Abstract

The need to prevent company failures in Malawi is of paramount importance as companies contribute to the economy of a country. This motivated the researcher to carry out a study on Working capital management in relation to company failure on manufacturing industry in Malawi. The research was guided by questions like: What impact does the working capital management have on manufacturing industry in Malawi? How is the working capital related to the closures of companies in Malawi? These questions were to act as a guide in order to achieve the three objectives as outlined: to establish if closure of companies is related to the poor working capital management; to establish elements of Working Capital to see if there are some signals of poor management in the manufacturing industry of Malawi and to come up with recommendations of course of action for future survival of companies in Malawi. In order to find out whether this topic was also studied either locally or somewhere else, literatures of other researchers were studied. Local researchers like Chibwana et al (2002) studied causes of failure in general; Moloko (2005) studied causes of failure in general and these studies did not attempt to associate poor working capital management with failures of companies. Outside Malawi researchers like Tektas et al (2005) studied WC which did not related to company failure; Ooghe( 1998) who studied Working capital Management also did not related to company failure; Refuse et al (1996) studied Working Capital and Neil et al (1991) who studied prediction of bankruptcy just to mention a few. These studies were conducted in other regions of different environments, economies, government policies and development levels compared to Malawi Scenario. This is the gap identified that motivated the study to be embarked on.The methodology adopts positivism and phenomenology philosophies for ease of coming up with a conclusion. In this research, which was conducted in the city of Blantyre, two types of data were collected i.e. data from documents and data from a survey. This data came from companies that had existed before 1990 and were still in existence at the time of study. Secondly, another data came from key players in the market place who had knowledge of the events of the failure period. A sample of five companies was chosen for case study and a sample of twenty companies was chosen for survey study. Besides the five companies one company was selected for comparison purposes in performance as the company is about to failed. After collection of both data, analysis was done manually and using Microsoft Excel where computation was required in order to come up with graphs that have been used in discussion. A Stapel scale was created and was then used in failure analysis. The results were then discussed and conclusion was made basing on findings from the discussions. The findings reveal that poor management of working capital mainly caused the failures of companies, which is a result of failure by managers to take corrective measures in time on changes in working capital elements. This is evidenced by signals of poor working capital management prevalent in 60% of the five companies studied. This was confirmed through the fact that companies with failure rating above 0 according to the devised Stapel scale had in most cases lower current ratios, acid test ratios, negative cash ratios and paid creditors earlier than debtors. The study concludes that the failure of companies in the manufacturing industry was due to failure to monitor working capital elements in time. Therefore the study recommends the existing companies to carry out quarterly monitoring of their working capital elements if they are to take corrective measures in time.

More details

School	: School of Law, Economics and Government
Issued Date	: 2008

Download full document