The Effect of Cash Management on Financial Performance in Financial Institutions a Case Study of Pride Microfinance Limited

Abstract

This study assessed the effect of cash management on financial performance in financial institutions a case study of Pride Microfinance Limited. The specific objectives of the study were: To assess the contribution of cash control on financial performance of financial institutions, to establish the contribution of cash collection on financial performance of financial institutions and to assess the contribution of cash budgeting on financial performance of financial institutions.

The study adopted the case study research design with quantitative and qualitative research techniques. A total sample size of 40 respondents from Pride Microfinance was used. Self-administered questionnaires were used to collect data. Data was coded and later processed using Statistical Package for the Social Sciences (SPSS) computer program with the help of data computations elements so as to generate tables showing means, percentages, standard deviations as well as charts including bar graphs that were clearly explained. Descriptive statistics were also generated for all the dimensions under both the dependent and independent variable and were explained using a scale ranging from strongly disagree to strongly agree as well as the rate at which responses were deviating from the mean figure.

The study revealed that Cash management through cash control, cash collection and cash budgeting has an effect it plays on the financial performance in financial institution. The institution through cash management accelerates cash inflows and delays cash outflows using cash controls. Furthermore, the institution has cash collection systems that help to reduce the time it takes to collect the cash that is owed to a firm and also that the institution has established strong billing and collection practices. Additionally, the institution has cash budgets that plan inflows and outflows of cash which helps the institution to track business expenses and revenues throughout the business. Management often makes use of cash budgets in determining cash surpluses or deficits, where managers invest their cash surpluses in ventures that yield high returns such as treasury bills. They should also make use of computerized accounting packages to help improve their efficiency in cash management.

In conclusion, cash management positively affects financial performance in financial institutions as it leads to increased profitability, increase in sales turnover and a more stable liquidity. Therefore financial institutions should pay attention to cash management and cash control, cash budgeting and cash collection so as to augment their return on capital employed, return on assets while maintain sufficient cash flows.

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