IMPACT OF ADEQUATE WORKING CAPITAL ON PROFITABILITY OF BANKS
This project examines the issues of working capital management in banks specifically, it focuses attention on an efficient and effective. Working Capital Management using the case study of Wema Bank Plc. The study examines and expatiates on the merit of maintaining an efficient working capital portfolio in an organization. It focuses on the efficiently managed. In the project, a critical assessment of the relationship between the various components of working capital as an important tools to enhancing profitability and liquidity as well as the rudiment for the effective working capital management within any organization was done. It was discovered that fro a bank to maximize the wealth of its share holders the bank should earn a steady amount of profit from its operation. Hence the bank needs an adequate working capital level to generate sufficient returns. Working capital in bank refers to items required by the bank to ensure efficient delivery of its operation on day-to-day basis. If can be defined as the excess of current asset over current asset over current liabilities. Liquidity ratio measure the ability of the bank to meet its current obligation as they become due, failure of bank to meet its obligation due to lack of sufficient liquidity would result in loss o customers goodwill. Depositors will lose confidence in the bank and this may eventually result to a legal tangle and hence closure of the bank. Liquidity is however measure with following ratios. Current Ratio = Current Asset Current Liabilities
In banks liquidity is usually assessed by using cash ratio which is.
Cash + Marketability Security
In order to achieve the aims and objectives of this study, the banks working capital was carefully examined and required information on the subject matter was gathered information on the subject matter was gathered from personal interviews, collected fact from text banks, journals. Other crucial information were obtained from respondents and from a number of questionnaires administered within the banks. Finding from the study shows that efficient working capital management will improve profitability to help to stabilize or improve liquidity of bank. The study concluded that banks should maintain adequate level of working capital in order to improve on profitability of liquidity.
Many corporate bodies into problems because of mismanagement of working capital and inability to determine the effectiveness of working capital component on the organization performance.
Working capital is the backbone of any organization be it finance / bank, manufacturing or trading. It is so because, if working capital of a company is not properly managed, it could lead to the total breakdown and closure of the organization. Hence, management of working capital is being critically analyzed in this research work.
Working capital in bank refers to items requires by the banks to ensure efficient delivery of its operation on day-to-day basis. It can be defined as the excess of current asset over current liabilities. Generally, working capital management is concerned with the managing of:
Current Asset: Which majorly consist of stock, trade debtor’s payment or creditors balance at bank, and cash in hand? Although the component of each variables of current asset depends on the type of industry in question e.g while stock may be subdivided into raw materials, work in progress and finished good. In banking industry their stock is mainly money or cash.
Current Liabilities: Trade creditors, accrued, expenses, taxation. Furthermore, cash is an important component of working capital, a pointer to this fact is the even though cash constituted the smallest portion of the total current asset yet management of any organization devotes considerable time to its management. The following are the consequence of efficient management of working capital.