CHAPTER 1 1

CHAPTER 1
1.0 Introduction
This project focuses on the relevance of Working Capital Management in the management of production firms in Zimbabwe. The Zimbabwean economy is facing turbulent times especially with the present situation of the lack of cash in hand, this is a cause of concern to businesses to manage effectively their working capital. In addition, the study will look at the background to the study, the statement of the problem, the research questions and objectives, the hypothesis,
1.1 Background of the Study
It is necessary to understand the meaning of current assets and current liabilities for learning the meaning of working capital management. Working capital management refers to a company’s managerial accounting strategy designed to monitor and utilize the two components of working capital, current assets and current liabilities, to ensure the most financially efficient operation of the company, Raheman ; Nazr, (2012) . Working Capital is calculated by subtracting current liabilities from current liabilities. Current assets include cash, market securities, inventory, accounts payables and short term assets to be used within a year.
Fitzgerald (2006) defined current assets as, “cash and other assets which are expected to be converted in to cash in the ordinary course of business within one year or within such longer period as constitutes the normal operating cycle of a business.” Current liabilities include accounts payables and the current portion of a long term debt It is rightly observed that “Current assets have a short life span. These types of assets are engaged in current operation of a business and normally used for short– term operations of the firm during an accounting period, that is, within twelve months. The two important characteristics of such assets are short life span and swift transformation into other form of assets. Liquidity and profitability are two important and major aspects of corporate business life.
The problem is that increasing profits at the cost of liquidity can bring serious problems to the firm. Therefore, there must be a trade-off between these two objectives (liquidity and profitability) of firms. One objective should not be at the cost of the other because both have their own importance. If firms do not care about profit, they cannot survive for a longer period. In other round, if firms do not care about liquidity, they may face the problem of insolvency or bankruptcy. For these reasons managers of firms should give proper consideration for working capital management as it does ultimately affect the profitability of firms. As a result company can achieve maximum profitability and can maintain adequate liquidity with the help of efficient and effective management of working capital. Management has a dual interest in the analysis of financial performance such that, to assess the efficiency and profitability of operations and to judge how effectively the resources of the business are being used Erich A. Helfert, D.B.A, (2001) .
Olivine Industries (Pvt.) Ltd manufactures and supplies a wide range of products such as detergents, toiletries, and edible oils and tinned foods, in other words fast moving consumer goods. The company started as a small firm in Nyazura before relocating to Harare. It became Olivine Industries at independence in Zimbabwe and the name has become a household name. In addition the name is also derived from the three precious stones that are depicted on its logo The Financial Gazette 5 July 2012.

1.2 Research Problem
The subject on working capital management gained prominence with the aftermath of the economic recession of 2008. Whilst the majority of literature was published before the late 1980’s after world markets were recovering from events such as the 1975 oil crises. Early studies on working capital management dwelt much on the close relationship between working capital and the company’s liquidity and profitability, Oazi, Kaddumi & Ramadan, (2012) .
However, less attention has been drawn on the working capital policies and their impact during distressful economic periods as noted in Zimbabwe since 2000. Because production decline this has affected profitability of at Olivine industries as well as future operations of the organization which clearly shows that liquidity is important for the survival of the business. The continuous shortage of cash has further reduced Olivine business operations.
Currently, the company is operating below capacity and has failed to meet local demand due to lower production output coupled with a volatile macroeconomic environment. This has led competitors from Southern Africa among them South Africa to penetrate the local market. This clearly shows that liquidity has affected the production capacity of the company. As a result, the study seeks to find out how Olivine Industries can adopt new working capital management strategies to avert a possible collapse due to capital constrains.

1.3 Research Objectives
The research objectives of the study are;
? To establish the importance of working capital management.
? To evaluate an optimal working capital cycle that will encourage payment of debtor using short term sources of fund.
? To examine the extent to which working capital management is being practiced at Olivine Industries in Zimbabwe.
? To find out limitations and shortfalls being faced in the practice of working capital at Olivine Industries in Zimbabwe.
? To determine the relationship between working capital management and corporate performance at Olivine Industries in Zimbabwe.
? To make relevant recommendation based on findings that will enhance the efficient practice of working capital management.
? To evaluate other method of debt payments than payment out of cash.

1.4 Research Questions
The research questions of the study are;
? What are the other methods of debt payments than payment out of cash that Olivine Industries can adopt to improve liquidity flow?
? Is there an optimal working capital cycle that will encourage payment of debtor using short term sources of fund at Olivine Industries?
? What is the extent to which working capital management is being practiced at Olivine Industries in Zimbabwe?
? What is the importance of working capital management?
? What are the limitations and shortfalls that are being faced in the practice of working capital management at Olivine Industries in Zimbabwe?
? What is the relationship between working capital management and corporate performance at Olivine Industries in Zimbabwe?
Are there any relevant recommendation based on findings that will enhance the efficient practice of working capital management at Olivine Industries?

1.5 Research Hypothesis
A few numbers of research hypothesis can be made in view of the impact of working capital management on firms’ performance. In light of the research objective the following discussion will covers the hypotheses that this study will attempt to test
H0: Inventory management has significant impact on firms` financial performance and working capital management
H1: Inventory management has no significant impact on firms` financial performance and working capital management

1.6 Justification of the Study
This study of Working Capital Management is of paramount importance to many stakeholders in the country. In bring up a conceptual framework to researchers, financial managers, accountants professionals and policy makers in the production environment of Zimbabwe. The findings helps to assess the effectiveness of working capital on firms’ performance in the studied companies for program evaluation.
The research also helps to develop an understanding of the advantages and disadvantages of financial practices and techniques of managing working capital components in the production industry. The study would suggest various financial management techniques that a production company can use to measure their performance in terms of profitability, for example Current Ratio to assess the firms liquidity status, Activity Ratios, Leverage Ratio, Cash Conversion Cycle, Return on Investment and Return on Equity.
The research participants for the study will include management, employees, distributors, retailers and customers will participate in the study. The research is of paramount to the student in that the study is in partial fulfilment of the requirements of the Bachelor of Honours in Accountancy Degree at the University of Zimbabwe.

The research may be a valued resource to other members of the institution that is of the University of Zimbabwe, who may have an interest in the area of working capital management in manufacturing firms. It may also contribute towards a platform for future research. The findings of this research would help Olivine Industries Zimbabwe by making recommendations for further consideration which include ways of improving the company profitability.
The researcher of the project may encounter limitations during the study of the research topic. The limitations include time, sampling, finance constraints and confidentiality. The research might be limited by the time allowed to gather the relevant information. However, the researcher will have to work during the holiday where possible to gather secondary information on working capital management as well as Olivine Industry.

The fact that the research shall be conducted using sampling raises a risk of being affected by the weaknesses of the sampling methods used. To reduce the risk a higher rate of sampling will be used. Confidentiality of the profession might result in important information asymmetry as a result conclusions maybe made at surface information. Findings will be for academic purposes only. The research is subject to a tight budget where Communication via emails will be used to reduce transport costs. The researcher’s parents will sponsor the printing, telephone and travel expenses. The project also has its own delimitations. Geographically the study will be limited to Olivine Industries, one of the largest manufacturing company of fast moving consumer goods in Harare, Zimbabwe

The research is conducted under some assumptions which include that all information acquired in the study is truthful and therefore reliable and all individuals approached to avail evidence necessary for the research respond, giving information that is true and unbiased.

1.7 Scope of the Research
The research will focus particularly on how working capital management will aid in management decision making for Olivine Industry (PVT) LTD. The researcher will try to make a critical analysis of how management of working capital is of paramount importance to the management of Olivine Industry (PVT) LTD. The researcher will closely look at the extent of the importance of effective working capital management systems in the day-to-day running of the Olivine Industry (PVT) LTD. The scope will be limited to Olivine Industry (PVT) LTD.

1.8 Research Methodology
Polit and Hungler (1999) describe the research design as a blueprint, or routine, for conducting the study in such a way that maximum control will be exercised over factors that could interfere with the validity of the research result. The research design is the researcher`s overall plan for obtaining answers to the research questions guiding the study. The designing a study helps researchers to plan and implement the study in a way that will help them obtain the intended results, thus increasing the chances of obtaining information that could be associated with the real situation.
In trying to access the relevance of working capital management, interviews will be carried out as research instrument with the managers of Olivine Industry (PVT) LTD. Interviews have been selected as a research instrument because of the need of obtaining highly personalized data. Questionnaires will also assist to obtain some uniform answers to assist in data analysis.

1.9 Literature Review
While the performance levels of manufacturing industries have traditionally been attributed to general managerial factors such as manufacturing, marketing and operations, working capital management may have a consequent impact on manufacturing industries survival and growth.
Working capital starvation is generally credited as a major cause if not the major cause of manufacturing businesses failure in Zimbabwe. The success of a firm depends ultimately on its ability to generate cash receipts in excess of disbursements. The cash flow problems of many manufacturing businesses are exacerbated by poor financial management and in particular the lack of planning cash requirements R M Jarvis et all, (1996) .
Working capital refers to the cash a business requires for day-to-day operations, or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for revenue. Working Capital Management for financing production firms is not only very important for the production firms, but also important for financial institutions, the government, and all other stakeholders in the production firm business line. While the performance levels of production firms have traditionally been attributed to general management factors such as manufacturing, marketing and operations, working capital management may have a consequent impact on market share and profitability.
On the other hand, it is possible to claim that most popular measure of working capital management is the Cash Conversion Cycle. This refers to the number of days between the expenditure of the firm`s cash for the purchase of raw materials and the collection of cash sales.

1.10 Chapter Summary
This chapter of the dissertation focused on the introduction of working capital and describes the whole issue of the project. It also outline the background of the study, problem statement, research objectives, research questions, research hypothesis and justification of the topic under research.
The chapter also involves; a summary of literature review which plays an important role in shaping your research problem and helps you to conceptualize your research problem clearly and precisely. The chapter also involves a summary of the research methodology to be used in the process of collecting relevant data about the project.

1.11 Organisation of the Study
Chapter 1 is an introductory study of the project. Chapter 2 focuses at the Literature Review which helps you to conceptualize with the research problem. Chapter 3 outlines the Research Methodology which brings out the methods to be used in the collection of data. Chapter 4 is on Data Presentation and Analysis. Chapter 5 states the Conclusions and Recommendations.

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CHAPTER 2
LITERATURE REVIEW
2.1 INTRODUCTION
Working capital refers to the cash a business requires for day-to-day operations, or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for revenue. Working Capital Management for financing production firms is not only very important for the production firms, but also important for financial institutions, the government, and all other stakeholders in the production firm business line as it determines the liquidity of the company. While the performance levels of production firms have traditionally been attributed to general management factors such as manufacturing, marketing and operations, working capital management may have a consequent impact on market share and profitability.
The concept of working capital management was originally to ensure that obligations could be met in case the firm went into liquidation or judicial management. Holding adequate short term assets ensures that the company is able to settle short-term creditors in the case of being liquidated. Thus, the main aim was to run the business in such a way that short-term assets matches against short-term liabilities.
2.2 Relevant Theory 1
According to this approach, the scope of the financial manager are confined to raising of funds Kehinde and Abiola, (2005) , during major events (such as promotion, recognition, expansion) in the life of the firm. The financial manager has the basic obligation of ensuring that the firm has enough cash to meet its obligations. A notable feature of the traditional approach on financial manager’s duty is the assumption that the financial manager has no concern in the decision of allocating the firm’s funds. The problem of the approach is that much emphasis is placed on long term financing to the detriment of working capital management.
Deloof (2003) discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed have a significant impact on the profitability of those firms. Using correlational and regression tests, he found a significant negative relationship between the gross operating income and thee number of days accounts receivables, inventories and accounts payable of Belgian firms. Trade credit policy and inventory policy are measured by the number of day’s accounts receivable, accounts payable and inventories, and the cash conversion cycle is used as a comprehensive measure of working capital management. The results suggested that managers can increase corporate profitability by reducing the number of day’s accounts receivable and inventories. Less profitable firms wait longer to pay their bills.
Working capital is also a major external source of capital 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 borrowings. Working capital position of such firms is not only an external firm-specific matter, but also 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 result in borrowing capability and decrease in default risk (and consequential decrease in cost of capital and increase in firm value. So it is possible to state that efficiency in working capital management affects not only short-term financial performance (profitability), but also long-term financial performance (firm value maximization).
2.3 Relevant Theory 2
Berger and Bonaccorsi di Patti (2003) supported that leverage has a direct impact on agency cost which influences firm performance. They proposed that high leverage or low equity capital ratio causes to reduce the agency cost related to outside equity and raises firm value. They used annual information of U.S. commercial banks from 1990 to 1995. Their result showed that a 1% increase in leverage decrease equity capital ratio surrenders a predicted 6% increasing profit efficiency. Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. However they proposed that a new approach is to be used in testing profit efficiency, or how close a firm`s profits are to benchmark of a best practice firm facing the same exogenous conditions.
Usama (2012) extended the work of Rehman and Nasar regarding working capital management while taking the sample of 18 companies from other food sector listed on Karachi Stock Exchange for the period of 2006-2010. The researcher used different variables to measure working capital management such as average collection period, inventory turnover in days, cash conversion cycle, average payment period, debt ratio, firm size, current ratio and financial asset to total asset. Using common effect model and pooled least square regression, the results indicated that working capital management has significant positive association with the firm`s profitability and liquidity. He also concluded that firm size and minimum inventory turnover inn days has positive influence on firm`s profitability.

Liquidity, as a function of current assets and current liabilities, is an important factor in determining the working capital policies and indicates firm`s capability of generating cash in case of need. Current, acid test and cash ratios as traditional measures of liquidity are incompetent and static balance sheet based measures that cannot provide detailed and accurate information about working capital management effectiveness Finnerty (1993). Formulas used for calculating them consider both liquid and operating assets in common. However, considering operating assets like accounts receivables and inventories with cash and cash equivalent assets is illogical for basic principles of cash management.

2.4 Relevant Theory 3
This approach derive its impetus from Lord Keynes (1936) . The core of the new theory, as applied to the business finance is found in the macroeconomic concept that level of aggregate economic investment depends on two factors that is: The additional expected rate of return on investment (marginal efficiency of investment). Marginal efficiency of capital as ratio between the prospective yields of additional capital goods and their supply price i.e.

E = Y/P
Where E = Marginal efficiency of capital
Y = the estimated yield of the capital asset
P = the supply price of the assets respectively or the original cost of investment.
The marginal efficiency of capital (e) is considered an important determinant of whether an entrepreneur should or should not take interest (r). The entrepreneur will optimize his profit if he continues to take up additional investment until e = r.
According to Geoffrey Elliot, (1969) the function of the financial manager is to review and control decisions to commit or recommit funds to new or on-going uses. Thus, in addition to funds, financial manager is directly concerned with production, marketing and other enterprises activities whenever decisions are made about the acquisition or distribution of assets. It is the totality of the current assets of the business which includes account receivables, cash, short date securities, bill receivables and stock. The gross concept advocates that a firm should possess working capital just adequate and sufficient to match the operating cycle. It ensures that excess investment in cash is avoided, as excess investment in cash turns into excess liquidity resulting in loss of income or profits. This is called optimal level of investment in current assets.Net concept emphasis continuous liquidity of the firm. The concept looks at the finance of the working capital by a permanent source of funds for example shares, long-term debt, preference share capital retained earnings, debentures, etc. the net concept advocate the efficient mix of long-term and short-term sources of finance working capital.
Mohamad and Saad (2010) explored the effects of working capital to the company’s profitability and the value of the company. The result shows that there are significant negative associations between working capital and company’s performance. Another approach investigates the relationship between aggressive and conservative working capital practices. Results strongly show that companies in differing industries have significantly different current asset management policies. It is evident that there is a significant negative correlation between industry asset and liability policies.
The analysis of Working Capital Management of Nigerian firms shows that a well designed and implemented working capital management is expected to contribute positively to the creation of firm’s value E. Organdie, (2012) . The study conducted show that sales growth, cash conversion cycle, account receivables and inventory period affect firm positively, while leverage and account payable affect firm profitability negatively. In another study of selected firms in Nigerian shows that firm’s profitability is reduced by lengthening the number of day’s accounts receivable, number of days of inventory and number of days accounts payable. The result shows that shortening the cash conversion cycle improves the profitability of the firms.

2.5 Conceptual Framework
The Working Capital meets the short-term financial requirements of a business enterprise. It is a trading capital, not retained in the business in a particular form for longer than year. The money invested in it changes form and substance during the normal course of business operation.
Working capital refers to the cash a business requires for day-to-day operations, or, more specifically for financing the conversion of raw materials into finished goods, which the company sells for revenue in the short-term or long-term. Among the most important items of working capital are inventory levels, amount of accounts receivables and accounts payable. Borrowing is reduced if Olivine effectively implement working capital management systems. Even companies with cash surpluses need to manage working capital to ensure that those surpluses are invested in ways that will generate suitably high returns for the business.
Working capital management can help Olivine Industries to secure bank loans easily for the day to day running of the business. This due to the fact that the company will be able to pay the banks in time which also improves the relationship of Olivine and banks around Zimbabwe. Goodwill of the firm is also enhanced with the proper management of working capital as there will be adequate funds to use in the day to day running of the business.
Implementing a successful and effective working capital management system is a greater idea for many companies to improve their earnings. The challenges faced in gaining access to resources and financial markets is due largely to the fact that these companies usually having little or no collateral securities. The few financial institutions, the Microfinance institutions that give credit to companies charge very high interest to make up for the high risk of granting credit to the companies. This prompt companies to look for other avenues to find themselves sources of finance and such include resorting to borrowing from friend companies and ploughing back profit, to attain funds which are usually inadequate to find their business operations and activities.
Effective working capital management can free up cash and generate more earnings today. This is particularly important in tight credit markets like we have experienced in recent years in Zimbabwe. A continuous improvement program focused on cash management, accounts receivable performance and inventory management is part of fundamental business management. The path to success is a discipline approach that challenges management to improve the working capital metrics every day.
Working Capital is particularly important for Olivine Industries Zimbabwe. The firm can generate operational capital by minimizing their investment in fixed assets through the renting or leasing plant and equipment but they cannot avoid investment in cash, trade debtors and stock. However, the relationship between the sales growth and the need to finance currents assets is close and direct.
The critical objective of working capital management is to maintain the optimum balance for each of the working capital component. This includes making sure that funds are held as cash in banks deposits for as long ads and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be invested in other assets or reducing other liabilities.
Each component of working capital that is inventory, receivables and payables has two dimensions TIME and MONEY, Thomas and Searborouh (1987) . If it comes to managing working capital, Times is money. If you can get money to move faster around the cycle (e.g. collect monies due to debtor more quickly or credit sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you will have additional free money available to support additional sales growth or investment. Moyer et al submit that effective cash management is particularly important for Olivine for the following reasons
• To prepare financial plans to support application for bank loans
• Because of limited access to capital, a cash shortage problem is both difficult and more costly for a small firm to rectify than for a large firm,
• Many entrepreneurial firms are growing rapidly, they have the tendency to run out of cash. Growing sales require increases in inventories and accounts receivable thereby using up cash resources; and
• Entrepreneurial firms frequently operate with only a minimum of cash resources because of high cost of and limited access to capital
Having inadequate working capital has some demerits which have proved costly to some companies in the manufacturing industry. It leads to the accumulation of excessive creditors due to the lack of cash and cash equivalents which can be used to settle accounts of the creditors in time. This leads to poor relations with the suppliers of raw materials who give credit terms and also discounts at prompt purchases.
Spare funds like too many debtors and stocks will be tied up which yields to no profit. This leads to zero investment in the business like expansion and the purchase of non-current assets which require dome bit of cash in hand and bank to acquire them. This has the danger of using out of date production processed due to out of date assets.
In practicing working capital management, there are factors that affect working capital. Nature of the business determines the way working capital is to be governed in the company. Fast food outlets like KFC require quick money to be able to run its day to day operations therefore they require less working capital. However the operations of Olivine can allow the investment of money in stocks and debtors as there is no rush for quick money for the running of the day to day operations.
Business cycle as influences the operations of working capital. During the boom stage of a business cycle, working capital might be required in any amounts since there will be money circulating in the economy. However in the recession cycle, the economy will be in an economic hardship therefore there is no use to tie up money which yields profits in stocks and debtors.
Market conditions also affects the level of working capital. When demand is high in the market for cooking oil, olivine might opt to invest its monies in inventories of cooking oil so as to meet the market requirements. This will help to boost the sales turnover resulting in increased profits. However, if the demand is low, there is no need to keep money invested in inventories. The money might be used in money market to gain interest
There also other factors that influence working capital of a firm which included the dividend policy, production policy, inventory policy and operating efficiency.
There accounting ratios associate with working capital management which are as follow
• Current ratio
• Acid test ratio
• Inventory days
• Inventory turnover
• Trade receivable days
• Trade payable days
• Sales to working capital ratio
Current ratios is the most critical working capital management ratio as it measure receipts to come and the obligations to be met by the company. It is the relationship that subsists between current assets and current liabilities. If it is below 1, it will be indicating problems in meeting obligations as they fall due.
Acid test ratio is concerned with those assets which can immediately be turned into cash if liquidity problems do occur. Inventory turnover ratio expresses in days how long, on average, a business holds stock for. According to Frank Wood (2007) , the shorter its turnover period the better, since the money is tied up in stock and stock will be converted into cash more quickly, enabling an organization to realize profits sooner rather than later. The average length of time that inventory is held will depend upon the type of organization and the sector in which it operates. For example, a restaurant would not expect to hold fresh produce for more than a few days.

In working capital management there is also the cash operating cycle or cash conversion cycle which is the number of days between paying suppliers and receiving cash from sales.
Cash operating cycle = Inventory days + Receivable days – Payables days

2.6 Chapter Summary
This chapter was designed to review the literature used in this study, review previous studies on working capital management by other authors evaluating the theories they concluded. The chapter further gives a clear view of how the variables in the research questions linked together and how they depend on each other wholly, thus how working capital management can be an aid in the effective running of a business.

CHAPTER 3
Research Methodology

3.1 Introduction
This chapter will describe the methods that the researcher used to collect, and analyse the data; dominated by desk research for electronic books, publications, reports, working papers, electronic newspapers, journals on working capital management literature in particular. Research methodology is the systematic, theoretical analysis of the methods applied to a field of study. It comprises the theoretical analysis of the body of methods and principles associated with a branch of knowledge.
According to Irny and Rose (2005) , research methodology is the analysis of the principles of methods, rules and postulates employed by a discipline. Typically it encompasses concepts such as paradigm, theoretical model, phases and quantitative and qualitative techniques. Quantitative approach adopts experimental and computational methods. The conclusion is reached after following the rigorous process of observation made from experimentation performed on the object. In qualitative approach, the researcher analyses the objective and studies it on the basis of a previous case study or a grounded theory. Usually this approach is used in routine business scenarios.

3.2 Research Design
Polit and Hungler (1999) describe the research design as a blueprint, or routine, for conducting the study in such a way that maximum control will be exercised over factors that could interfere with the validity of the research result. The research design is the researcher`s overall plan for obtaining answers to the research questions guiding the study. Burns and Grove (2001) state that designing a study helps researchers to plan and implement the study in a way that will help them obtain the intended results, thus increasing the chances of obtaining information that could be associated with the real situation.
This research is based on surveys and a case study of Olivine Industry (PVT) Ltd. The surveys will be accompanied by the use questionnaires and interviews as research instruments. this research is based on ethics which refers to the appropriateness of the researchers behaviour in relation to the rights of those who become the subject of the researcher work or are affected by it A. Saunders (2001).

3.2.1 Research Philosophy
Research philosophy is the development of knowledge and the nature of knowledge Saunders (2009). There are several reasons why researchers need to understand philosophical issues before embarking themselves in a particular field Crossan (2003) . The first reason is that research philosophy refines and clarifies the research method to be used in their study and consequently help the researchers to gather their evidence and to answer their research questions. Secondly it will enable to assist the researcher with different types of methodologies and as such avoiding inappropriate and unrelated works and lastly, it helps the researcher to be more creative and exploratory in the method of research Easterby-Smith, et, al. (2002)
In this case the researcher has choose to use the positivists approach which believes that reality is stable and can be observed and described from an objective viewpoint Levin (1988) that is without interfering with the phenomena being studied. This philosophy suits the research questions of this research which requires some observations to be made and this consequently requires the use of quantitative data.

3.2.2 Research Strategy
Research strategy is the methodology that helps the researcher to investigate the research issue. According to Saunders (2003) , a research strategy is a general plan that helps researcher in answering the research questions in a systematic way. An effective research strategy helps the researcher to define that why researcher employing a particular research strategy to conduct the research study in an effective manner. It is also helpful for the researcher to use specific data collection methods to support the arguments Saunders (2003).
Research strategy chosen in this study is the use of case study research strategy. A case study is a research strategy and an empirical inquiry that investigates a phenomenon within its real-life context. Case studies are based on an in-depth investigation of a single individual, group or event to explore the causes of underlying principles The PressAcademia .
The case study is of particular interest because the research requires gaining a rich understanding of the context which is required to answer the research question as outlined by Morris and Wood (1991) .Surveys may also be used in this research. Surveys answer the questions what, who, why and how parts of the research. Surveys offer large amounts of data from a sizeable to be collected in an economic way and it also allows the collection of quantitative data which is used in inferential statistics. However, surveys are time consuming because of representative sample has to be chosen.

3.2.3 Population and Sampling Techniques
Population can be defined as the full set of cases from which a sample is taken. In this case, the population consists only of Olivine Industry (PVT) Ltd.
According to O`Leary (2004) , sampling is the process that is always strategic and sometimes mathematical, which will involve using the most practical procedures possible for gathering a sample that best represents a larger population. Kumar (2005) motivates that purposive sampling is extremely useful when constructing a historical reality, describing a phenomenon or developing something about which only a little is known. The technique that will be adopted was non-probability sampling. Non-probability sampling is a sampling technique in which unit of the sample are selected on the basis of personal judgment or convenience; the probability of any member of the population being chosen is unknown.

Convenience sampling “is the selection of participants because it is convenient to access and recruit them, with no attempt to represent the general population to gather up specific purpose sample” Chrisler and McCreay, 2010) . It is a sampling method where the researcher selects the research sample based on ease and proximity to the researcher. The main advantage of convenience sampling is that it is typically quicker, easier to recruit and it does not necessitate exhaustive work from a resource viewpoint that is working within the limits of your resources. In this case the study is convenient to the researcher since the researcher resides in Harare.
Convenience sampling is advantageous because of reduced cost of the study. It would be costly to spend a lot of time and resources in trying to obtain randomly selected participants in a study than participants who were selected in this way that is convenience sampling. It also does not require researchers to travel and pay participants or supply certain items to the participants.

3.2.4 Data Collection Methods
Data collection methods involve the use of research instruments which are used to reach the sample for the purpose of this research. As already stated in our chapter introduction, the main sources of data were from both primary and secondary sources. When collecting data “each measure needs to be weighed up and considered in the light of your own research goal, as well as the researchers method`s inherent advantages and disadvantages” O`Leary, (2004).
Primary data is the information that you collect specifically for the purpose of your research project. Primary data is basically from internal members of the business which comprises the owners of small scales and medium scale enterprises, supervisory staff and management personnel. Data collection instrument used were questionnaire, discussion and interviews. The advantage is that it is tailored to the research needs. However the disadvantage is that it is expensive to obtain.
Secondary data refers to the data that was collected by someone other than the user from sources like Business Bulletins, publications, journals, articles from the internet and newspapers. Secondary data is economic that is less expenses and time saving. However secondary data is not always accurate and data may be outdated.
The data collection process was designed to collect data on working capital management of Olivine Industries in Zimbabwe. The instruments used to collect data are questionnaires, discussions and interviews. The respondents are interviewed based on a questionnaire to solicit data on the working capital management of the business. Both open and closed ended questionnaires items were used. This type of instrument is purposely for those who can read and write. For those who cannot read and write, discussions and interviews were employed. The researcher finds no problem having to explain the technical nature of some of the questions to those owners with financial background. However, the researcher had to explain the questions in the local dialect to those owners with no educational background. A dichotomous response items were also adopted to enable the use of Yes or No answers which is easy to adopt.
It is a type of research that involves a face to face discussion with respondents at one location and many may be knowledgeable about the phenomena or subject under study which is in-depth interviews. The researcher will use an interview guide in the process of the interview. Equal chances will be given to respondents which will comprise of men and women in the accounting and auditing profession.
In-depth interviews can be used to compliment questionnaires. They provide a room for the collection of supplementary information and may gunner a high response rate if an only if all the respondents can be reached and interviewed with the expert control of the participants so that others do not dominate the issues under discussion. In the same light, the in-depth interview have the advantage that some respondents can aid the discussions through non-verbal communication expressions which the researcher can easily capture especially where recording equipment is permitted to be used.
However, respondents may not provide what the researcher is seeking where topics are culturally or politically sensitive. The creation of convenient meeting places outside official offices may force some respondents to refuse to participate. On the other hand where the researcher would have made pre-contact arrangements some respondents may not honour them especially those from the armed forces.
Questionnaires are also to be used in this study. A questionnaire can either be open ended or closed and are used to solicit the opinions or views of respondents over an issue. They can either be hand delivered or can be through the post. Questionnaires can be effective, because respondents usually complete them at their own spare time. Care should be taken when using questionnaires especially in designing. Long questionnaires usually receive a low return from respondents and too short a questionnaire may leave critical information that might be needed for study. The language used should be as simple as possible so that respondents will be comfortable in answering some of the questions. Posted questionnaires have a disadvantage of the absence of the voice and non-verbal cues found in depth interviews.
In the study questionnaires will be used due to the fact that the samples are widely spread hence it would reach the study elements quickly and at least cost. The questionnaire guarantees confidentiality, that is, the name of a respondent does not appear on the questionnaire and this ensures anonymity and confidentiality.
One of the weaknesses of a questionnaire is that of misinterpretation of questions by respondents. The researcher will ensure that questions are simple to understand. This also ensures that all subjects have the same frame of reference in responding. The researcher will supplement the questionnaire with the interview; hence vagueness or ambiguities in the questionnaire will be addressed during the interviews.

3.3 Research Procedure
Secondary data was the first source of data obtained by the researcher so as to initially understand the research problem. The secondary data used by the researcher comprises of business bulletins, journals, financial gazettes and business journals and newspapers which contain information that is relevant in the study of the research topic.

As stated earlier, questionnaires will be used as the research strategy of the research topic. Questionnaires will be self-administered to the top officials of Olivine Industry (PVT) Ltd that will be able to provide the researcher with relevant information for the completion of the project. These officials include the managers of the firm which were informed a week prior to the issuing of the questionnaires to get through the questionnaire within a week.

After the gathering of quantitative information from the questionnaires, personal in-depth interviews were carried at the managers of the firm. The purpose of these interviews is to gather qualitative information about the working capital of the firm.

The researcher will use the Statistical Package for the Social Science (SPSS) software to produce bar graphs as well as pie charts. SPSS is suitable for basic statistical analysis. Excel spreadsheet was used to analyse the obtained data. Graphs, tables and pie charts also assisted in the analysis of the found data.

The data collect will pay unwavering adherence to ethics and ethical conduct. Ethics are defined as the principles of right or wrong that are accepted by an individual or a social group. They are a system of principles governing morality and acceptable conduct. The researcher declares that this paper is the original work and is not related whatsoever to her work environment and at the same time it has been done before by any individual, institutions or university. Secondly the researcher will not misrepresent himself during the fieldwork as well as during the collection of secondary data. Thirdly the researcher will not induce the respondent to give him information and where ethical challenges may be encountered in the field and the researcher shall inform his supervisor in advance. The researcher shall not collect data using concealable equipment.

3.4 Research Limitations
The research encountered some limitations which hampered the smooth progress of the project. Time was a limiting factor during the progress of the project. Much time was spent during the analysis of past journals, gathering relevant data from the internet and waiting for response from the dished out questionnaires hence less time was available to carry out the project efficiently and perfectly. The costs incurred during the research were greatly exceeding bounds of reason and this was a limitation to the research. The cost incurred included transport costs, telephone costs, internet access costs and printing costs. During the research, some managers were unwilling to respond to the questionnaires due to work demands of the company hence being a vulnerability to the research process

3.5 Chapter Summary
This chapter focused on the methods that the researcher used to collect and analyse the data obtained from the Olivine Industry (PVT) Ltd. The chapter described the research design, philosophy and research strategy to be used in the research. It also outlines the research instruments, which are questionnaires and interviews to be used in the research. The data collection procedure is also outline in this chapter of the research.

CHAPTER FOUR
DATA ANALYSIS, DISCUSSION AND PRESENTATION OF RESEARCH FINDINGS
4.0 Introduction
The previous chapter discussed research methodology and presents, analyses and discusses data collected from the study. The data was gathered through the use of interviews and questionnaires. To that end, respondents comprised of key officials from the Olivine Industries Pvt Ltd. Out of the 20 questionnaires that were distributed 16 were returned back representing an 80% response rate. The reason why some were not returned was that some respondents indicated that they needed authorisation from their superiors so as to participate in the study.
4.2 Response rate
Response rate is the number of the respondents who actually responded as a fraction of the total sample issued the questionnaires. The data gathered was mainly centred on the qualitative aspect although there was also the quantitative aspect. 20 questionnaires were issues and only 16 were returned answered. The researcher managed to conduct 10 oral interviews with the top 10 officials of Olivine. The table below stresses out the response turnover.
Table 4.1 Response Rate
Research Instrument Applied for Responded to Denied Response Rate per instrument in %
Questionnaires 20 16 4 80%
Interviews 10 10 – 100%
Totals 30 26 4 86,67%
Source: Owner`s Compilation

Section A: Analysis of responses to section (A) of the questionnaire to embassies.

Table 4.2 Gender
Gender Frequency Percentage
Male 13 81
Female 3 19
Total 16 100
Source: Owner`s compilation

Figure 4.1 Gender

Source: Owner`s compilation
The pie chart above indicated that 81% of the respondents were male and only 19% were female. This also indicated that the majority of respondents serving within the organisation were male dominated. This shows that whilst countries around the world have been calling for the advancement of women in various employment circles the nature and composition of female within the sector is patriarchal in nature.
Table 4.2 Age of respondents

Age of respondents Frequency Percentage
20-29 Years 1 6,27
30-39 Years 6 37
40-49 Years 4 25
50-59 Years 3 18
60 Years and above 2 6,25
Total 16 100
Source: Owner`s compilation

Figure 4.2 Age of respondents

Source: Owner`s compilation
The pie chart above indicates that 18% of the respondents were between 50-59 years, a further 37% indicated that they were between 30-39 years. In addition, 25% of the respondents were between 40 and 49 years of age, a further 6,27% indicated that they were between 20-29 years and a further 6,25% were above 60 years. The 37% of the respondents between 50-59years is indicated that most of the respondents were quite aware of the challenges that most companies in the manufacturing sector in Zimbabwe were facing in relation to working capital management as well as the liquidity crisis that they have been facing over the introduction of the bonds notes by the government of Zimbabwe in 2015.
Table 4.3 Academic Qualifications
Academic Qualifications Frequency Percentage
Secondary 0 0
O Level 0 0
A Level 0 0
Degree 4 25
Master’s Degree 10 62
Others 2 13
Total 16 100
Source: Owner`s compilation

Figure 4.3 Academic Qualifications

Source: Owner compilation

The pie chart above indicated that 25% of the majority of respondents had attained a bachelor degree and 62% of the respondents had attained a master’s degree. Furthermore, 13% indicated that had attained other qualifications which they did not specify. This means that most of the respondents were educated enough to understand the possible challenges that Olivine Industries has been experiencing over working capital management and the cash crisis that the country has experienced over the years.

SECTION B

4.2 Other methods of debt payments adopted by Olivine Industries
The respondents indicated that other methods that have been adopted at Olivine industries included bank transfers through Real Time Gross (RTGS) check deposits and it has also agreed with its suppliers of raw materials that such methods were among the best that the manufacturer and its various suppliers could adopt in the cases where cash was not easily available.

4.3 Extent to which working capital management is practiced at Olivine Industries
The respondents indicated that despite some of the challenges that the company has been experiencing it was noted that to reduce the over use of cash in projects developments that the company was trying to embark on, it has instead reduced such projects such as company expansion and the acquisition of equipment which management deemed as unnecessary. Some of the financial managers who participated in the study indicated that the use of liquidity was only prioritised on some areas that were considered as critical in the day to day operations of the company. This however concurs with Geoffrey Elliot, (1969) who pointed out that, the function of the financial manager is to review and control decisions to commit or recommit funds to new or on-going uses. Thus, in addition to funds, financial manager is directly concerned with production, marketing and other enterprises activities whenever decisions are made about the acquisition or distribution of assets. It is the totality of the current assets of the business which includes account receivables, cash, short date securities, bill receivables and stock. The gross concept advocates that a firm should possess working capital just adequate and sufficient to match the operating cycle. It ensures that excess investment in cash is avoided, as excess investment in cash turns into excess liquidity resulting in loss of income or profits.

4.4 Importance of working capital management
The respondents indicated that, working capital management was important in that, liquidity, was an important factor in determining the working capital policies and indicates firm`s capability of generating cash in case of need. However, they also indicated that current, acid test and cash ratios measures of liquidity where incompetent and cannot provide detailed and accurate information about working capital management effectiveness in the current harsh macro-economic environment. They also indicated that factors such as sales growth as well as inventory periods were critical in measuring the position of the firm in term of values. This is in accordance with Organdie, (2012) who pointed out that, a well designed and implemented working capital management contributed positively to the creation of firm’s value. On the other hand, he indicated that sales growth, cash conversion cycle, account receivables, inventory period had an impact on firm’s profitability which financial managers can reduce by lengthening the number of day’s accounts receivable, number of days of inventory and number of days accounts payable.

4.5 Cash and Fund Management
Cash is the life blood of every business since it is used to run the day to day activities of the firm. Cash is the money that is easily accessible either in hand or in the bank account of Olivine Industries Pvt Ltd. Cash does not exist in the form of inventories, accounts receivable or properties but rather can be converted to cash at some point in time, but it takes cash on hand or in the bank to pay suppliers, rent and to meet the employee payroll.
From the study conducted with Olivine, the major source of cash inflow was sales. Olivine highly depends on the sales or payments by customers in exchange of good delivered or sold. According to the interviews conducted, the greater proportion of sales was cash sales. A smaller percentage was of trade customers who bought goods on credit and made payments in the near future. This implies that a lower proportion of the sales constitutes credit sales.
According to the research carried out through interviews with the top officials, the major cash outflow was the purchase of inventories. The inventories are used to produce the final output products to be sold to the general public by Olivine. From the interview carried out, most of the respondents agree with the point of paying suppliers cash as soon as possible or immediately. Their view was that paying suppliers instantly show how efficient Olivine is. However this should not happen since the business can try to negotiate for credit facilities so that cash received from the trade debtors in hand and the extra cash held could be invested in a profitable risk free investment such as a treasury bill rather than the option of letting out cash instantly through the payment of cash to suppliers.
However, Olivine has to find means and ways to get prompt and early receipt from the trade debtors to improve the cash inflow since selling on credit cannot be totally ignored. The company should try to enrich is cash management by implementing the style of credit purchases through effective negotiations and better relationships with suppliers of raw materials and inventories.

4.6 Limitations and shortfalls faced by Olivine Industries in Zimbabwe
The respondents indicated that, some of the limitations that the company was facing in gaining access to resources and financial markets is due largely to the fact that these companies usually have little or no collateral securities. The few financial institutions, the Microfinance institutions that give credit to companies charge very high interest to make up for the high risk of granting credit to companies. This prompt companies to look for other avenues to find themselves sources of finance and such include resorting to borrowing from other companies so as to attain funds which are usually inadequate to find their business operations and activities. However, the respondents did not indicate the companies that Olivine Industries was working with for purposes of confidentiality in relations to upholding company secrets.

4.7 Relationship between working capital management and corporate performance
The respondents indicated that a sound working capital management policy was key to secure loans from financial institutions in the country among them commercial banks because with enough liquidity in hand it was possible to meet the day to day cash needs of the company and it was also possible for lenders to extend financial assistance to the company once they were confidant in the status of their working capital management policy framework. The respondents also indicated that, working capital management could assist Olivine Industries to pay the banks in time which also improves the relationship of Olivine and banks around Zimbabwe. They also indicated that goodwill of the firm is also enhanced with the proper management of working capital as there will be adequate funds to use in the day to day running of the business. Furthermore, they also indicated that implementing a successful and effective working capital management system was a greater idea for many companies to improve their earnings.

4.8 Recommendations which could enhance the efficient practice of WCM at Olivine Industries
The respondents indicated that, working capital was particularly important for the company in the sense that the firm can generate operational capital by minimizing their investment in fixed assets through the renting or leasing plant and equipment but they cannot avoid investment in cash, trade debtors and stock. They also indicated that the most important objective of working capital management by the company was to maintain the optimum balance for each of the working capital component which included making sure that funds were held as cash in banks deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned which can then be used in the investment of other assets or reducing other liabilities.

4.9 Chapter Summary
The chapter revealed the empirical findings on the background of the respondents and working capital management practises implemented by Olivine Industries (Pvt) Ltd. The findings gathered lays the ground for the researcher to make appropriate conclusions and recommendations.

CHAPTER FIVE
CONCLUSION, FINDINGS AND RECOMMENDATIONS

Introduction
In this chapter the researcher summarised findings of the study and makes recommendations to address the research problem. The researcher concluded by making recommendations for further study.

5.1 Summary

The study set out to find out the relevance of Working Capital Management in the management of production firms in Zimbabwe with a particular focus on the Olivine Industries Pvt Ltd. However, a sample of 20 questionnaires was send to Olivine Industries Pvt Ltd.’s various departments. The methodology which was adopted for this was a case study approach. The research methodology which was adopted in the study included a combination of qualitative and quantitative approaches and the method mainly used for data collection included questionnaires and interviews. However, the researcher encountered some limitations during the study some information required for the study was of a confidential and sensitive nature and as a result some participants were not willing to provide information on time as they had to first consult their superiors for permission to get authorisation for them to participate in the study. However, some questionnaires where later returned but the researcher had already done the data analysis from the 16 out of 20 questionnaires that were returned. The researcher overcame this challenge by ensuring that authorisation was obtained before gathering any data and giving assurance that all data collected was only for academic purposes. It was difficult to have an opportunity to interview top officials from Olivine Industries Pvt Ltd as some were committed to other programmes. The researcher overcame this challenge by making appointments in advance and sought approval from relevant offices or departments.

5.2 Findings
The findings from the research study were to find out the relevance of Working Capital Management in the management of production firms in Zimbabwe with a particular focus on the Olivine Industries Pvt Ltd and these were.
• Other methods that have been adopted at Olivine industries included bank transfers through (RTGS) and check deposits.
• The company has agreed with its suppliers of raw materials that such methods were among the best that the manufacturer and its various suppliers could adopt in the cases where cash was not easily available.
• Some of the challenges that the company has been experiencing had been reduced through the suspension of projects developments that the company was trying to embark on among them, the expansion and acquisition of equipment which management deemed as unnecessary.
• Financial managers indicated that the use of liquidity was only prioritised in some areas that were considered as critical in the day to day operations of the company.
• Financial manager were concerned with production, marketing and other activities whenever decisions were made about the acquisition or distribution of assets.
• Working capital management was important in that, liquidity, was an important factor in determining working capital policies which indicated the firm`s capability of generating cash in case of need.
• Sales growths as well as inventory periods were critical in measuring the position of the firm in term of values.
• Some of the limitations that the company was facing in gaining access to resources and financial markets were largely due to the fact that these companies usually have little or no access to financial resources due to the limited capacities for commercial banks as well as the central bank to meet such obligations.
• Interest rates were too high to make up for the high risk of granting credit to companies which prompted companies to look for other avenues to find financial resources such as resorting to borrowing from other companies so as to attain funds which were adequate to find their business operations and activities.
• Sound working capital management policy was key to secure loans from financial institutions in the country among them commercial banks because with enough liquidity in hand it was possible to meet the day to day cash needs of the company and it was also possible for lenders to extend financial assistance to the company once they were confidant in the status of their working capital management policy framework.
• Sound working capital management could assist Olivine Industries to pay the banks in time which would also improve the relationship of Olivine and banks around Zimbabwe.
• Goodwill by the company also enhanced with the proper management of working capital was adequate to secure funds for use in the day to day running of the business.
• Implementing a successful and effective working capital management system was a greater idea for many companies to improve its earnings.
• Working capital was particularly important for the company so as to generate operational capital by minimizing investment in fixed assets through the renting or leasing of plant and equipment but should avoid investment in cash, trade debtors and stock.
• The most important objective of working capital management was to maintain the optimum balance for each of the working capital component which included making sure that funds were held as cash in banks deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned which can then be used in the investment of other assets or reducing other liabilities.

5.3 Recommendations
The recommendations which were derived from the study were that;
• Olivine industries should continue to adopt bank transfers through (RTGS) and check deposits and other methods which it deems necessary so as to remain competitive from foreign competitors.
• The adoption of alternative financial transactions between Olivine Industries and suppliers of raw materials were among the best that the manufacturer and its various suppliers had adopted in the cases where cash was not easily available.
• The company should continue to scale down, or suspend some projects developments that the company had been trying to embark on among such as the expansion and acquisition of equipment which management deemed as unnecessary so as to save cash which it sometimes collects on a daily bases from its customers.
• Financial managers should continue to use liquidity only prioritised in some areas that were considered as critical in the day to day operations of the company.
• Financial manager should direct financial resources in areas such as production, marketing and other activities whenever decisions were made about the acquisition or distribution of assets.
• Working capital management was important in that, liquidity, was an important factor in determining working capital policies which indicated the firm`s capability of generating cash in case of need.
• Sales growths and inventory periods should remain the benchmark through which the company can measure the position of the firm in term of values.
• The company should continue to establish fairly channels through which it can access resources and financial through collaborating and continuous engagement with commercial banks as well as the central bank to meet such obligations.
• The company should work with other institutions were interest rates were low to make up for or to look for other avenues to find financial resources such as resorting to borrowing from other companies so as to attain funds which would be adequate to find their business operations and activities.
• Sound working capital management policy should remain key to secure loans from financial institutions in the country among them commercial banks because with enough liquidity in hand it would be possible to meet the day to day cash needs of the company and it was also possible for lenders to extend financial assistance to the company once confidant in the status of their working capital management policy framework.
• Such sound working capital management could assist Olivine Industries to pay the banks in time which also improves the relationship of Olivine and banks around Zimbabwe.
• Goodwill by the firm also enhances confidence through the proper management of working capital as there will be adequate funds to use in the day to day running of the business.
• The company should implement successful and effective working capital management system to improve their earnings.
• Working capital should remain important so that the company can generate operational capital by minimizing investment in fixed assets through the renting or leasing of plant and equipment but should also avoid investment in cash, trade debtors and stock.
• The most important objective of working capital management is to maintain the optimum balance for each of the working capital component which included making sure that funds were held as cash in banks deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned which can then be used in the investment of other assets or reducing other liabilities by the company.