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CHAPTER ONE 

INTRODUCTION 

1.1 Background of the Study 

Cash management is essential to every business that desires to meet up with its short-term financial obligations. Akinsulire (2003) asserts that the success of any business venture is predicated on how the management has planned and controlled its cash flows. According to Olowe (2008), cash management is concerned with the efficient management of cash so as to achieve an optimum level of cash in the firm’s working capital. Cash represents the basic input necessary to start and keep a business running. A company needs to maintain sufficient cash to keep its business running smoothly. Cash shortage will disrupts the firm’s operation and can even lead to insolvency. Excessive cash will tie down unnecessarily long-term capital with a result that the return on capital employed will be low. A firm thus needs to maintain sound cash position.  Working capital management or cash management is among the four vital decision areas of financial management, for which every profit making organization has to make (Pandey, 2005). Interestingly, working capital components of a firm’s financial management deals with the liquidity aspect of a firm and hence fundamental for the effective and efficient operations as well as the sustainability of its going concern status (Enyi, 2006). It is worth mentioning from the outset that working capital and liquidity are use in this study interchangeably and relates to the management of current assets and currents liabilities of an enterprise. This synonymy is based on the observation that working capital ratios are the most common measures of liquidity (Lamberg, & Valming, 2009). Liquidity management as it were, determines to a large extent the quantity of profit that result as well as the value of shareholders wealth (Ben-Caleb, 2008). This is because, a firm in order to survive must remain liquid as failure to meet its obligation in due time results in bad credit rating by the short term creditors, reduction in the value of goodwill in the market and may ultimately leads to liquidation (Bhavet, 2011). Hence, a good and firm financial management policy seeks to maintain adequate liquidity in order to meet its short-term maturing obligations without impairing profitability. Unfortunately, the principal focus of most organizations is profitability maximization while the need for

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