CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

In recent time, the importance of the management of liquid assets is gradually and systematically getting prominence in most manufacturing firms. This is due to the adequate recognition which financial managers and accountants accord liquid assets. Most companies make profit, but they do not have sufficient liquid assets to set off their current obligation hence they close down, such situation does not guarantee the continued survival of the firm.

Financial managers however, are always faced with the problems of current assets management. Profitability is very important for the survival of a firm and also for a firm to maintain reasonable cash to off set its obligation. This problem could be solved, if the assets of companies are properly and efficiently maintained and managed. The management of current assets is concerned with plans and procedures to ensure that there is no inadequate or excess liquidity in a company.

Profitability is the yardstick for measuring efficiency in the use of resources of an enterprise. It is arrived at for an accounting period after the preparation of income statement.

If a company is liquid, it does not necessarily means that the company is profitable. A company can also be profitable and yet not liquid, if the company is making profit, it means the sales margin is increasing. A high sales margin on the other hand means negative impact on sales volume. Nevertheless, a firm may need to improve its volume of sales through longer credit facilities to customer. This shows that there is a strong relationship between firm’s liquidity and profitability.

This research work is carried out to examine the liquidity management techniques and the resulting effects on the performance of manufacturing companies in Nigeria with a particular reference to Nigerian Breweries Plc.