A Study on the Impact of Cash Management on the Financial Performance of the Listed Manufacturing Companies from Muscat Securities Market, Sultanate of Oman


Volume 7, Issue 1
Sam Sundar Chintha, Kollipara Vamsi Prasad

Published online: 26 February 2021
Article Views: 30
 
AbstractReferencesCite

Cash is a valuable yet scarce resource that all businesses have in limited quantity. Present research on cash management has focused on its connection with many important areas such as the effect on the liquidity of the business, its financial performance, bankruptcy, and the overall working capital itself. To validate the relationships between cash management and financial performance, 36 companies listed in Muscat Securities Market (MSM) had been chosen over time, starting from 2014 ending to 2019. For this, the study used cash management ratios, which were the Cash Ratio (CR), Operating Cash to Debt Ratio (OC-DR), and the financial performance ratios are Return on Assets (ROA), Return on Equity (ROE) and Net Profit Ratio (NPR). The CR has a statistically significant positive correlation with ROA of 0.176, ROE of 0.103 and NPR of 0.193 values. The OC-DR also has a statistically significant positive relationship with ROA (0.471), ROE (0.133), and NPR (0.422). The R-square value was 17.8%, where NPR is a dependent variable. When Return on Asset has been taken as a dependent variable, the R-square value was identified as 22.2%. But ROE has a limited impact on the independent variables with 2%. Overall, the main conclusion drawn is that cash managemen practices used by the Omani manufacturing firms are explaining a significant amount of the financial performance However other relevant factors such as the amount of manufacturing sales contracts received, the social development status of the business, impact of the financial crisis within the economy on the demand of the goods or commodities etc. may influence the cash management practices and draw a better conclusion. The findings can be helpful for policy makers in understanding the main factors that impact cash management and how these factors can be regulated.

  1. Ahmad, N. N. (2016). Cash management practices in micro and small businesses in Malaysia. Journal of Education and Social Sciences, 4(1), 331–335.
  2. Alshammari, T. (2020). Cash level and corporate performance: Evidence from the Gulf cooperation council countries. Innovations, 17(4), 14–24. doi:https://doi.org/10.21511/imfi.17(4).2020.02
  3. Bekaert, G., & Hodrick, R. (2017). International financial management. Cambridge, UK: Cambridge University Press.
  4. Bulin, S., Basit, A., & Hamza, S. M. (2016). Impact of working capital management on firms profitability. International Journal of Accounting & Business Management, 4(2), 227–241.
  5. Chang, C.-C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance, 56, 568–581. doi:https://doi.org/10.1016/j.iref.2017.12.014
  6. Constante, I., Daniel, C., & Flor, V. (2019). Incidence of IFRS for SMES in the financial sustainability on the Alpaquero textile sector of Peru, 2018. Journal of Administrative and Business Studies, 5(6), 316-322. doi:https://doi.org/10.20474/jabs-5.6.2
  7. Eton, M., Gilbert, U., Fabian, M., Benard, P. O., & Dennis, O. (2019). Cash management and financial performance of business firms in Northern Uganda a Case of Lira District. The International Journal of Business Management and Technology, 3(4), 115-125.
  8. Gitau, B., Nyangweso, G., Mwencha, N., & Onchangwa, G. (2014). Influence of cash management practices on financial performance of agribusiness enterprises in Kenya. International Journal of Social Sciences and Entrepreneurship, 1(12), 260–270.
  9. Gołas, Z. (2020). Impact of working capital management on business profitability: Evidence from the Polish dairy industry. Agricultural Economics, 66(6), 278–285.
  10. Jama, A., Samantar, M., & Muturi, W. (2017). Effect of cash management practices on the profitability of bottled purified companies garowe and Bosaso-Puntland Somalia. IOSR Journal of Business and Management (IOSR-JBM), 19(2), 18–21. doi:https://doi.org/10.9790/487x-1902031821
  11. Javed, J. (2019). Cash management. Retrieved from https://bit.ly/3gdEqXx
  12. Jindal, D., Jain, S., & Vartika, K. (2017). Effect of receivables management on profitability: A study of commercial vehicle industry in india. management, 2(2), 246–255.
  13. Kumaraswamy, S. (2016). Impact of working capital on financial performance of gulf cooperation council firms. International Journal of Economics and Financial Issues, 6(3). doi:https://doi.org/10.17512/pjms.2019.19.2.22
  14. Luo, W., & Shang, K. (2015). Joint inventory and cash management for multidivisional supply chains. Operations Research, 63(5), 1098–1116. doi:https://doi.org/10.1287/opre.2015.1409
  15. Njeru Mugambi Duncan, D., Njeru, A., Member, F., & Tirimba, O. I. (2015). Effect of cash management on financial performance of deposit taking SACCOs in Mount Kenya region. International Journal of Scientific and Research Publications, 5(2), 1–6.
  16. Oluoch, J. O. (2016). The impact of cash management practices on performance of SMEs: A survey of SMEs in Eldoret Central Business District. Journal of Economics & Finance, 7(6), 01–07.
  17. Parmar, K. N. (2019). A comparative study of cash management practices of Indian corporate sector analysis of selected companies. Retrieved from https://bit.ly/3sjYJ82
  18. Schroeder, P., & Kacem, I. (2019). Optimal cash management with uncertain, interrelated and bounded demands. Computers & Industrial Engineering, 133, 195–206. doi:https://doi.org/10.1016/j.cie.2019.04.052
  19. Sinclair, P. D., & McPherson, B. L. (2017). Centralized cash-management and avoidance actions: Part ii. American Bankruptcy Institute Journal, 36(4), 48.
  20. Thevaruban, S. (2016). Impact of cash management on financial performance of the srilankan manufacturing companies. International Journal of Economics and Business Review, 4(8), 118–126.
  21. Vuran, B., & Adiloglu, B. (2018). The relationship between cash gap and profitabilty: An empirical study from Turkey. Journal of Business Economics and Finance, 7(3), 288–294. doi:https://doi.org/10.17261/pressacademia.2018.956
  22. Wadesango, N., Tinarwo, N., Sitcha, L., & Machingambi, S. (2019). The impact of cash flow management on the profitability and sustainability of small to medium sized enterprises. International Journal of Entrepreneurship, 23(3), 1–19.
  23. Wanguu, K. C., & Kipkirui, S. E. (2015). The effect of working capital management on profitability of cement manufacturing companies in Kenya. IOSR Journal of Economics and Finance, 6(6), 53–61.
  24. Yun, J., Ahmad, H., Jebran, K., & Muhammad, S. (2020). Cash holdings and firm performance relationship: Do firm-specific factors matter? Economic Research-Ekonomska Istraživanja, 1–23. doi:https://doi.org/10.1080/1331677X.2020.1823241
  25. Zunairoh, & Fatkhurrohman. (2019). Liquidity, leverage, and cash holding: Evidence from Indonesia listed real estate firms. Journal of Administrative and Business Studies, 5(2), 79-87. doi:https://doi.org/10.20474/jabs-5.2.2

Chintha, S. S., & Prasad, K. P. (2021). A study on the impact of cash management on the financial performance of the listed manufacturing companies from Muscat Securities Market, Sultanate of Oman. International Journal of Business and Administrative Studies, 7(1), 25-35. doi: https://dx.doi.org/10.20469/ijbas.7.10003-1