Cash Management Thesis Chapters 1- 4

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Chapter 1 THE PROBLEM AND ITS BACKGROUND Introduction Cash is considered as the lifeblood of all business establishments, whether small, medium or large in scale, it is the most vital asset which provides the basis of its life. It should be managed efficiently to support the growth and financial strength of the business, with sufficient cash a business has the ability to buy almost any of the other resources. Due to its vitality, cash management can be crucial and difficult up to a point in which every decision can affect the business in a great degree. It is a key component of ensuring a business’ stability and solvency. If at any time, a business fails to pay an obligation when it’s due, the business is insolvent which the primary reason why businesses go bankrupt. This is the reason why good management of cash is required in running a business. Successfully managing cash is an essential skill for small business developers because they typically have less access to affordable credit and have significant amount of upfront costs they need to manage while waiting for receivables. Cash management involves a broad area of financing which includes the collection, handling, and usage of cash. Wisely managing cash enables a business to meet unexpected expenses in addition to handling regularly-occurring events.

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Cash management therefore, is a challenging and difficult task, due to the fact that the life of the business hangs in the balance, which is why business owners need to manage their cash efficiently; they also need keep track of every movement of money received or spent, as well as the changes in their environment. We chose this matter as the subject for this study in order to gain more knowledge on how to manage cash more effectively in order to help other people who lack knowledge about cash management. Successful cash management involves not only avoiding insolvency, but also reducing days in account receivables, increasing collection rates, selecting appropriate short term investment vehicles, and increasing days in cash on hand, all in order to improve the business’ overall stability and financial profitability. Background of the Study Since the 1990s, there has been a resurgence of interest on the role of small scale business enterprises in the Philippines, in national and international economic and social development. Small scale businesses are vital to the success of the economy. Not only as they provide the success stories of the future, but also because they meet local needs (e.g. hairdresser, financial consultant, and emergency plumber). This is consistent with the overall shift of development strategies in many countries toward a more decentralized, even localized, approach. As such, many scholars, practitioners, and institutions involved in economic development have begun to recognize the important roles

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that smaller-scale business entities play in the economy and society. More and more people are becoming convinced that these entities can be a very effective means of achieving, not only economic progress, but social goals as well. All of these suggest a greater need to increase our understanding of the nature and capabilities of small scale businesses in their cash management practices as well as the common problems that they encounter. Some of the common problems a small scale business owner faces are miscalculations and wrong allocation of cash resulting in shortages and failure to meet necessary obligations. Literature Review Babil (2012) cited that “cash management means the management of liquidity in order to meet their day-to-day commitment”. Tonen (2007) the researcher stated that “it is reasonable to expect that the role of financial transactions in the cash management process in adding to firm value has increased its importance and change the cash management behavior of firms.” Pandey (2007) “Cash is the important current asset for the operations of the business which 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

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anything towards the firm's profitability. Thus, a major function of the financial manager is to maintain a Sound cash position.” Isidro (2015) shared her views on the importance of cash. She stated that “Cash flow is an essential ingredient to the survival of your small business. It is the flow of money in and out of your small business, and the quantity as well as timing of that flow is critical to the continued operation of your business.” “Cash helps your business purchase items it needs to produce products and services for profit, thereby helping your business to generate more cash for its operation. If customers are slow to pay or your pricing structure does not adequately cover the cost of production, your business will not have enough cash to continue operation. Even if your business is turning in a profit, you can still be forced to close if your business runs out of cash!” Laudato (2013) stated that “cash management offers a great deal of importance in operating business. The business will not survive if the finance manager does not know how to handle cash effectively”. She also mentioned in her study that “the cash management is the planning, controlling and accounting of cash transactions and cash balances. Because the cash move so readily between bank accounts and financial assets, cash management really means the management of all the resources”. According to Gitman (2006), “You need to understand the difference between strategic and operating plans, and the role of each; the importance of

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focusing on the firm’s cash flows; and how use of pro forma statements can head off trouble for the firm. Tennet (2012) mentioned in his book, “of all the resources cash is probably the most important. With sufficient cash a business has the ability to buy almost any other resources in which it may be deficient”. Richardson (2005) stated that “cash management is the movement of funds through financial institutions to optimize liquidity. It is the management of corporate funds to increase interest income earned by maximizing investments and/or reducing interest paid by minimizing borrowings”. He also mentioned that “cash management is a financial discipline that uses the same principles, regardless of the type of business, size or age of an enterprise”. “Cash management is not an accounting function. The accountant records and reports transactions historically; the cash manager plans and executes these financial transactions. Cash managers use techniques, products and services to efficiently manage cash resources and satisfactorily resolve cash shortages surpluses”. Morgan (2005) mentioned in his book that “cash is one of your most important assets and should be managed efficiently to support your growth and financial strength”. Ward (2013) stated that “cash flow management is the process of monitoring, analyzing, and adjusting their business’ cash flows”.

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According to the study conducted by Leung (2005), “cash plays a vital role in a company’s operation. It is used to pay wages and salaries, trade debts, taxes and dividends. It not only enables the company to promptly pay its creditors and suppliers so as to foster good relations but also lets the company take advantage of favorable business opportunities. Most importantly, it keeps the company liquid and prevents it from insolvency or bankruptcy. He also mentioned “the objectives of cash management: (a) to have sufficient cash for operation in order to maintain liquidity; and (b) to invest excess cash for a return”. “It was also mentioned that “cash is the most active item on the accounting statements. The movement of cash completes almost all purchases and sales transactions. Purchases of goods and services normally results in cash payments; sales normally result in cash receipts. Cash more than any other asset, is the item involved in business transactions. This is due to the nature of the business transactions which include a price and condition calling for settlement in terms of the medium of exchange.” “In striking contrast to the activity of cash is its unproductive nature. Since cash is the measure of value, it cannot expand or grow unless it is converted into some other properties. Excessive cash balances of cash on hand are often referred to as “idle cash”. Efficient cash management requires that available cash be continuously working in one of several ways – for example, as part of the operating cycle or as a short term or long term investment because of the high value of money in relation to its mass, it’s easy transferability, and other obvious characteristics, it is the asset most susceptible to improper diversion and used by

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employees. In addition, a great many transactions either directly or indirectly affect its receipt or payment. It is therefore essential that cash be effectively safeguarded by the special controls.” Waltson et al (2007), explained that 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 Davidson et al, (2005), “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”. Team FME (2013) cited in their book that “management of cash flow is one part of a larger management responsibility known as the management of working capital, which refers to the operating liquidity available to an organization”. 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

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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 firms retain an excessive amount of cash to meet any unexpected circumstances that might arise. These dormant cash have an income-earning potential that owners 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 owner 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”. Cash management is particularly important for new and growing businesses. Davidson et al, (2005) 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”. “Cash management has four major functions; determination of minimum cash balances, effective borrowing, advantageous investment of excess cash, and acceleration of cash flow”.

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“The minimum cash balance is established by taking into consideration the basic safety cushion needed, minimum bank balance requirements, and the rate of daily cash collections and disbursements. Cash balances should be maintained at the lowest practical minimum because excess cash earns nothing and loses purchasing power in period of rising prices”. Hofstrand, (2013) said that “cash flow statement is one of the most important financial statements for a project or business. The statement can be as simple as a one page analysis or may involve several schedules that feed information into a central statement. It is a listing of the flows of cash into and out of the business or project.” Sardakis (2007) stated that “it is very important to have efficient and effective liquidity management for the survival of the business, especially for smaller ones”. Westerfield et al, (2007) 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”.

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Woodward et al, (2007) “Cash flow accounting involves the reporting of classified list of last year’s cash flows, and a set of forecast cash flows, with supporting analysis of the variances between last year’s actual and forecast cash flows. It therefore emphasizes the most fundamental events in business activities, cash flows into and out of the firm, and the segregation of past (cash) facts from future estimates, accounting time period allocation, based on estimates of consumption are avoided”. Kasilo, (2005) “Cash flows from operations are the amount of cash a firm generates in a measured time from its operation. Various methods are used to determine the amount of operating cash flow. The prevalent methods use the income statement and the balance sheet to prepare the cash flow statement (also called statement of sources and application of funds)”. Hampton (2006) stated that cash is the money which a firm can disburse immediately without any restriction. The term cash includes coins, currency and checks held by the firm, and balances in its bank accounts. Sometimes nearcash items, such as marketable securities or bank time’s deposits, are 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.

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Theoretical Framework In financial theory, researchers will be interested in how cash and other liquid assets affect firm value and the optimal capital structure of a firm. Cash management is expected to play a key role in creating stockholder value. That is why it is important to find new evidence of cash management behavioral dimensions that cause the creation or destruction of shareholder value. Morris (1983) integrated operating cash flow activities into the risk and return framework. In this statement, the cash management policy of the firm will assume to be of the Miller and Orr type. Sartoris and Hill (1983) integrated shortrun cash inflows and outflows into the net present value model. They have showed that the changes in cash management policies have a direct effect on the value of the firm. The Miller and Orr model of cash management is one of the various cash management models in operation. It is an important cash management model as well. It helps the present day companies to manage their cash while taking into consideration the fluctuations in daily cash flow. As per the Miller and Orr model of cash management the companies let their cash balance move within two limits - the upper limit and the lower limit. The companies buy or sell the marketable securities only if the cash balance is equal to any one of these. When the cash balances of a company touches the upper limit it purchases a certain number of saleable securities that helps them to come back to the desired

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level. If the cash balance of the company reaches the lower level then the company trades its saleable securities and gathers enough cash to fix the problem. It is normally assumed in such cases that the average value of the distribution of net cash flows is zero. It is also understood that the distribution of net cash flows has a standard deviation. The Miller and Orr model of cash management also assumes that distribution of cash flows is normal.

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Conceptual Framework The conceptual framework showed the scope and direction of the study. The paradigm consisted of two frames which showed the independent variable in the left, which is the business profile of the respondents, and the second one in the right showed the dependent variable, cash management in selected small scale business establishments in Pangil, Laguna. The lines connecting the two frames showed the relationships that exist among variables. Independent Variable

 Common problems encountered in cash management

Dependent Variable

 Levels of cash

management practices in selected small scale business establishments in Pangil, Laguna in term of:  Forecasting  Receiving  Disbursing  Controlling  Investing

Figure 1. The conceptual paradigm showing the interplay of the variables of the study.

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Statement of the Problem The study was conducted to investigate all aspects of cash management practices of selected small scale businesses in Pangil, Laguna. Specifically, this study aimed to answer the following questions: 1. What is the business profile of the respondents in terms of:  Form of Business  Nature of the Business  Years of Existence  Average Monthly Profit  Starting Capital 2. What are the common problems encountered by small scale businesses in cash management? 3. What are the levels of cash management practices in term of : a. Forecasting b. Receiving c. Disbursing d. Controlling e. Investing 4. Is there a significant relationship between the common problems encountered and the levels of cash management practices?

Research Hypothesis H0 There is no significant relationship between the common problems encountered and the levels of cash management practices. Significance of the Study

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The study tried to determine the methods used by business owners in handling cash that could be of great help in running a business more efficiently and effectively. As to Teachers. To provide additional information about the importance of cash management and how it affects the business that they can apply in their everyday lives. As to the Community. To help them realize the importance as well as the effects of wisely managing cash in their day-to-day lives. As to Students. To help them to become more aware of the importance of currency, to make them realize and appreciate the value of handling cash efficiently that could be of great help in shaping their future. As to Future Researchers. This study can be the basis for future research works and may be a source for related literature. As to the School. The Laguna Maritime Arts and Business Colleges can use the results and recommendations to improve the curriculum for the Business Administration Department. Scope and Limitation of the Study The study was limited only to the registered small scale businesses located in Pangil, Laguna. The study was conducted in the year from 2015 up to 2016. The researchers utilized descriptive research. Definition of Terms

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To have better understanding of the texts which were used in this study, the researchers defined the following terms: Cash. refers to money in the form of coins and bills as distinct from money orders or credit. Cash Management. refers to the way in which a person or organization manages money. Small Scale businesses. refers to businesses in Pangil, Laguna with less than 500 employees and had a starting capital of not more than 5 million pesos. Forecasting. refers to the prediction of future developments, an estimation of what is likely to happen in the future, especially in cash management for the selected small scale business establishments in Pangil, Laguna. Receiving. refers to the acquisition of cash by the selected small scale business establishments in Pangil, Laguna. Disbursing. refers to the paying out of money of the selected small scale business establishments in Pangil, Laguna. Controlling. The act of managing cash by the selected small scale business establishments in Pangil, Laguna. Investing. The act of using cash in order to buy something, especially one that will be used by the business for a long time.

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Chapter 2 RESEARCH DESIGN AND METHODOLOGY This chapter presented the research design, research procedure, respondents of the study, sampling techniques, research instruments, and statistical tools that were used in the study. Research Design The researchers employed descriptive method of research in describing and presenting the results of this study entitled “Cash Management practices of selected small scale business establishments in Pangil, Laguna”. The descriptive method included techniques that were used to summarize and describe numerical data for the purpose of easier interpretation (Kazmier, 2004). Respondents of the Study The respondents of the study were the registered business establishments that were classified as micro to small scale in selected areas in Pangil, Laguna. The researchers chose a total of 10 respondents for the investigation. Sampling Techniques Quota sampling was chosen as the sampling technique. This sampling technique is useful when time is limited, a sampling frame is not available, the research budget is very tight or when detailed accuracy is not important.

Gantt chart

Activity Description

1

Gathering data for chapters 1 & 2

2

Construction of the literature review

4

Construction of the questionnaire

Academic Year 2015-2016 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

5 Colloquium 6

Distribution of questionnaires

7

Analysis and interpretation of data.

8

Final checking and editing

9 Final Defense Figure 2 below showed the Gantt chart of the study. The preparation for the study lasted for ten (10) months which started from gathering the necessary data for the construction of chapters 1 and 2 up to final defense.

Figure 2. Gantt chart of the study.

Budgetary Requirements

The table below showed the budgetary requirements of the researchers while conducting the research. The required amount was P 800.00 and it was allocated for transportation expenses, computer rentals for research and editing, for printing and photocopying of questionnaire and hard copies of the research and expenses for documentation. The budgetary requirements of the study Expenses

Estimated cost

Transportation

P 100.00

Computer rentals

P 350.00

Printing and photocopying

P 250.00

Other expenses

P 100.00 Total

P 800.00

Data Gathering Procedures Participants were informed about the nature and purpose of the study and the confidentiality and non-trace-ability from the questionnaire response. Participants were asked to answer the questions and give their opinions as frankly as they could as it was crucial to the meeting of success of the study. Once the questionnaires have been completed and collected, the researchers had gone through the data and analyzed the information received. Research Instruments

The questionnaire was divided into functional areas as follows: Part I contained the business profile of the respondents in term of the form and nature of their business, the years of the business’ existence, average monthly profit and the starting capital. Part II contained the common problems encountered and part III contained statement about the levels of cash management practices in term of forecasting, receiving, disbursing, controlling and investing. Scale

Range Interval

Verbal Interpretation

5

4.51 – 5.00

Always

4

3.51 – 4.50

Oftentimes

3

2.51 – 3.50

Sometimes

2

1.51 – 2.50

Seldom

1

1.00 - 1.50

Never

Statistical Tools The data that were gathered in this study were treated statistically. Varied statistical tools were employed for the resulting data in different parts of this research instrument. The researchers utilized percentage, weighted mean, and chi-square to treat the following variables. STATISTICAL TOOLS Variable 1. Demographic profile of the business

Statistical Tools Frequency, Percentage, Rank Weighted mean, Rank

2. Common problems encountered 3. Levels of cash management practices in term of: a. Forecasting b. Receiving c. Disbursing d. Controlling e. Investing

Weighted mean, Rank

4. Relationship between the common problems encountered and the levels of cash management practices

Chi-Square

Chapter 3 PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA This chapter presents, analyzes, and interprets the data gathered to determine the relationship between the common problems encountered and the levels of cash management practices. The findings are presented in the same order as outlined in the statement of the problem discussed in chapter 1. 1. Business Profile of the Respondents All the respondents in this study are categorized into micro to small scale business. Their business profiles are explained further in this study. Table 1: Form of Business Form of business

Frequency

Percentage

Rank

Sole Proprietorship

9

90%

1

Partnership

1

10%

2

Total

10

100%

-

Table 1 shows the form of the business of the respondents. Ninety per cent of the respondents, with a frequency of nine, and ranked as first, were engaged in sole proprietorship and only ten per cent, with a frequency of one, which was ranked as second, was engaged in partnership. Sole proprietorship form of business was more common among the respondents. Table 2: Nature of the Business Nature of the business

Frequency

Percentage

Rank

Retailing

4

40%

2

Manufacturing

1

10%

3

Service

5

50%

1

Total

10

100%

-

Table 2 shows the nature of the business of the respondents. Fifty per cent of the respondents, with a frequency of five, and ranked as first, were engaged in service, forty per cent, with a frequency of four, which was ranked as second, were engaged in retailing and only ten per cent, with a frequency of one, and ranked as third, was engaged in manufacturing. Most of the respondents were engaged in service. Table 3: Years in existence Years in existence

Frequency

Percentage

Rank

less than 5

3

30%

2

5 - 10 years

5

50%

1

11 - 20 years

1

10%

3.5

21 and above

1

10%

3.5

Total

10

100%

-

Table 3 shows the length of time the business of the respondents has existed. Fifty per cent of the respondents, with a frequency of five, and ranked as first, have been in business for 5 - 10 years, thirty per cent

of the

respondents, with a frequency of three, and ranked as second, have been operating for less than 5 years, ten per cent have been existing for 11 - 20 years and another ten per cent are operating for more than 21 years, both with a frequency of one and ranked as last. Most of the respondents have been in business for 5 - 10 years. Table 4: Average monthly profit Average Monthly Profit

Frequency

Percentage

Rank

Less than P 10,000

3

30%

2

P 10,001 - 25,000

5

50%

1

P 25,001 - 40,000

1

10%

3.5

P 55,001 and above

1

10%

3.5

Total

10

100%

-

Table 4 shows the average monthly profit of the respondents. Five of the respondents, with the percentage of fifty, ranked as one, have a monthly profit

between P 10,000 - 25,000. Three of the respondents, with the percentage of thirty and ranked as second, have a monthly profit of less than P 10,000. One of the respondents, with the percentage of ten, has a monthly profit between P 25,000 - 40,000, another ten per cent of the respondents, with a frequency of one, has a monthly profit of P 55,001 and above. Both are ranked as last. Table 5: Starting capital Starting capital

Frequency

Percentage

Rank

Less than P 50,000

9

90%

1

P50,001 - 500,000

1

10%

2

Total

10

100%

-

Table 5 shows the amount of starting capital of each respondent. Ninety per cent of the respondents, with a frequency of nine, had a staring capital of less than 50,000 and only ten per cent of the respondents, with a frequency of one, had a starting capital between P50,001 - 500,000.

2. Common problems encountered in cash management Common problems encountered

Weighted Mean

Verbal Interpretation Rank

Not enough cash for emergency expenses

2.3

Seldom

4

Miscalculations

1.7

Seldom

8.5

Wrong allocation of cash

1.7

Seldom

8.5

2

Seldom

6.5

Cash overages

2.5

Sometimes

2

Cash shortages

2.4

Seldom

3

2

Seldom

6.5

Poor decisions in handling cash.

2.9

Sometimes

1

Huge overhead costs

2.1

Seldom

5

2

Seldom

6.5

2.16

Seldom

Not enough cash for necessary obligations

Not enough cash to buy necessary equipment.

Problems in collecting receivables Average weighted mean

Table 6: Common problems encountered in cash management

Table 6 presents the common problems that the respondents encountered when managing their cash. With a weighted mean of “2.9”, and ranked as first, the most common problem that the respondents encounter when managing their cash was having poor decisions. With a weighted mean of “1.7”, the respondents least encounter having miscalculations and wrong allocations of cash, both are ranked as last. 3. Cash management practices Table 7: Cash management practices in term of Forecasting

Forecasting

Weighted Mean

Verbal Interpretation

Rank

Experiencing poor decisions in handling cash.

2.9

Sometimes

3

Experiencing unexpected expenses.

3.2

Sometimes

2

Have enough cash allocated for emergency and unexpected expenses.

3.5

Sometimes

1

Have no cash allocated for emergency and unexpected expenses.

2.3

Seldom

4

Experiencing miscalculations and wrong allocation of cash.

1.7

Seldom

5

Average weighted mean

2.72

Sometimes

Table 7 presents the levels of cash management practices of the respondents in term of forecasting. With a weighted mean of “3.5” and ranked as first, the respondents sometimes have enough cash allocated for emergency and unexpected expenses. With a weighted mean of “1.7” and ranked as last, the respondents seldom experiences miscalculations and wrong allocation of cash. Table 8: Cash management practices in term of Receiving Weighted Mean

Verbal Interpretation

Rank

Double checks the amount received.

4.7

Always

1

Issues receipts upon receiving cash.

2.9

Sometimes

5

Promptly checks if the amount in the receipt is correct.

3.4

Sometimes

4

Records the cash received immediately in the financial system.

3.7

Oftentimes

3

Puts the cash immediately in different drawers to establish accountability.

3.9

Oftentimes

2

Average weighted mean

3.72

Oftentimes

Receiving

Table 8 shows the levels of cash management practices of the respondents in term of receiving cash. With a weighted mean of “4.7” and ranked as first, the respondents always double check the amount that they receive. On

the other hand, with a weighted mean of “2.9” and ranked as last, the respondents only issues receipts upon receiving cash occasionally.

Table 9 : Cash management practices in term of Disbursing

Disbursing

Weighted Mean

Verbal Interpretation

Rank

Pays bills and other utilities before due to avoid any penalties, interests, or other charges.

4.5

Oftentimes

1.5

Pays loans, notes, and other short or long term borrowings before due to avoid any penalties and other interests.

4.5

Oftentimes

1.5

Issues loans, notes and other short or long term borrowings.

3

Sometimes

3

Have enough cash to meet obligations.

4

Oftentimes

2

Have not enough cash to meet obligations.

2.1

Seldom

4

Average weighted mean

3.62

Oftentimes

Table 9 shows the levels of cash management practices by the respondents in term of disbursing cash. With same weighted mean of “4.5” and both ranked as first, the respondents often pay their bills and other utilities, as well as their notes and other short or long term loans to avoid any interests or

penalties. However, with a weighted mean of “2.1”, the respondents seldom experiences having not enough cash to meet their necessary obligations.

Table 10: Cash management practices in term of Controlling Weighted Mean

Verbal Interpretation

Rank

The owner withdraws its capital for personal use.

2

Seldom

5

Provides separate cash drawers to establish accountability.

4

Oftentimes

3

Records cash overages in the financial system.

4.2

Oftentimes

2

Records cash shortages in the financial system.

3.4

Sometimes

4

Records daily cash disbursements.

4.6

Always

1

Average weighted mean

3.64

Oftentimes

CM Practices : Controlling

Table 10 shows the levels of cash management practices by the respondents in term of controlling. With a weighted mean of “4.6” and ranked as first, the respondents always record their daily cash disbursements. On the other hand, with a weighted mean of “2” and being last in the ranking, the respondents seldom withdraw the business’ capital for personal use.

Table 11 : Cash management practices in term of Investing

CM Practices : Investing

Weighted Mean

Verbal Interpretation

Rank

Spends cash for the repair and maintenance of certain equipment.

3.8

Oftentimes

3

Invests on new equipment for the business.

3.6

Oftentimes

4

Saves cash for possible expansion of the business.

4.4

Oftentimes

1

Invests cash for business expansion.

4.2

Oftentimes

2

The owner uses the cash to buy his/her personal needs/wants.

2.6

Sometimes

5

Average weighted mean

3.72

Oftentimes

Table 11 shows the levels of cash management practices of the respondents in term of investing. With a weighted mean of “4.4”, and ranked as first, the respondents often save cash for the possibility of expanding their business. However, with a weighted mean of “2.6”, and ranked as last, the respondents sometimes uses the cash to buy their personal needs and/or wants.

4. Test of significant relationship between the common problems encountered and the levels of cash management practices Table 12: Significant Relationship Between the Common Problems encountered and Levels of Cash Management Practices in term of Forecasting

Variable df

Level of Significance

X2

Critical Verbal 2 Value of x Interpretation

Decision

F1

40

0.05

43.099

55.758

Accept H0

Not Significant

F2

40

0.05

46.808

55.758

Accept H0

Not Significant

F3

40

0.05

54.177

55.758

Accept H0

Not Significant

F4

40

0.05

40.311

55.758

Accept H0

Not Significant

F5

40

0.05

43.003

55.758

Accept H0

Not Significant

Table 12 shows the test of significance between the common problems encountered and the levels of cash management practices in term of forecasting. F1, F2, F3, F4 and F5 represent the five cash management practices under forecasting. The result of the computed chi square in all practices of forecasting was lower than the critical value of chi square, which was 55.758, which means that the decision is to accept the null hypothesis. The common problems

encountered have no significant relationship with the levels of cash management practices in term of forecasting. Table 13: Significant Relationship Between the Common Problems encountered and the Levels of Cash Management Practices in term of Receiving

Variable df

Level of Significance

X2

Critical Verbal Value of x2 Interpretation

Decision Table

R1

40

0.05

113.748

55.758

Reject H0

Significant

R2

40

0.05

55.379

55.758

Accept H0

Not Significant

R3

40

0.05

84.372

55.758

Reject H0

Significant

R4

40

0.05

69.539

55.758

Reject H0

Significant

R5

40

0.05

81.161

55.758

Reject H0

Significant

13 shows the test of

significance between the common problems encountered and the levels of cash management practices in term of receiving. R1, R2, R3, R4 and R5 represent the five cash management practices of receiving. The result of the test of significance shows that the computed chi square for R1, R3, R4 and R5 was higher than the critical value of chi square which was 55.758. R1, R3, R4, and R5 have a significant relationship with the common problems encountered in cash management. However, the result of the computed chi square for R2 was lower than the critical value of chi square which means that the decision for R2 is to accept the null hypothesis. R2 has no significant relationship with the common problems encountered in cash management.

Table 14: Significant Relationship Between the Common Problems encountered and the Levels of Cash Management Practices in term of Disbursing

Variable df

Level of Significance

X2

Critical Verbal 2 Value of x Interpretation

Decision

D1

40

0.05

101.773

55.758

Reject H0

Significant

D2

40

0.05

93.081

55.758

Reject H0

Significant

D3

40

0.05

51.819

55.758

Accept H0

Not Significant

D4

40

0.05

66.524

55.758

Reject H0

Significant

D5

40

0.05

45.155

55.758

Accept H0

Not Significant

Table 14 shows the test of significance between the common problems encountered and the levels of cash management practices in term of disbursing. D1, D2, D3, D4 and D5 represent the five disbursing practices. The result of the test of significance shows that the result of the computed chi square for D1, D2, and D4 are higher than the critical value of chi square, which was 55.758, which means that D1, D2, and D4 have a significant relationship with the common problems encountered. On the other hand, the result of the computed chi square for D3 and D5 was lower than the critical value of chi square which means that D3 and D5 have no significant relationship with the common problems encountered in cash management.

Table 15: Significant Relationship Between the Common Problems encountered and the Levels of Cash Management in term of Controlling

Variable df

Level of Significance

X2

Critical Verbal 2 Value of x Interpretation

Decision

C1

40

0.05

42.043

55.758

Accept H0

Not Significant

C2

40

0.05

66.524

55.758

Reject H0

Significant

C3

40

0.05

76.003

55.758

Reject H0

Significant

C4

40

0.05

53.982

55.758

Accept H0

Not Significant

C5

40

0.05

93.184

55.758

Reject H0

Significant

Table 15 shows the test of significance between the common problems encountered and the levels of cash management practices in term of controlling. C1, C2, C3, C4 and C5 represent the five common practices of controlling. The result of the test of significance shows that the computed chi square for C2, C3 and C5 was higher than the critical value of chi square which was 55.758 and therefore verbally interpreted as reject the null hypothesis, C2, C3, and C5 have a significant relationship with the common problems encountered in cash management. On the other hand, the result of the computed chi square for C1 and C4 are lower than the critical value of chi square and therefore verbally interpreted as accept the null hypothesis. C1 and C4 have no significant relationship with the common problems encountered in cash management.

Table 16: Significant Relationship Between the Common Problems Encountered and the Levels of Cash Management Practices in term of Investing

Variable df

Level of Significance

X2

Critical Verbal 2 Value of x Interpretation

Decision

I1

40

0.05

58.867

55.758

Reject H0

Significant

I2

40

0.05

56.025

55.758

Reject H0

Significant

I3

40

0.05

93.796

55.758

Reject H0

Significant

I4

40

0.05

73.891

55.758

Reject H0

Significant

I5

40

0.05

47.431

55.758

Accept H0

Not Significant

Table 16 shows the test of significance between the common problems encountered and the levels of cash management practices in term of investing. I1, I2, I3, I4 and I5 represent the five common practices under investing. The result of the test of significance shows that the computed chi square of I1, I2, I3 and I4 has exceeded the critical value of chi square which was 55.758, which means that is it significant. I1, I2, I3 and I4 have significant relationship with the common problems encountered in cash management. However, the computed chi square of I5 did not exceed the critical value and therefore is not significant. I5 has no significant relationship with the common problems encountered in cash management.

Chapter 4 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS This chapter presents the summary of findings, conclusions drawn, and the recommendations given by the researchers. Summary of findings The following were the summary of findings: 1. Business profile of the Respondents a) Form of business Nine out of ten respondents were sole proprietorship and only one was a partnership, the former was the more common form of business ownership in selected areas in Pangil, Laguna. b) Nature of the business Five of the respondents were engaged in service, four were retailers and only one was engaged in manufacturing. Most of the respondents were engaged in service; some of the them were computer shops, and small eateries. Most of the respondents that were engaged in retailing owned sarisari store. The respondent that was engaged in manufacturing owned a bakeshop.

c) Years in existence Five of the respondents have been in business for 5 to 10 years, three are in less than 5, one has been in business for 11 to 20 and one is more than 21 years. d) Starting capital Nine out of the ten respondents had a starting capital of less than P500,000, only one of the respondents had a starting capital within the range of P500,001 up to P1,000,000. e) Average monthly profit Five of the ten respondents had an average monthly profit within the range of P10,001 up to P25,000, three had less than P10,000, one had an average monthly profit within the range of P25,001 up to P40,000, and one respondent had an average monthly profit of more than P55,000. 2. Common problems encountered The respondents encountered cash management problems like having cash overages and poor decisions in handling cash occasionally. Other problems like having not enough cash for emergency expenses and necessary obligations, miscalculations and wrong allocations of cash, cash shortages, huge overhead costs, and problems collecting receivables were seldom experienced by the respondents.

3. Cash management practices a) Cash management in terms of Forecasting The result of the investigation stated that the average weighted mean for cash management practices in term of forecasting was “2.72”, which means that most of the cash management practices in forecasting were done by the respondents occasionally. b) Cash management in terms of Receiving The result of the investigation showed that the average weighted mean for cash management practices in term of receiving was “3.72”, which means that the respondents often do most of the cash management practices when receiving cash, and the respondents always double check the amount they received. c) Cash management in terms of Disbursing The result of the study for the cash management practices in term of disbursing had an average weighted mean of “3.62”, which means that the respondents often do most of the cash management practices when disbursing cash. d) Cash management in terms of Controlling The result of the study for the cash management practices in term of controlling had an average weighted mean of “3.64”, which means that the

respondents often do most of the cash management practices in controlling their cash, and they always record their daily cash disbursements. e) Cash management in terms of Investing The result of the study for the cash management practices in term of investing had an average weighted mean of “3.72”, which means that the respondents often do most of the cash management practices when investing cash. However, they only use their cash to buy their personal needs and/or wants occasionally. 4. Significant relationship between the common problems encountered and the levels of cash management practices The statistical tool that was used for testing the significant relationship between the common problems encountered and the levels of cash management practices was chi-square. The test aimed to determine if there was a relationship between the common problems encountered and the levels of cash management practices in selected small scale business establishments in Pangil, Laguna. In terms of forecasting, the computed chi square for all practices was lower than the critical value which means that the common problems encountered have no significant relationship with the levels of cash management practices in term of forecasting. In terms of receiving, the result of the test of significance that was made in the second practice was not significant; the second cash management practice in terms of receiving had no significant relationship with the common

problems encountered. However, the result for the remaining four practices was significant which means that four practices have a significant relationship with the common problems encountered in cash management. In terms of disbursing, the result of the test of significance that was made showed that the first, second, and fourth practices of disbursing have significant relationship with the common problems encountered and the third and fifth practices have none. In terms of controlling, the result of the test of significance that was made showed that the first and fourth practices under controlling had no significant relationship with the common problems encountered; however, it also showed that the second, third, and fifth practices had a significant relationship with the common problems encountered. In terms of investing, the result of the test of significance that was made showed that the first to fourth practices of investing had a significant relationship with the common problems encountered and the fifth had no.

Conclusions The following were the conclusions drawn from the findings: The cash management practices under forecasting have no significant relationship with the common problems encountered. However, most of the cash management practices under receiving, disbursing, controlling, and investing have significant relationship with the common problems encountered. It is safe to assume that the common problems that the respondents encountered affect the levels of their cash management practices. Recommendations Based on the findings and conclusions of this study, it is observed that the common problems encountered by the respondents affect the levels of their cash management practices. The following recommendations were in order. It is recommended that the respondents must check then re-check and improve their performances in term receiving, disbursing, controlling, and investing their cash. The respondents must not let the problems that they encounter affect their cash management practices. However their performance in forecasting is good because it is not affected by the common problems that they encounter. Regarding the common problems that they encounter, it is inevitable especially in running a business and managing cash, it is recommended that they prepare better for the problems that they may encounter in the future.