Research Proposal: Evaluation of the Efficacy of Cash Flow Management System of Vitasoy International Holdings Limited
Introduction
One of the most important factors to consider in a business is to make sure that the financial assets of the company are well managed, specifically in terms of the industry capital. Accordingly, management of working capital is critically essential to the success of every industry. In manufacturing companies, the working capital is vitally dependent to the sales of the product. It is said that if sales different during the year because of growth, seasonality or uncertainty, then managing the working capital would be difficult. Furthermore, a firm’s current liability such as inventory, receivables and short-term payables as well as the company’s current assets varies in accordance to the fluctuations of sales. In this regard, the cash flow within the industry may be insufficient to sustain business operations, even if the profitability of the industry is satisfactory over the entire year. Hence, there is a need for an effective cash flow management.
One of the largest manufacturing industries in Hong Kong is Vitasoy. Having been able to recognise the growth and development of the company, it is also essential to evaluate the cash flow management system of Vitasoy. Hence, this research proposal aims on assessing and evaluating the cash flow management approach implemented within Vitasoy.
Background of the Study
Having an effective cash flow management system is a principal priority for different organisations including those manufacturing industries. A number of scholars have noted out that the financial aspect of an industry rules the game. The vast majority of manufacturing industries are undercapitalised, hence, most of these industries depend on different sorts of short-term financing including accounts payable, lines of credit and accruals. However, there are other problems that arise since these financing must be liquidated periodically. With this, the business must generate cash from elsewhere so as to meet their obligation. In addition, during the time when inventory, receivables and sales are in a state of fluctuation, it brings difficulty to the manager to ensure the adequacy of cash flow. Thus, working capital or cash flow management is important. Capital management or cash flow management thus have a long range impact on the firm's performance and they are critical to the firm's success or failure.
The efficiency of financial management, specifically the cash flow management is judged by the success in achieving the firm's goal. The shareholder wealth maximization goal states that management should endeavour to maximize the net present (or current) value of the expected future cash flows to the shareholders of the firm. Net present value refers to the discounted sum of the expected net cash flows. Some of the cash flows, such as capital outlays, are cash outflows, while some, such as cash proceeds from sales, are cash inflows. Net cash flows are obtained by subtracting a given period's cash outflows from that period's cash inflows ( 2002). The discount rate takes into account the timing and risk of the future cash flows that are available from an investment. The longer it takes to receive a cash flow, the lower the value investors place on that cash flow now. The greater the risk associated with receiving a future cash flow, the lower the value investors place on that cash flow.
The shareholder wealth maximization goal, thus, reflects the magnitude, timing and risk associated with the cash flows expected to be received in the future by shareholders. In terms of the firm's objective, shareholder wealth maximization has been emphasized because this book has a corporate focus.
In order to determine whether a manufacturing industry has been able to achieve its wealth maximisation goal, this topic of the research study is being proposed.
Research Aims and Objectives
The goal of this paper is to evaluate the efficacy of the cash flow management system within Vitasoy. Specifically, this proposed study aims on achieving the following objective
1. Know the fundamental concept of cash flow management system implemented within Vitasoy
2. Identify the perception of the employees about the cash flow management system of the company
3. Determine the factors that affects adequate cash flow within the company
4. Investigate how the company has been able to manage the factors that hinders cash flow adequacy.
Significance of the Study
This proposed study is significant in order to provide insightful details on how a company should manage one of the important assets of the company which is its financials aspects. In addition, this proposed study is will be significant in management/business firms, particularly for manufacturing industries in a sense that it will broaden their knowledge about managing their capital or financial asset and will help them weigh if the current cash flow management system are appropriate in Hong Kong setting. Furthermore, it will contribute to business research. This can be used as a reference for future research that will focus on having an effective cash flow management system to be followed by different industries in Hong Kong.
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