Review of Related Literature
Foreign Literature
Key indicators in cash management
Without adequate cash flow, a firm can become technically insolvent even though
assets are sufficient to manage liabilities. To reduce the chances for a firm
becoming
technically
insolvent,
the
following
parameters
have
been
recommended to be employed in evaluating the effectiveness of a cash
management system. This includes cash conversion cycle that is actual cash
payment/expenditure for the purchase of productive/operational resources and
the ultimate collection of cash from the sale of products/services. It is measured
with the average time period. Operation cash flows that is a firm generates the
amount of cash in a measured time from its operation. Inventory management
that is the use of EOQ, system of maintaining stock level and inventory system.
Profitability that is the profitability has been measured using Return on total
assets (ROTA), ROE and Net profit margin
Relationship between cash management and profitability
Pandey (2001) found that the firm may gain adequate profits, but may suffer
from shortage of cash because its growing needs may be consuming cash very
first so that management should look to ways of increasing cash inflows in the
firm and minimizing cash outflows reducing operating expenses then the surplus
cash may be managed into an investment portfolio. Saleemi (2002) found that
organizations that have ineffective cash management cannot achieve desired
levels of profits and these firms unfortunately will end up because of failing to
achieve the said main objective. Researcher further elaborated that if cash
management is properly monitored, it becomes easier to estimate profits to be
generated by these firms. Kakuru (2005), indicated that SMEs in any period was
both cash receipts and cash disbursement with the net balance either a surplus
or a deficit and to ensure that if cash receipts and disbursement are
synchronized the management should aim at a zero balance that is to say in
investing the surplus cash for profitability. Researcher further explained that if,
in case of a deficit, the firm aims at increasing the cash inflows in the firm that
helps to settle debts in time, reduce period for payment from its clients that
increases the availability of cash in the firm. Such surplus cash can finally be
invested to maximize profit.
Stockholders Theory
The stakeholder theory is a theory of organizational management and business
ethics that addresses morals and values in managing an organization. Freeman
(1984) explained that organization has effectively managed their stakeholder
relationships will survive longer and perform to achievement of objectives.
Laplume et al. (2008) stakeholder theory explained that the organizations have
responsibility to stakeholders with their positive or negative potential impact on
the society in which they are operated, and organization would have
consideration not only the interest of their shareholders and other elements. This
is archived by managers or CFO’s by delegation of responsibility to identify the
cash flow risk and apply the best practices to mitigate the risk, thereby improve
overall financial performance and develop the relationship between stakeholders.
International Journal of Arts and Commerce Vol. 6 No. 8 November 2017 59
Agency Cost Theory Agency
conflicts arise between managers (agents) and shareholders (principals) of the
organizations managers ‘primary duty manage the origination and generate the
profit and monitoring the cash flow and return the shareholders (Elliot and Elliot,
2002). Agents are responsible to minimize the risk and generate the profit return
to shareholders. Jenson (1986), Enhance the debt value, increase incentive for
managers, asset utilization becomes more efficient and committed cash
distribution to shareholders. Agent is responsible to understand the cash flow
risk and apply the best practices to mitigate the risk there by generate profit and
return to principal shareholders.
Value at Risk (VAR)
Value at risk is use as risk management tool and method of information on the
risk of the companies. Risk measurement is important for stakeholders to
understand the going concern of the company (Demireli&Taner, 2009). VAR
facilitate to estimate inflation, interest rates, exchange rates, market risk and
stock price for predetermined period or confirmed interval however these factors
sensitive to the change in market. These represent the assets and liabilities of
the company and it can be practice to invest in a single investment portfolio in a
micro level (Aktaş, 2008).
Cash Flow at Risk (CF at R)
Cash flow at risk is as a risk measurement tool, measures high degree of
probability, the unfavourable moments of cash flow values over the specific time.
This model was proposed as a form of VAR to finding overall risk against
organizational cash flow (Vural,2004).
 Oluoch, J. O. (2016). The Impact of Cash Management Practices on
Performance of SMEs: A Survey of SMEs in Eldoret Central Business
District. IOSR Journal of Economics and Finance, 7 (6), 1-7

Paul, G. D. (2015). Cash Management and Profitabilityof Small and
Medium Scale Enterprises in Nigeria. International Journal of Advanced
Studies in Economics and Public Sector Management, 3, 229-239

Wickramasinghe, M. B., & Gunawardane, K. (2017). Cash Flow Risk
Management Practices on Sustainable Financial Performance in Sri
Lanka. International Journal of Arts and Commerce, 7 (8), 57-69.