ABSTRACT
Previously debt can be
talked of when group of societies economic position suffer efficiency. It was
the only tim measure of the organization or individual economic position. At
the dawn of the modern economic life, it has been observed that one can be
debtor and get stands to meet his current liabilities provided it is well
manager.
This research work
delves into the business meaning of debt, analyzing its management in business
organization. The fruit of its efficient management in an organization. The
research did not relent in their effort to point out where and why the impact
of debt is felt mostly in business life. It has found that the debt exist
through the life of the time of a business organization from the initial
capital outlay, in the time of further expansion in daily transaction of either
with the supplier or the cessation or liquidation.
A close look at the
Nigerian Bottling company plc Enugu, Coca-cola the research has employed both
primary and secondary sources of data. Primary surces involves oral interview,
the use of practical or personal observation from sources documents.
While secondary sources
on the other hand are the data sources from published textbooks, journals,
national dailies. Observation also reveals that one can be a debtor as well as
a creditor.
A good financial manager
can source fund by debt invest it and to make a profit before the maturity of
debt. To do this, some speculative factor can be considered and handled so that
balance or breakeven of the risk and return can be sought for and a fairly
equilibrium is met.
TABLE OF CONTENT
CHAPTER ONE
INTRODUCTION
1.1
Background of the study
1.2
Statement of the problems.
1.3
Purpose of the study.
1.4
Scope of the study.
1.5
Research questions.
1.6
Research hypothesis
1.7
Significance of the study
1.8
Limitation of the study
1.9
Definition of terms
References
CHAPTER TWO.
2.0 Review
of related literature.
2.1
Meaning of debt management
2.2
Classification of debt-management
2.3
Analyzing debt management in relation to organization working capital.
2.4 Cost
of capital in relation to debt management technique.
2.5 Different
school of thought in debt management
2.6 Different
types debt – management
2.7 Debt
– management in financing organization capital structure
2.8 Cost
of debt capital in business organization
References
CHAPTER THREE
3.0
Research design and methodology
3.1 Research
design
3.2 Area
of the study
3.3 Population
of the study
3.4 Samples
and sampling procedure / technique
3.5 Instrument
for data collection
3.6 Validation
of the instrument
3.7 Reliability
of the instrument
3.8 Method
of data collection
3.9 Method
of data analysis
References
CHAPTER FOUR
4.1 Presentation
and analysis of data
4.2
Testing of hypothesis
4.3
Summary of result
References
CHAPTER FIVE
5.0
Discussion, recommendation and conclusion
5.1
Discussion of result / finding:
5.2
Conclusion
5.3
Implications at the research funds
5.4
Recommendation
5.4
Suggestions for further research
Bibliography
Appendix i
Appendix ii
CHAPTER ONE
1.0 INTRODUCTION
1.1
BACKGROUND OF THE STUDY
In contemporary business
setting, debt is seemingly inevitable. Sometimes it emanates from short fund
convenience with the prevailing trade terms. Debt does not occur only when
money is borrowed. It equally occurs when there is exchange of goods or services
with a deserved payment. So each time goods or services are exchanged with a
deferent of its financial obligation, there is incidence of debt.
A good business may not
always write to finances the commencement of his business from his personal
savings. If he does, so many things may happen. Either that the business is
under financed or the business is foregone, likewise a business firm for one version
or the other may not finance through equity aware only. The management may wish
to source the fund through debt. Even after the commencement, the firm may
further need extra funds for expansion or for speculative purposes. Hence, this
project work looks into the analysis of debt in a dual perspective:
i. In the accumulative of fund, either for the
commencement or expansion and
ii. In trading relationship (trade debt).
(i)
At the commencement of a consciences organization, the owners try to maintain a favourable
capital structure. Ordinarily, it is normal for the business owners (equity
holder) to finance the business. But more often, the funding of a business goes
beyond that. The choice of the capital structure and the funding technique is
left at the mercy of the financial managers. On doing so however, he doesn’t
overlook or neglect the major organizational objective; maximization of the
owners wealth.
Business organizations
usually strive to achieve a number of objectives. These corporate objectives
provide a set of criteria upon which financial decisions can be based. In
general terms of business organization seek to achieve by obtaining funds from
various sources and investing some reasonably. It is important to recognize
that the various types of funds raised has its own cost and each has certain
risks. For example, loans (secured and unsecured), debentures, preference and
ordinary shares. Loans raised ob the security organizations assets tend to have
fairly low rates of interest although they imply certain risks. Failure to meet
the terms of the loan on the due date would empower the tender to confiscate
the said assets with potentially catastrophic consequence for the borrower.
In contrast, an unsecured loan on which no assets is pledged, though escaped
the last cited risk cost higher. It has higher cost than the former. Preference
share on the other hand may have a relatively annual rate but its payment is
binding irrespective of whether profits were made or not.
Ordinary share however has no fixed charge as such. Its dividend depends on the
periodic business profits yet excessive use of equity shares is determine to
the organizational control, if it is not technically handled. When the equity
share is used in marginal funding of the firm, it is only advisable when the
return from the issue is such that share prices would increase. One would not
expect an issue of share to be made with an expectation that share prices would
fall since that would reduce shareholders wealth. So it can be said that the
minimum return required from a new issue is that which would leave the share price
at its present level.
Since it is one of the
organizational objectives to maximize the equity holders, wealth and random use
of ordinary shares tantamount this. The management would have no option than to
resort to debt financing to complement equity. This is one of the reasons why
debt financing is almost inevitable in the capital structure of a business
organization of today. Then with the attendant risk and return relationship,
the financial manager always seeks for a fair equilibrium to the best interest
of the firm for its survival and for attainment of its set objectives.
(ii)
Trade Debt: - with the exception
of most types of retaining commercial sales are usually made on credit. This
means that cash settlement legs sometimes behind the delivery of the goods or
the consumption of the service to which the payment relates. The main reason
for these practices are attributed to the present commercial tradition for
convenience aid to the buyers and even to the sellers. This trading terms leads
to debt but it is encouraged for the following reasons
a) The recipient will need to assure himself that
the goods are satisfactory prior to payment.
b) Additional safeguard will need to be introduced
with regards to the cash collected.
Even when and where it
would be reasonable practicable to pay on delivery, customers are reluctant to
forgo the traditional credit period. Since they do so, it would increase their
own financing costs.
The practice of allowing
credit has thus come to be widely accepted as normal. The use of credit however
has certain costs associated with it and the analyzing debt management requires
a clear identification and balancing of these various costs. To achieve this
however, the financial manager and the management had to consider the costs
under two categories:
a) Cost of
allowing credit.
b) Cost of
refusing credit.
1.2 STATEMENT
OF THE PROBLEMS.
Debt has implication in
the life of every business organization. Poor analysis of debt management
affects a firm adversely. It could be recalled that the effective capital
structure of a firm emaciate from the ability of the financial manager and the
management to blend debt with equity. It is pertinent to note that many
businesses have gone into compulsory liquidation due to poor analysis, which
leads to poor debt management. The cost of capital therefore shall be bargained
with critical consideration of the organizational Internal Rate of Return
(IRR).
On the sale
relationship, the credit term shall be determined with an absolute review of
the overall business environmental factor. While resisting debt for its risks,
the goodwill of the customer shall not be overlooked entirely.
This work tends to deal
debt in its relation with a business organization. It brings about a number of
problems which includes among others:
i. The
cost of capital in financing market is an extra charge to the business
organization. Such a cost eats deep into the owners fund.
ii. Secured
debts do not only affect the liquid assets of the firm but also dare to extend
its effects into the fixed assets of the firm.
iii. Preference
share has a fixed periodic charge, which accumulates inconsiderate of whether a
profit is made or loss suffered. This gives a firm an adverse concern
especially during an unfavorable business atmosphere.
iv. Inability
to melt the financial obligation of a business organization eventually lead to
the organizational liquidation, which is an economic death of the firm as an
entity.
In the business tending
policy, a firm tries as much as possible to minimize credit for the following
reasons:
a. It
brings about bad debt, which is a deadly disease to a business.
b. Later
settlement of debt in beating the stipulated credit return destabilizes the liquid
stability on the firm and eventually leads to bad debt.
c. Protracted
debt denies the business organization the chance of using their business
opportunities as they fall due.
This project is not
pessimistic to debt at all neither does it intend to criticize debt and
anything about it, rather it delves into the problems and consequences of debt
and analyzing its management situation.
Despite the above-cited
deaneries, debt has a number of merits. In the optical structure, some
financial mangers commend debt financing for the following reasons:
i. Difficulties
in raising ordinary share capital.
ii. Peoples
reluctance to spearhead risks
iii. For
expansion and speculative purpose, that debt funding is preferable since
further use of equity may dilute the control of the firm.
iv. It
may even affect the price of the stock properly handled.
On the transactional
terms, absolute refusal of credit for debt aversion has its own adverse
effects:
a) It reduces
the sales volume and hence the profit prospects
b) It affects
the goodwill of the business hence firms in the fac3e of its customer and
degrades its inedibility in market scene.
c) The firm
can only stand in an absolutely monopolistic market and this is verily
obtainable.
1.3 PURPOSE
OF THE STUDY.
From the look of things,
it is self evident that modern business can hardly survive and meet the
objectives and expectations of the interested parties without debt. Debt on the
other hand cannot be purged on its attendant merits and demerits. Since the
impact of debt is being felt from the inception of a business (from commencement)
to the cessation date (the day it is wound up). The financial manager starts
his decisions on debt from the setting of the capital structure.
Sometimes the business
may need additional fund either for improvement, innovation and expansion or for
speculative purpose. These came as an opportunity to the firm, which the
management may not like to miss. But very often, the retained earnings may not
be enough to cater for this. as such, the fund is sourced externally.
In the trading
activities of the firm, credit cannot be eliminated completely. The firm can
either be a recipient, a giver or both. This is possible in its relation with
its suppliers and customers. And wherever there is a creditor, there must be a
debtor. So credit and debt are just like two sides of a coin. So in an economic
system, “what cannot be avoided must be managed”.
So this research will
take a closer look into the strategies of analyzing debt management situation,
relate same to the contemporary business environment in Nigeria with a
particular overview or reference to Nigeria Bottling Company PLC: Coca- cola,
Enugu, their trading terms, collection period, the incidence of bad debt and
capital tied down as a result of delay in debt collection.
1.4
SCOPE OF THE STUDY.
The scope of the study
covered was on analyzing debt management technique in Nigeria business
organization with much concerned to Nigeria bottling company plc. However, for
further reference and clarity, emphasis are made from other reasons and these
are consider vital, thus such emphasis are an profitability, solvency,
flexibility, conservation and control.
1.5
RESEARCH QUESTIONS.
(a) How
does debt financing bring about an optimal capital structure in a business
organization?
(b) Will
good analysis of trade debt management help measure an effective working
capital management in every business organization?
(c) What
effort will be made to reach every latent problem, inherent in analyzing debt
management in areas of organizational capital structure?
(d) How
does the important element in decision about resource helps to finance the
ambiguity- surrounding concept of the cost capital.
1.6
RESEARCH HYPOTHESIS
In a continued effort to
reach an appreciable equilibrium in the problems and consequences of debt and
its effective management, we (researcher) employed a selected statistical to
enable us reach a fair conclusion.
In the light of the
above, therefore the following major hypothesis have been formulated.
Hypothesis mean a tentative statement made by a researcher, subject to tests)
with a view to forming basic to study a phenomenon.
These hypothesis when
tested, can confirm or repute the extent at which these advanced statement can
be upheld.It can equally place the researcher on the solid ground of drawing
his conclusion and a subsequent recommendation.
HYPOTHESIS
1.
Ho: Effective debt financing does not brings about an optional capital
structure in a business organization. (NULL)
Hi: Effective debt financing brings about an
optional capital structure in a business organization. (ALTERNATIVE)
2.
Ho: Good analysis of trade debt management is not good measure of an effective
working capital management in a business organization. (NULL)
Hi: Good
analysis of trade debt management is a good measure of an effective working
capital management in a business organization. (ALTERNATIVE)
1.7 SIGNIFICANCE
OF THE STUDY
The significance of
analyzing debt management situation is a broad as the scope of the business in
question and its economic environment and as length as the life of business
poor or financial management in a business organization is first evidenced in
its inefficient debt management and epitomized in its liquidation. This is the
reason why the researcher endeavours to look into a firm and consequences of
debts.
In the capital structure of a firm, the debts prospect of the organization
project is to be considered and a careful decision made to avoid setting off
with a long toot. These are the areas this work look into, in a trading
business firm, the role of the marketing manager and the financial manager of
deciding on the organizational credit policies is brought to light with dare
recommendation.
This work tends to strike a fair balance in their turn and risks of
debt. This will be of
great importance to the interest groups and prospective scholars in the field.
This is done by through review of the post, which is related to the present and
employed in the recommendation for a better future.
DEFINITION OF TERMS
(i) Debt:
Money or something owned by or someone
- a
liability or an obligation.
(ii) Debtor:
One who owes the liability or obligation
(iii) Management: The
process of planning, organizing, leading, and controlling the work of
organization members and of using all available organization resources to reach
stated organizational goals.
(iv) Credit: Trust
or confidence in a buyer’s ability intention to pay at the same future time,
exhibited by out rushing him with goods and services without present payment.
(v) Capital
structure: Debt or equity relationship, it is configuration of equity
capital and loan capital in the long term financing of an organization.
(vi) Equity: The
risk bearing portion of the long term capital of a business organization.
Department | Business Administration and Management |
Project ID Code | BAM0194 |
Chapters | 5 Chapters |
No of Pages | 92 pages |
Methodology | Chi Square |
Reference | YES |
Format | Microsoft Word |
Price | ₦4000, $15 |
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Contact Us On | +2347043069458 |