart for age

31
4.3. Profitability of small and medium enterprises
The dependent variable in this study is the profitability of small and medium enterprises. It is
generated by asking the following integrated questions in the following table 4.2.

Table 4.2. Descriptive Statistics of profitability measurement.

Std.
Minimu Maxim Mea Deviati
m um n on
Your profitability increased as compared to your cash
1 4 3.57 .704
management system of your enterprises
Your profitability increased as compared to cash management
data handling system of your enterprise 1 4 3.61 .620

There is an increase in amount of profitability starting from

first year of your enterprise 1 4 2.45 .969

Cash management system training will improve the

profitability of your enterprise 2 5 3.67 .572

Your an increase in overall profitability and capital of the

enterprise in these days as compared to previous years of 1 4 3.62 .667
enterprise
Valid N (listwise)

From the above table 4.2 the to measure the performance of small and medium enterprises
the mean value are 3.57, 3.61,2.45,3.67 and 3.62 with their standard deviation 0.704, 0.620,
0.969,0.572 and 0.667 for questions (Your portability increased as compared to your cash
management system of your enterprises, Your profitability increased as compared to cash
management data handling system of your enterprise, there is an increase in amount of
profitability starting from first year of your enterprise, Cash management system training
will improve the profitability of your enterprise, and Your an increase in overall profitability
and capital of the enterprise in these days as compared to previous years of enterprise )
respectively.

From table 4.2 to measure the profitability of small and medium enterprises the maximum
mean value is 3.67 with its standard deviations is 0.572 for question (Cash management
system training will improve the profitability of your enterprise?). This shows that the
respondents are inclined to agree for this statement. The standard deviation is minimum
implies that there was less variability among the responses.

32
To measure the profitability of SMEs the most respondents are agreed with this statement
than other statements. On the other hand to measure the profitability of small and medium
enterprises the minimum mean value is 3.67 with its standard deviations is 0.572 for
question (Cash management system training will improve the profitability of your
enterprise?). This tells us the respondents were disagreed for this statement. The standard
deviation is maximum implies that there was high variability among the responses.
4.4. Cash management system
This is accomplished by calculating the minimum, maximum, mean and standard deviation
of each of the questions in Table 4.3 below, which are believed to analyze the responses of
the respondents.

Table 4.3. Descriptive statistics of cash management system.

N Minimum Maximum Mean Std.

Deviation
Cash management has been done on a daily basis. 250 1 5 3.36 1.165
Cash management has been done on weekly basis. 250 1 5 3.37 1.105
Cash management has been done on monthly basis. 250 1 5 3.24 1.177
Cash management has been done on a quarter basis. 250 1 5 3.82 1.289
Cash management has been done on yearly basis. 250 2 5 3.42 1.036
Cost Analysis was used to determine the progress 250 1 5 3.02 1.155
of cash management operation.
Planning and controlling the movement of cash. 250 1 5 3.29 1.157
The cash management system has been fulfilled 250 1 5 3.24 1.216
with an efficient cash planning system, which
reduces the likelihood of cash balances.
The collection float has been used in the cash 250 1 5 3.18 1.108
management system.
Cash balance has been managed in the cash 250 1 5 3.06 1.224
management system.
A cash budget is used as a tool to manage the cash 250 1 5 3.04 1.203
flow of a business.
Daily income and expense has been recorded on 250 1 5 2.22 1.072
continues basis.

33
Managing regarding of the controlling of cash 250 1 5 3.15 1.27
system.
There is control over cash received. 250 1 5 3.29 1.257
There is control over cash at bank. 250 1 5 3.91 1.028
There is control over cash by cheques. 250 1 5 3.3 1.234
There is control over cash balances. 250 1 5 3.59 1.061
There is control over cash flow down. 250 1 5 3.91 1.094
Cash is used as the most crucial current asset for 250 1 5 3.58 1.18
business operations of small and medium
enterprises.
Cash inflows and cash outflows have been manged 250 1 5 3.34 1.08
properly.
Keeping cash on hand in the enterprises to cover 250 1 5 3.1 1.174
unpredictable future events such as the failure of
market.
Cash receipts and payments are timed. 250 1 5 3.23 0.999
proper controls of cash, procedure could be 250 1 5 3.62 1.129
implemented to cater for innovations for cash
receipts and cash payments
Cash management system has embodied all incomes 250 1 5 3.46 1.186
and payments made within a certain period.
In the above table 4.3, table twenty five items were performed on Cash management system
of small and medium enterprises. The result of the analysis was discussed as follows.
The first question was asked to identify that cash management has been done on a daily basis.
The result of the analysis 3.36 mean core and 1.165 indicated that cash management has been
done on a daily. The second question was asked to assess that Cash management has been
done on weekly bases.

The result of the analysis 3.37 mean core and 1.105 indicated that Cash management has
been done on weekly bases. The third question was asked to investigate that Cash
management has been done on monthly bases. The result of the analysis 3.24 mean core and
1.177 indicated that Cash management has been done on monthly basis.

34
The fourth question was asked to identify that Cash management has been done on a quarter
bases. The result of the analysis 3.82 mean core and 1.289 indicated that Cash management
has been done on a quarter basis.

The fifth question was asked to assess that Cash management has been done on yearly basis.
The result of the analysis 3.42 mean core and 1.036 indicated that Cash management has
been done on yearly basis. The sixth question was asked to assess that Cost Analysis was
used to determine the progress of cash management operation. The result of the analysis 3.02
mean core and 1.155 indicated that Cost Analysis was used to determine the progress of cash
management operation.The seventh question was asked to assess that Planning and
controlling the usage of cash. The result of the analysis 3.29 mean core and 1.157 indicated
that Planning and controlling the flow of cash was implemented.

The eighth question was asked to investigate that the cash management system has been
fulfilled with an efficient cash planning system, which reduces the likelihood of cash
balances. The result of the analysis 3.24 mean core and 1.216 indicated that The cash
management system has been fulfilled with an efficient cash planning system, which reduces
the likelihood of cash balances.

The ninth question was asked to identify that the collection float has been used in the cash
management system.The result of the analysis 3.18 mean core and 1.108 indicated that The
collection float has been used in the cash management system.
The tenth question was asked to identify that Cash balance has been managed in the cash
management system. The result of the analysis 3.06 mean core and 1.224 indicated that Cash
balance has been managed in the cash management system. The eleventh question was asked
to assess that A cash budget is used as a tool to manage the cash flow of a business. The
result of the analysis 3.mean core and 1.203 indicated that A cash budget is used as a tool to
manage the cash flow of a business.

Question twelve was asked to examine that cash management has been done on a daily
bases. The result of the analysis 3.36 mean core and 1.165 indicated that cash management
has been done on a daily. The thirteenth question was asked to assess that Daily income and
expense has been recorded on continues basis.

35
The result of the analysis 2.22 mean core and 1.072 indicated that Daily income and expense
has been recorded on continues basis. The fourteenth question was asked to assess that
Managing regarding the control system of cash. The result of the analysis 3.15 mean core and
1.270 indicated that Managing regarding the control system of cash.

The fifteenth question was asked to identify that there is budgetary control over cash
received. The result of the analysis 3.29 mean core and 1.257 indicated that There is
budgetary control over cash received. The sixteenth question was asked to investigate that
there is budgetary control over cash banked. The result of the analysis 3.91 mean core and
1.028 indicated that there is control over cash bank.

The seventeenth question was asked to assess that there is budgetary control over cash
cheques. The result of the analysis 3.3 mean core and 1.234 indicated that there is control
over cash cheques.

The eighteenth question was asked to identify that there is budgetary control over cash
balances. The result of the analysis 3.59 mean core and 1.061 indicated that There is
budgetary control over cash balances. The nineteenth question was asked to assess that there
is budgetary control over cash brought down. The result of the analysis 3.91 mean core and
1.094 indicated that there control over cash flow down.

The twentieth question was asked to investigate that Cash is used as the most crucial current
asset for business operations of small and medium enterprises. The result of the analysis 3.58
mean core and 1.180 indicated that Cash is used as the most crucial current asset for business
operations of small and medium enterprises.

Question twenty one was asked to assess that Cash inflows and cash outflows have been
manged properly. The result of the analysis 3.34 mean core and 1.080 indicated that Cash
inflows and cash outflows have been manged properly. Question twenty two was asked to
examine that Keeping cash on hand in the enterprises to cover unpredictable future events
such as the failure of an emergency. The result of the analysis 3.1 mean core and 1.174
indicated that Keeping cash on hand in the enterprises to cover unpredictable future events
such as the failure of market.

Question twenty three was asked to investigate that Cash receipts and payments are timed.
The result of the analysis 3.23 mean core and 0.999 indicated that Cash receipts and
36
payments are timed.Question twenty four was asked to identify those proper controls of cash,
procedure could be implemented to cater for innovations for cash receipts and cash payments.
The result of the analysis 3.62 mean core and 1.129 indicated that proper controls of cash,
procedure could be implemented to cater for innovations for cash receipts and cash payments.
The last question was asked to assess that Cash management system has embodied all
incomes and payments made within a certain period.

The result of the analysis 3.46 mean core and 1.186 indicated that Cash management system
has embodied all incomes and payments made within a certain period.
4.5 Results of Inferential Statistics
This sub-section presents the result of Karl Pearson’s Correlation Coefficient(r) and simple
linear regression analysis.
4.5.1. Karl Pearson’s Correlation Coefficient (r)
In this study, the Karl Pearson’s Correlation Coefficient is used to determine whether there
exists a significant correlation between profitability of SMEs and the cash management
system of small and medium enterprises at Jimma town. The Karl Pearson’s Correlation
Coefficient, r, can take a range of values from -1 to +1. A value of 0 indicates that there is no
association between the two variables. A value greater than 0 indicates a positive association,
that is, as the value of one variable increases so does the value of the other variable. A value
less than 0 indicates a negative association, that is, as the value of one variable increases the
value of the other variable decreases. The results of the Karl Pearson’s correlation
coefficients are summarized in Table 4.5.1 below.

Table 4.4.: Karl Pearson’s correlation coefficients

Correlations
Cash
management Profitability
Cash Pearson Correlation 1 .264**
management Sig. (2-tailed) .000
N 250 250
Profitability Pearson Correlation .264 **
1
Sig. (2-tailed) .000
N 250 250
**. Correlation is significant at the 0.01 level (2-tailed).

37
From table .4. 5.1, the value of Karl Pearson’s correlation coefficients is 0.264 which implies
that there is a positive relationship between profitability of SMEs and cash management
system. The p-value (0.000) which is statistically significant implies that the p-value also
support the existence of relationship between profitability of SMEs and cash management at
Jimma town.

Table 4.5 ANOVA Table

Anova
Sum of
Model Squares Df Mean Square F Sig.
1 Regression 93.692 1 93.692 18.578 .000b
Residual 1250.708 248 5.043
Total 1344.400 249
a. Dependent Variable: profitability
b. Independent variable: (Constant). cash management
From the above table 4.6, the p-value in the ANOVA table is 0.000 which is statistically
significance, implies that the regression model predicted the dependent variable well since
the dependent variable (profitability) was explained by the independent variable (cash
management). This means the presence of significant cash management was result in the
profitability.
Table 4.6
Results and Findings
Relationship between cash management and profitability

Cash management Profitability

Cash management Pearson correlation 1 0.090

Sig (2-tail) - .427
N 250 250
Profitability person correlation .188 1
Sig (2-tail) .096 -
N 250 250

The correlation value between Cash management and Profitability is 0.188 and p-value is 0.096.
This result indicates that there is a low degree of positive correlation between cash
management and profitability. This means as cash management increases, profitability is also
expected to increase insignificantly
Table 4.6. Coefficients

38
 Coefficients
Standardize
d
Un standardized Coefficient 95.0% Confidence
Coefficients s Interval for B
Lower Upper
Model B Std. Error Beta t Sig. Bound Bound
1 (Constant) 12.656 .999 12.663 .000 10.688 14.624
Cash
management .033 .008 .264 4.310 .000 .018 .048
system
a. Dependent Variable: profitability
From table 4.7 the value of intercept parameter is 12.656 and the value of the slope parameter
is 0.033 with their 95% confidence intervals are (10.688, 14.624) and (0.018, 0.048)
respectively. The p-value for profitability is 0.000 which is statistically significant implied
that cash management system significantly contributes to the variation in profitability at 5
percent significance level. The confidence interval for β 1 is (0.018, 0.048). Zero is not
included in the confidence interval, implied that there is a relationship between the cash
management system and profitability of SMEs members. In the 95% confidence interval the
value of β 1 is positive which implied that the better improvement of cash management
system, the more effective the profitability of SMEs members.

The mean value of the fitted model is 12.656 when the value of the cash management system
is zero. When the improvement of cash management system increase by one unit, then the
effectiveness of the profitability of SMEs members increase by 0.033 unit.

The results of this study were discussed on the basis of the basic research questions to cross
cheek how the collected and analyzed data were appropriate to answer the basic research
questions in that the intended objective of the study was confirmed. Therefore, the
discussions of the results of this study were discussed side by side with the basic research
questions as follows.

The first research question asked was to identify the presence of the cash management related
factors that affect profitability of the small and medium enterprises. The result of this study
indicated that the control over the cash, collection of cash, the time that has been planned for
collection and payment and the budgetary system in controlling over the cash were factors
that can influence the profitability of SMEs members.

39
The second research question asked was to investigate how the cash management systems of
the small and medium enterprise influence the profitability. The result of this study revealed
that the cash management systems of the small and medium enterprise influence the
profitability since the result of the Pearson correlation indicated the positive relation between
the cash management of SMEs members and profitability. As the cash management system
has been well handled there is the increase in the profitability as indicated in the result of the
analysis.

The last research question was asked that identify extent at which the cash management
systems of the small and medium enterprise have influenced the profitability of small and
medium enterprises. The result of the value of Karl Pearson’s correlation coefficients is 0.264
which implies that there is a positive relationship between profitability of SMEs and cash
management of SMEs members.

The p-value (0.000) which is statistically significant implies that the p-value also support the
existence of relationship between profitability of SMEs and cash management of SMEs at
Jimma town. This finding that the absences of cash management system can affect the
profitability of the SMES members of Jimma town since there is evidence of a correlation
between cash management and profitability was positive. From coefficients analysis table,
the results indicate that there is a linear relationship between SMEs profitability and cash
management system. However, taking the independent variable at zero, then a unit increase in
cash management will lead to 0.033 increases in profitability.

40
Chapter Five
5. Conclusions and Recommendations
5.1, Conclusion

The main objective of the study was to assess the impact of cash management on profitability
small and medium enterprises in the case of Jimma town. Hence, this study concludes that
there is a positive effect of cash management system of SMEs on profitability of SMEs
members at Jimma town. Cash management skills enhanced the ability the cash inflow and
outflow of the SMEs members that can lead to the profitability of the SMEs members.
Effective cash management facilitates the decision making processes such as payment of bills
on time, collection of cash on time, controlling of inflow and out flow cash that can increase
profitability SMEs members.

The research was carried out in the context of the development and growth of small and
medium enterprises of their low profitability. It appears that these small firms' ineffective
cash management techniques are a role in their profitability. This study proved that this idea
was widely held and that one of the key factors in a small business's success was learning
about effective cash management techniques.

Investigation into the issue showed that managers and owners of companies that are familiar
with basic cash management procedures are more successful and have access to enough cash
to perform daily operations. For a business to succeed, implementing good cash management
techniques is crucial. It is impossible to refute the idiom "Cash is king" because it is more
widespread in this research study. The effect of cash management procedures on small retail
firms has to be highlighted more.

Since effective and efficient cash management techniques are a crucial part of any successful
organization, the study's findings may be helpful to aspiring, established, and current business
owners of all stripes.

5.2. Recommendation

From this finding, the researcher believes that the following recommendations would enable
MSEs for improving their cash management that will lead to profitability.

To make SMEs competitive and profitable, increasing the capacity and skill of cash
management system through continues training, experience sharing from successful
41
enterprise and providing advices are crucial. It is also better if the training is given by the
well experienced trainers and well familiar for the subject matters.

The factors that impact the cash management which lead to the decrease in profitability
should be identified and solutions should be given. The level of cash management system of
the SMEs members should be increased to increase the level of the profitability their
enterprises.The findings of this research identified the problem areas with regards to cash
management practices in small businesses.

42
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44
 Appendix
Jimma University
College of Business and Economics
Department Accounting and Finance
Postgraduate in Accounting and Finance

Questionnaire
General instruction

Dear respondents First of all, I would like to express my gratitude for your willingness to
commit your valuable time by responding this questionnaire,

the questionnaires are designed to provide you the opportunity to express your opinions. This
is to enable the researcher, Dabala Abdane a final year student of Jimma University College
of Business and Economics to complete his thesis on the topic on the impact of cash
management system on the profitability of small and medium enterprises members in Jimma
town. Thus your genuine responses are important to achieve the intended objective of the
study. They are no right or wrong responses, so do-not hesitate to mark the responses
frankly. We kindly request you to give your responses by marking () in the space provided
for each items. Please do not record your name on this document. All the responses you
provide are confidential and will not be used for other purposes other than the objective.

Part one: Personal information

Variables Categories yes No

sex Male

Female

Total

Age 18-25

26-35

36-45

Above 46

45
Educational levels Grad 6-9

Grade 10-12

Certificate in relevant profession

10+1 up 10+4

University Degree

Total

Marital Status Single

Married

Divorce

Total

Business experiences 1-5

6-10

11-15

16 and above

46
 Strongly Disagre Undecide Agre Strongly
Items dis agree e d e agree
Your portability increased as compared to
your cash management system of your
enterprises?
Your profitability increased as compared to
cash management data handling system of
your enterprise?
There is an increase in amount of
profitability starting from first year of your
enterprise?
Cash management system training will
improve the profitability of your enterprise?
Is there an increase in overall profitability
and capital of the enterprise in these days as
compared to previous years of enterprise?

 Items Strongl
y dis Strongly
agree Disagree Undecided Agree agree
Cash management has been done on a daily
bases.
Cash management has been done on weekly
bases.
Cash management has been done on monthly
47
bases.
Cash management has been done on a quarter
bases.
Cash management has been done on yearly
bases.
Cost Analysis was used to determine the
progress of cash management operation.
Planning and controlling the usage of cash.
The cash management system has been fulfilled
with an efficient cash planning system, which
reduces the likelihood of cash balances.
The collection float has been used in the cash
management system.
Cash balance has been managed in the cash
management system.
A cash budget is used as a tool to manage the
cash flow of a business.
Daily income and expense has been recorded on
continues basis.
Managing regarding the control system of cash.
There is budgetary control over cash received.
There is budgetary control over cash banked.
There is budgetary control over cash cheques.
There is budgetary control over cash balances.
There is budgetary control over cash brought
down.
Cash is used as the most crucial current asset for
business operations of small and medium
enterprises.
Cash inflows and cash outflows have been
manged properly.
Keeping cash on hand in the enterprises to cover
unpredictable future events such as the failure of

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an emergency.
Cash receipts and payments are timed.
proper controls of cash, procedure could be
implemented to cater for innovations for cash
receipts and cash payments
Cash management system has embodied all
incomes and payments made within a certain
period.

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