WOLAITA SODO UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF WORKING CAPITAL MANAGEMENT IN FINANCIAL INSTITUION (IN

CASE OF DEBUB GLOBAL BANK WOLAITA SODO BRANCH)

RESEARCH PAPER SUBMITTED IN PARTIALL FULFILLMENT FOR REQUIREMENT OF

BACHELOR OF ART (BA) DEGREE IN ACCOUNTING AND FINANCE

BY: BRANU ABIE…………………..IDNO: RU0210/12

ADVISOR: MR. ABEBEYEHU B. (MSc)

APRIL, 2023

WOLAITA, ETHIOPIA
 ACKNOWLEDGEMENT

First of all, my hearty thanks go to Almighty God for his blessing, full knowledge,
inspiration and diligence required for the successful completion of this paper and for making my
dream a reality.

Next, I would like to express my deepest gratitude to my paper advisors MR. ABEBEYEHU B.
(MSc) for their unreserved support and encouragement throughout the paper work. He will Always
open to discussion, a good listener and best method advice, open to challenges and always on the
lookout for ways to improve my thesis.

A word of thanks must also go to all of debub global bank in wolaita sodo branch employees
who cooperated me in providing the available data and provided me very valuable information
about their organization the impact of assessment of working capital management in financial
institution execution in general and I have especial thanks to my brother Nafyad Abie for your
help in sharing me the idea of paprer working and for your valuable information at each stages
before my submission.
Furthermore, I would like to forward a word of appreciation to debub global bank in
wolaita sodo branch essential managements particularly, human resource management.

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 ABSTRACT

The study will undertaken on assessment of working capital management of debub global bank in
wolaita sodo branch . The overall objective of the study is to assess the working capital management of a
bank in case of wolaita sodo branch. Specifically the research tried to investigate; to suggest ideas which
improve the working capital of a bank and to examine factors that affect the working capital
positively/negatively. The study accomplished by collecting data through all employees of the branch
using questionnaire method and secondary data by reviewing different documents and books. The researcher
used descriptive method of data analysis. The finding of the study showed many strengths and weakness of
the branch. Among the weakness identified in this study include lack of networking system and lack of
awareness of employees about the working capital management policies, procedures and strategies of the
bank. Among the strengths identified will introduction of wide area network which makes the bank to have
efficient communication system with branches and the main office easy. Based on the weakness identified the
bank should increase employees awareness, to make sector analysis for its projects in addition to their
financial validity, in order to broaden their service and to increase profitability the bank should provide loan
service to loyal customers and borrowers.

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Table of contents
Acknowledgement............................................................................................................................................I
Abstract...........................................................................................................................................................Ii
Chapter One.....................................................................................................................................................1
1. Introduction................................................................................................................................................1
1.1 back Ground Of The Study.........................................................................................................................1
1.1.1back Groud Of The Organization.....................................................................................................2
1.2 Statement Of The Problem.......................................................................................................................3
1.3objective Of The Study...............................................................................................................................4
1.3.1.General Objectives..................................................................................................................................4
1.3.2.Specific Objectives..................................................................................................................................4
1.4 Significant Of The Study............................................................................................................................4
1.5 Scope Of The Study....................................................................................................................................4
1.6limitation Of The Study..............................................................................................................................5
1.7 Organization Of The Paper....................................................................................................................5
Chapter Two....................................................................................................................................................7
2. Review Of Related Literature.....................................................................................................................7
2.1.Theoretical Approaches..............................................................................................................................8
2.9 Empirical Review....................................................................................................................................16
2.10 Summary And Research Gap.............................................................................................................17
Chapter Three................................................................................................................................................18
3. Methodology Of The Research..................................................................................................................18
3.1.Research Design.......................................................................................................................................18
3.2.Target Population....................................................................................................................................18
3.3.Sampling Techniques...............................................................................................................................18
3.4.Type And Sources Of Data......................................................................................................................18
3.4.1.Primary Data........................................................................................................................................18
3.4.2. Secondary Data...................................................................................................................................19
3.5.Data Collection Technique.......................................................................................................................19
3.6.Sample Size..............................................................................................................................................19
3.7.Method Of Data Analysis........................................................................................................................19
3.8 Time And Budget Plan..........................................................................................................................19

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3.8.1 Time Schedule.....................................................................................................................................19
3.8.2 Budget Schedule..................................................................................................................................21
Reference........................................................................................................................................................22

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 CHAPTER ONE

1. INTRODUCTION

1.1 Back ground of the study

This chapter develops the background for assessment of working capital management in financial
institution. It deliberates the background information, definition of the research problem and research
questions, objectives, scope and significance of the study. It provides an overviewof various working capital
management literatures.

Bank is the main financial institution, which plays an important role in the economic development of
the nation. It is the backbone as well as the foundation for the development of the country. Its
principal operations are concerned with the accumulation on the temporary idle money of the
public for advancing others for expenditures. In other words, Bank is an institution that deals in
money and its substitutes and provides other financial services. Banks accept deposit and make loans and
derive a profit from the difference in the interest rates paid and charged, respectively. Working
capital management is an important aspect of financial management. It is the lifeblood and
controlling nerve centre for any types of businessorganization because without the proper control of it, no
business can run smo debub global bank othly (Joshi, 2013). The principal types of banking in the modern
industrial world are debub global bank are the major financial institutions that play quite an important
role in the economic development as well as in saving and investment sectors. debub global bank are
suppliers of finance for trade and industry and play a vital role in the economic and financial life of the
country (A. Yahaya, 2015).

A debub global bankr is a dealer in money and in substitutes for money, such as checks or bills of exchange.
The banker also provides a variety of other financial services. The basis of the banking business is borrowing
from individuals, firms, and occasionally i.e., receiving “deposits” from them. The responsibility of debub
global bank is more than any other financial institutions. They must be ready to pay on demand without
warning or notice, a good share of their liabilities. Banks collected funds from different types of deposits for
providing loan and advance to different sector. To get higher return, banks must try to increase funds from
deposits as well as their investment. The first motive of banking business is to borrow public saving and
lend to needy firms.(Meszek, W., & Polewski, M. ,2006) . According to R. Joshi(2013) working capital

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management refers to the administration of all aspects of current assets, namely cash, marketable securities,
stock and current liabilities. It is the functional area of finance that covers all the current accounts of the
firm. Working capital management is an important component of corporate finance because it directly
affects the liquidity and profitability of the company It is concerned with the adequacy of current assets
as well as the level of risk posed by current liabilities. It is a discipline that seeks proper policies
for managing current assets liabilities and practical for maximizing the benefits from managing working
capital (A. Yahaya, 2015).Working capital is regarded as lifeblood of modern business. It is the amount of
capital readily available to an organization. It refers to an amount that is essential for day to day operations
of a business unit. Working capital is the amount of capital with the help of which every firm tries to
maintain the flow of revenues from operations (H. Bhattacharya, 2005). Working capital represent the
portion of investment that circulates from one form to another in the ordinary conduct of business this idea
embraces the recurring transition from cash to inventories to receivables and back to cash. (J.Gltman,2003).
Effective working capital management helps in balancing the two sides of Balance- Sheet in such a way
that the net worth of business increases without increasing the

riskiness of business. However, efficient management of working capital is possible only if the user
fully understands the meaning of the term working capital.As working capital management is related to short-
term financial planning and cash level or liquidity in general represents a significant indicator for short-term
performance, the effective andefficient working capital management should be of crucial

1.1.1BACK GROUD OF THE ORGANIZATION

The history of bank in Ethiopia back to establishment of bank of abyssinia1905 the bank was thefirst in Ethiopia
established the partnership of the government of Ethiopia and the national bankof Egypt. This bank continued
until 1931.later on it was wholly purchased by government ofEthiopia and renamed “the bank of Ethiopia” this
bank operated until the Italian innovation in1936.Debub Global Bank S.C (DGB) joined the finance industry as
the 15thprivate commercial bankto provide quality banking service with enhanced customer service, higher
value creation forstakeholders and to be a responsive corporate social citizen by effectively blending
commercialpursuit with social responsibility.The bank received its license from the national bank of Ethiopia on
April 20, 2012. However, itstarted rendering financial preoperational requirements of the national bank of
Ethiopia (licenseno LLb/018/2012). DGB has initiated banking services in its main branch located in

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AddisAbaba within the head office compound in Mujib tower at Bekelobet. However, at this time themain
branch and Head office located at stadium on national tower since, 2015.
1.2 Statement of the Problem
In every debub global bank private and public firm’s the management of working capital is crucial, because
working capital maintain the detail necessary to conduct the day to day activities. Failure in working capital
management resulted in ultimately bankruptcy. The effective management of each component of working
capital is essential for the enterprise to sustain its regular operation and to maintain satisfactory level of
liquidity ( Raheman and Nasr ,2007) The knowledge and understanding of the working capital management
practices of debub global bank and private companies are presently not enough and many firms have gone into
liquidation over the years as a result of running a deficit cash flowfrom operations. The management of
working capital is synonymous to the management of short-term liquidity. The allocation of working
capital is harmful to an enterprise to achieve its primary objectives and shortage of working capital is the
core of the problem as it is strongly related to the tradeoff between risk and return. Therefore, the more of
short- term liquidity means more of current liabilities suggest less short-term financing heading. So it
will very essential to analyze and find out problems and its solutions to make efficient use of funds for
minimizing the risk of loss to attain profit objective (Meszek, W., & Polewski, M. ,2006). The Gap
between the previous study and this study is that the previous researchers were focus only the important of
working capital management in financial institution in Jimma Branch but this study focus on assessment of
working capital management in financial institution debub global bank in wolaita sodo branch

1.3 Objective of the Study

1.3.1. General Objectives

The general objective of this study i s to assessment of the working capital management
practice of debub global bank in wolaita sodo branch

1.3.2. Specific Objectives

The specific objective of the study will be:

1. To assess the bank’s image on working capital management practice.

2.To evaluate the efficiency and effectiveness of working capital management practice.

3. To suggest the solution to improve the working capital management practice.

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 1.4 Significant of the Study

Debub global bank are operating in the competitive environment. In this situation, banks have to adopt
suitable strategies for their existence. They should balance and coordinate the different functional areas
of business concern. The study will have the following significances.

The study can be stepping stone for other researcher to study on issue and it can taking as secondary data.
This study will be useful in bringing into light the strong and weak

point in managing of working capital. Hence it takes appropriate action in its weak point and makes
associational procedure in managing working capital to debub global banks .Finally, the study will have
important in concrete the way to those who are interest to undertake further research on the same stream in
the future.

1.5 Scope of the Study

This study will investigated working capital management in the debub global bank in wolaita sodo branch.
To provide good benefit, these organizations need very good in financial advancement, adopting modern
management styles, mainly management work to handle with the changing environment demands. This
study will considered working capital management and benefits of financial firm’s also this research
work will able to add more to literatures and suggestion direction to the organizational

1.6 Limitation of the study

There are some limitations that faced on this study work:-

1. Lack of experience on conducting research on the side researcher.

2. The short span of time for collecting and analyzing of questions of the data for final report.

3. Lack of sufficient finance to get all primary and secondary sources of data todo the research
in well manner

1.7 Organization of the paper

The research paper will organized into t h r e e major chapters. The first chapter of this research deals
with background, statement of the problem, research questions, objectives, significance, and scope of
the study. The second chapter focuses on the conceptual definitions, theoretical and empirical literature

4
review. It also provides the research conceptual framework. Chapter three will deals with research
method, research design, area of study, population of the study as well as sample size and sampling
techniques, and analysis method.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

Theoretical review
Working capital management is the process of planning and collecting the level and mix of current asset
of the firm as well as financing of these assets. It involves the use of certain prescribed aids such as the
risk return tradeoff, credit standards, and inventory models. The objective of working capital
management is to determine the optimal amount of investment in various current asset accounts. The
optimal amount of the investment in various current assets is the level of the current asset holding
that maximized return on investment. The basic objectives of working capital are to provide various
current assets and short term credit necessary to support the anticipated sales by minimizing the
investment in current assets. The motives power of a business enterprise is provide by its working
capital components cash short term investment receivable and current liability measurement of this
components for balance sheet representation also involves the recognition of revenue and expenses I the
process of measuring periodic net income. (Lawrence j.Gitman, 2009 page 525)

One of the most important areas in the day to day management of the firm deals with the management
of working capital, which is defined as all the short term assets used in daily operation. These consist
primarily of cash, marketable securities, accounts receivable and inventory. The balance in these
accounts can be highly volatile as they respond quickly to changes in firms operating environment. The
effective management of working capital requires both medium-term planning and immediate reactions
to change in for cost and conditions.
Net working capital may be defined as the difference between current assets (working capital) and
current liabilities. It is a measure of liquidity, which is defined as the adequacy of near-term cash
to meet the firm’s obligation. A highly liquid firm has sufficient cash to pay its bills when due.
Working capital management is the functional are of finance that covers all the current account of the
firm. It is concerned which the adequacy of current asset as well as the level of risk posed by current
liabilities. It is a discipline that seeks proper policies for managing current asset and liabilities and
practical techniques for maximizing the benefits from managing working capital (VAN

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 2.1. THEORETICAL APPROACHES
2.1.1. The Aggressive Approaches

Short – term interest rates are not many lower than long-term interest rates. Borrowing short-term is
riskier than borrowing long-term because the loan must be paid off or refinanced sooner rather than
latter the aggressive working capital financial approach involves the use of short-term debt to finance at
least the firm’s temporary assets some of its long-term fixed assets and the amount of debt due in short –
term. If the firm managers financial all working capital from short-term debt the current assets
would equal current liabilities and the firm would have zero networking capital no cushion at all. Managers
may go even further and financial a portion of firm’s long-term asset (plant and equipment) with short-
term debt creating a negative networking capital however, such an approaches if short-term interest rates
rose UN expectedly).

Usually lower interest rates tempt to manager to take the aggressive approaches and use a relatively
large amount of short-term debt for making capital financing managers will take a risk if the promise of
return is highly enough to justify it.

2.1.2. The Conservation Approaches

Borrowing long-term is considered less risky than short-term this is because the borrower has
a longer time to use the loan proceeds before payment is due. Furthermore, if interest rates
should go up during the period of loan, the long term borrower has another advantage. The long
term borrower has locked in fixed interest than the short-term borrower who must reviewthe loan each
time it comes due at a new interest rates.

If market rate fall, the long-term borrower has locked in a fixed interest than short-term borrower,
who must renewthe loan each time it comes due at a newhigher interest rate. If market rates fall, the
long term borrower can usually refinance. The conservative’s working capital financing approaches
involves the use of long-term debt and equity to finance all long-term fixed assets and permanent
current assets, in addition to some pore of temporary current assets.

All the firms’ permanent current assets and most of its temporary current assets are being financed
with long-term debt or equity. As a result current assets exceed current liabilities by a wide margin and
the firm has a large amount of networking capital. Having a large amount of networking capital is a
relatively how risk position because the firm has many assets that could be liquidated to satisfy short-term

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debts.

A financial manager who applies an ultra-conservatives approach would use cash from the owners to
finance all assets financing needs (higher cash balance supported be equity), and incur no debt by
using only liability capital. The firm would also have the maximum amount of networking capital
possible because it could have no current liabilities.

The safety of the conservatives approach has a cost long term financing is generally more exposing
than short term financing so relying on long-term debt and equity source to finance working capital
consumer’s funds that could otherwise be put to more productive use.

2.1.3. The Moderate Approach

The accounting concept known as the matching principle states that the cost of an asset should be
recognized over the length of time the asset provides revenue or benefit, to the business. The concept
of matching principle can be applied to define a moderate position between the aggressive and
conservative working capital financing approaches. Accounting to the matching principle, temporary
current assess that are only going to be on the balance sheet for a short time should be financed with
short- term debt that is current liabilities. Permanent current asset and long term fixed asset that are
going to be on the balance sheet for long time should be financed from long- term debt and equity
sources.

Some firms have matched their long-term temporary current asset to their current liabilities. It
has also matched it long term permanent current asset to its long term financing sources. It calls for
a relatively amount of risk balanced by a relatively

moderate amount of expected return.

Table 2.1. Summarizes the cost and risk consideration of the aggressive, conservative and moderate
approach to working capital financial

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 Aggressive Conservative Moderate

Cost Low High In between

Risk High Low in between

2.2. CONCEPT OF WORKING CAPITAL

These are two concepts of working capital, such as networking capital and gross working
capital. When accountant use the term working capital, they are generally referring to net working
capital which is the dollar difference between current asset and current liabilities. This is one measure of
the extent to which firm. It protected from liquidity problems. From the management viewpoint,
however, it makes a little sense to talk about trying to activity manage a net difference between current
asset and current liabilities, practically when the difference is continually changing. Financial analysis, on
the other hand, means current assets when they speak of working capital. Therefore, there focus is on
gross working capital. Because it does make sense for the financial manager to be involved with
providing the current amount of current assets for the firmat all times. We will adopt the concept of
gross working capital. As the discussion of working capital management unfolds. Our concern
will be to consider the administration of the firm’s current assets namely cash and marketable
securities, receivable and inventory and the financing (especially current liabilities) needed to support
current assets (James Covenhorne, 2003, page 210.)

2.3. NATURE OF WORKING CAPITAL

Working capital management is concerned with the problem that a rose in attempting to manage the
current asset, this current liabilities and inter reaction ship that exist between them. The term
current assets refer to hose assert which in the ordinary course of business can be or will be turned in
to cash within one year with undergoing administering in values and without disrupting the operation of
the firm.

The goal of working capital management is to manage the firm’s current asset and currentliability
in such a way that a sat is factory level of working capital maintained. This is so because if the firm

9
cannot maintain in sat factory level of working capital it likely to become insolvent and may even be
forced into bankruptcy. The current asset should be large enough to cover it current liability in order to
ensure a reasonable may in of the safety each f the current asset must be managed efficiently in order to
maintain the liquidity of the firm which not keeping too high a level of any one of them.

2.4. LIQUIDITY

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the
market without affecting the assets price. Liquidity may be emergency savings account or the cash
lying with us that we can access in case of any unforeseen happening or any financial setback. Liquidity
also plays an important role as it allows seizing opportunities. A liquid asset is therefore one that can
be quickly converted to cash without a sustainable price reduction. The amount of cash a company has on
hand or can generate quickly reveals how healthy the company is financially. High level of available
cash indicate that the business can pay off debt easily when due dates occur. The types of assets a company
has and the marketability of those assets are where a discussion of financial liquidity begins.

The main objective of the uses of liquidity ratios is to gives the external analyst to measure of the
firm’s capacity to meet short term obligation. Financial manager have more refined to work with such as
detailed cash budgets. But liquidity ratios are very useful to firm’s short term creditors such as bank
and suppliers. Their attention is usually focused on the relationship of the firm’s liquidity asset to its
maturing liability two popular liquid ratios are current ratio and the quick ratio.

2.4.1. Current Ratio

The current ratio is defined as the ratio of current asset to current liability current asset includes all the
firms’ asset which is expected to be converted to cash during the firmoperating cycle.

They are usually considered the reserve out of which maturing short term one year or less liable can
be paid it follows that a large current ratio consists assert of safety margin for the firm’s short term
creditors. This ratio is measure of the formality to meet its mature obligation out assets.

2.4.2. Quick Acid Test Ratio

The quick ratio or acid test as some analyst calls it. It calculated the same way as the current ration
but after deducting inventories and prepaid expense. Such as, next year insurance, acid test reflects a
feeling among analyst that inventory and prepaid expense cannot be relied up on to meet short term

10
obligation. The proposed measure focuses, therefore, an asset that can easily be converted to cash. The
quick ratio is much stricter test of liquidity than the current ratio (Ross Westerfield Jordan, 2006, page- 59)

2.5. GROSS WORKING CAPITAL

Gross working capital represents the aggregate of current assets that are converted in the ordinary
course of business in to cash within one accounting year. Such as stocks, sundry debtors, bill receivables
pre-payments, accrued income and case at bank and in hands.

A mentioned earlier, current asset constantly changes from one form to other. For example in a
manufacturing enterprise cash is used to procure raw materials, pay wages and expense. The raw
materials are put in the process for conversion in to finished goods that are then on sale credit and
become debtors. Finally debtors are converted in to cash. Current assets are therefore short-lived and
their life span does not normally exceed one year.

2.6. NET WORKING CAPITAL

In this case, working capital is represented by the excess of current assets over current liabilities it is also
known as “net current assets: thus Working capital =current assets-current liabilities Earlier, we have
itemized the components of current assets, current liabilities are those which are liquidated, in the
ordinary courses of business within the accounting year normally out of the current assets or fund from
operations. The net current assets concepts of working capital is considered superior to the currentassets or
gross concepts because, in the long run, what matter is the surplus of current assets over current liabilities
to show the financial strength or liquidity of the firm according, this concepts is widely used.

Normally, the aggregate of current assets should exceed the aggregate of currentliabilities to leave
a surplus or positive balance in the company. Conventionally, when the current assets are twice the
current liabilities, the position of a firm is considered satisfactory, in practice, however, the margin maybe
dependent on many factors via, the nature of the business, efficiency with which various components of
current assets and liabilities are managed, Credit reputation rather the above conventional approach.

In extreme situation, when current liabilities exceed current assets, then working capital is negative and
gives a danger signal. In such a case firefighting measured need to be taken to remedy the abnormal
situation (Bhabatoshbanerjee, 2008 page- 292)

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 2.7.FACTORS INFLUENCING WORKING CAPITAL

2.7.1. Income Working capital Management

I.Nature of the Business

Working capital requirement affirms are basically influenced by the nature of business. Trading and
financial firms have very small investment in fixed, bit require large sum of money to be invested.

II. Sales Growth

The working capital needs of firms increase as sales growth. It is difficult to precisely determine the
relationship between volume of sales and working capital needs.

III. Production Policy

We just noted that strategy constant production may be maintained in order to resolve the working
capital problem arising due to seasonal charge in demand for the firm’s product. Steady production
policy will cause inventory to accumulated during the off season periods and the firm’s will can be
exposed to greater inventory cost and risks.

IV. Price Level Charge

The increasing shift in price level makes function of financial manager difficult. He should
anticipate the effected price level charge working capital requirement of the firm. Generally, rising level
will require firm’s to maintain higher amounts working capital.

V. Availability of Credit

The word credit means the creditors believes that the debtor’s will return the loan andso decides to give
the loan. Advancing credit or loon essentially decides to give the loon, confidence, character, capacity, capital
or collateral of the debtor. In economics the term credit refers to promise by one party to pay another for
money borrowed or goods or services received. It is medium of exchange to receive money or goods on
demand at some future data. R.P Kent defines credit as the right to receive payment or the obligation
to account of the immediate transfer of goods. (R.R. pay, 1996)

The working capital requirement of a firm also affected the credit terms granted by its creditor. Firms

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will need less working capital it liberal credit terms are available to it similarly, the availability of
credit from bank also influence the working capital needs of the firm. (IMPANDEY: 2011, page 131)

2.7.2. Intervening Working capital Management

I. Average collection period

Samiloglu and Demirgünes (2013) analyzed the effect of working capital management on firm
profitability in Turkey for period of 1998-2007.Empirical results showed that account receivables
period, inventory period and leverage significantly and negatively effect on profitability, while,
firm growth significantly and positively.

From result of study, they showed that there will a negative relationship betweenvariables of working
capital management including the average collection period, inventory turnover in days, average
collection period, cash conversion cycle and profitability. Besides, they also indicated that size
of the firm, measured by natural logarithm of sales, and profitability had a positive relationship.

II. Inventories turnover in days

Business success heavily depends on the ability of the financial managers to effectively manage
receivables, inventory, and payables (Filbeck and Krueger, 2011). Firms can decrease their financing
costs and raise the funds availablefor expansion projects by minimizing the amount of investment tied
up in current assets.

Large inventory and a generous trade credit policy may lead to high sales. Larger inventory reduces
the risk of a stock-out. Another component of working capital is accounts payable. Delaying payments
to suppliers allows a firm to assess the quality of bought products, and can be an inexpensive
and flexible source of financing for the firm. On the other hand, late payment of invoices can be
very costly if the firm is offered a discount for early payment.

III. Average payment period

Rahman and Mohamed (2010) studied the effect of different variables of workin capital
management including average collection period, inventory turnover in days, average payment period, cash
conversion cycle, and current ratio on the net operating profitability of Pakistani firms. They found that as
the cash conversion cycle increases, it leads to decreasing profitability of the firm and managers can create a
positive valuefor the shareholders by reducing the cash conversion cycle to a possible minimum

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level. In Christopher and Kamalevalli’s (2011) study, the independent variables used were current ratio,
quick ratio, inventory turnover ratio, working capital turnover ratio, debtor’s turnover ratio, ratio of
current asset to total asset, ratio of current asset to operating income, comprehensive liquidity index, net
liquid balance size

and leverage and growth while dependent variable (profitability)will measured in terms of return on
investment (ROI).

IV. Cash conversion cycle

Eljelly (2014) clarified that efficient liquidity management involves planning and controlling current
assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-
term obligations and avoids excessive investment in these assets. The relation between working capital
and liquidity will examined, as measured by current ratio and cash gap on a sample of joint stock companies
in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle
will of more importance as a measure of liquidity than the current ratio that affects profitability.

For measuring the efficiency of working capital management, performance,utilization, and overall
efficiency indices were calculated instead of using some common working capital management ratios.

2.8. Conceptual Framework

For the phenomenon of management and its effect on working capital there is the need for a conceptual
framework that pulls together the concepts of working capital management. According to this
study the way working capital managed is when the independent variable like income and intervening
must fulfill in order to get dependent variable which is Gross Operating Profit. The conceptual
framework, as illustrate in

14
figure 2.1 describes the underlying relationship below

Independent variables
Dependent variables

Income

· Average collection
period

· Inventory turnover in
days

Gross working Capital

Intervening

· Nature of Business

· Sales Growth

· Production Policy

Source: Developed by researcher (2020)

Figure: 2. 1. Conceptual frame work of the study

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 2.9 Empirical review

examined the effects of working capital management on the profitability and liquidity of selected
deposit money banks using descriptive statistics, regression and Pearson’s correlation coefficients. It
will found that there is a significant positive relationship between bank performance and bank size;
there is a significant negative relationship between profitability and cash conversion cycle, which
supports the findings. found that profitability and risk-adjusted returns are inversely related to the cash
conversion cycle, further suggesting that aggressive working capital policy improves firm performance as
cited in ALShubiri (2011). Hoque et al. (2015) examined working capital management and profitability
in a cement industry of Bangladesh and revealed that profitability position and working capital
position over the period under study were not satisfactory. Bandara (2015) also examined the impact of
working capital management policy on market value addition in Sri Lankan companies. Descriptive
statistics, correlation and panel regression analysis were adopted as the tool for measurement and
analysis.According to the overall panel regression model, working capital investment policy and working
capital financing policy both recorded a negative relationship to market value addition.

2.10 summary and research gap

Werking capital management represents the relation ship between afirms short term asset and its
short term liablities.it aims to insure that acompany can aford its day-to-day operating expense while
also investing the companys asset in the most seccesful direction posible.

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 CHAPTER THREE

3. METHODOLOGY OF THE RESEARCH

3.1. Research Design

Selection of appropriate research design will necessary to meet the study objectives ofanyresearch.
Research design will planned structure and strategy of investigationconceived so as to obtain answer
to research questions and to control variances (Creswell, 2014)

The study aims to represent accurately on the working capital like current assets and current
liabilities and its impact on overall financial position of sample banks. The study will conduct to assess
the existing situation of working capital management of debub global bank and describe the situation
and events occurring at the studied bank. In this study the researcher used descriptive research design
because it describes the events and situation in the organization as it were.

3.2. Target Population

The Target population of this study will debub global bank operating in wolaita zone, sodo town which
capital city of the zone. The population for this study will constituted employees 15 for debub global bank in
wolaita sodo branch

Sample size

3.3.Sampling Techniques

The researcher used census survey techniques to collect data from employees since the target population
of the study will small and manageable.

3.4.Type and Sources of Data

The Researcher will use both primary and secondary source of data. The study used quantitative and
qualitative type of data.

3.4.1.Primary Data

The primary source will source which used to obtain information from manager and employees of the bank
through questionnaires. The questionnaire paper distributed to all workers equally and collected by two times
in order to minimize the missed

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 3.4.2. Secondary Data
The secondary data which gathered from published and unpublished materials of study case area such as
relevant document and book will used as information. But not included in the analysis part independently.

3.5.Data Collection Technique

The data will collected from employees of debub global bank in wolaita sodo branch The necessary
primary data will collected through questionnaire from employees of the bank. By using the open
ended and closes ended questionnaires distributing to the respondents and also the researcher
collected from different document and reviewing different book.

3.6.Sample Size
Using all population for data collection will difficult for one researcher. Sampling usedas a small part of
the population to make conclusion about the whole population. However, the total population of a bank
will 15 and the researcher used all the total target population of the study.

3.7. Method of Data Analysis

Under this study, financial and statistical tools were used to analyze the gathered data and information.
Financial tools like total assets financing, total debt composition, gross and net working capital, cash
reserve ratio and statistical tools like frequency and percentage will used. The data will analyzed and
interpreted using tabulation, Percentage and simple analysis statement are presented under each table.
Tabulation used to arrange data in a table or other summary format to facilitate the process of comparison
of various data analyzed.

3.8 Time and Budget Plan

3.8.1 Time Schedule
No WORK ACTIVITIES Mar Apr May Jun
1 Title selection 

2 Draft research proposal 

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3 Proposal first draft, 
writing and submission

4 compiling review 
literature
5 Proposal final writing 
and submission
6 Data collection 

7 Data analysis 

8 Report write the ✓

research paper
9 Submitting the research 
paper

10 Presentation ✓

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3.8.2 Budget Schedule

No Items amount of items needed Total price of single item Total Birr

1 Stationary
Pen 2 20 40
Paper 50 2 100
Print for proposal 15 3 45
Print for research 25 3 75
Flash 1 350 350
2 Other cost
Transport 5 10 50
Mobil card 5 25 250
Internet service 100
Contingency 100
Total ETB. 1110

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 REFERENCE
1.Adamu Y. & Hussaini b. (2015). Working capital management and financial performance of deposit
money banks in Nigeria vol 6.

2. John W. Creswell(2014) research design: qualitative, quantitative and mixed

approach: .university of nebraska lincoln.

3. Joshi, R. (2013) working capital management of commercial banks in Nepal:

being an MSC. Thesis submitted to faculty of management Tribhuvan

University, Shankar dev. campus, Kathmadu.

4. Hrishikesh Bhattacharya, working capital management strategies and

techniques, prentice hall of India, NewDelhi, 2005.

5. Meszek, W., & Polewski, m. (2006). Certain aspects of working capital in a

construction company.

6. Raheman, A. & Nasr, m, (2007). “Working capital management and

profitability case of Pakistani firms”, international reviewof business research

papers. 3 (2), 275-296.

7. Yeboah, B. and Adjei, s.k. (2012) working capital management and cash

holdings of banks in Ghana. European journal of business and management,

vol. 4, no 13.

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