Figures 1.1 and 1.2 below show the inflation trend and the impact of the above analysis on the country's performance respectively compared to regional countries. Because of the interest costs, the debtors' payment period becomes important and the inventory is critical. To determine how firms in a hyperinflationary environment can manage their working capital through close management of the cash conversion cycle.
Scope of the Study
This chapter reviews previous work on hyperinflation, working capital management, and the impact of hyperinflation on companies operating in such environments. Working capital measures how much cash a company has available to build its business. Belt and Smith (1991) studied Australian companies; Kim, Rowland, and Kim (1992) studied Japanese manufacturers in the United States, and Burns and Walker (1991) studied small businesses. Weinraub and Visscher (1998) themselves studied differences in aggressive and conservative working capital policies, while Deloof (1997) studied the effects of working capital management in Belgian companies.
Significance of Working Capital Management
Hyperinflation Impact on Working Capital Management
- Hyperinflation
- Impact on Interest Rates and Money Supply
- Impact on Exchange Rates
- Impact on Stock (Inventory)
- Impact on Debtors and Creditors
- Impact on Cash Holdings and Demand for Money
- I m p a c t on C a s h Conversion Cycle
- Impact of Short Term Debt
It is important for the bank that the value of the security exceeds the value of the debt (disregarding the costs associated with a default). The company ended up with negative equity of Z$31.2 billion as a result of the impact of interest on the company. The elements from the literature review combined with the methods identified in the following chapter will influence the structure of the questionnaire and the research analysis.
Introduction
Research Design and Justification
- Non Probability (Random) Sampling
- Questionnaires
- Personal Interviews
- Telephone Interviews
- Mail Surveys
- Computer Interviews
- E-mail Surveys
The population size is the number of units in the entire population. The researcher's interest will be in the population. According to Fraenkel and Wallen (1996), the population includes all individuals about whom the research has an interest in obtaining information for the purposes of the population. Defining the population is therefore important because it helps the researcher select a research sample.
Saunders et al (2003) point out that sampling allows one to look at a subset rather than all elements of the population. In probability sampling, the sample is considered to be representative of the population since the selection of the sample components is random (Leedy, . 1992). According to Wegner (1993), every item in the population has an equal chance of being selected.
Saunders et al say "systematic sampling involves selecting the sample at regular intervals from the population". This method tends to be used when the population is large and spread over a large geographical area (Keogh, 1991). After analyzing the different sampling methods as detailed in section 3.4 above and the above statement, probability sampling methods are used in this study as they are considered to produce results that are more representative of the population.
According to Internet 5, telephone interviews are the fastest method of gathering information, especially where the population is large.
Types of Data
Secondary Data
According to Internet 5, e-mail surveying is the most cost-effective and fastest method of distributing questionnaires. All questionnaires in this study were sent by e-mail as the method is quick and cost-effective. In this study, secondary data extracted from a previous study was used in the research analysis.
Data from the Central Statistics Office and the Reserve Bank of Zimbabwe were also used. According to Internet 6 "a market researcher collects data with the aim of solving a concrete market research problem". The information is crucial to the research project as it specifically addresses issues of interest to the study area (Bless and Higson-Smith, the most common methods of primary data collection are surveys and questionnaires.
Data Processing. Analysis and Presentation
Chapter Conclusion
- Manufacturing Production Trends
- Investment Trends
- Business Confidence Index
- Summary Of Findings Based On Secondary Information Drawn From Research Work by Intermarket Research as
This section draws information from recent research and aims to show the impact of the worsening hyperinflationary environment on the manufacturing sector. A positive marginal gain of 0.3% was recorded in the beverage and tobacco sub-sector" (Intermarket Research, 2004). This is an indication of the continued contraction of capacity utilization in the manufacturing sector, as later confirmed in observations made on utilization. of capacities."
The decline in production also reflects previous trends, described in aggregate data, and is typical of a difficult economic situation, where the real sector continues to decline in weight. 34; Economic growth depends on the level of aggregate investment, with the most industrialized economies, and recently the East Asian Miracle explained by investment capacities of 18 to 25% of GDP. The interest rate impact statistics are likely due to severe cost pressures on final debt costs, subdued in the third quarter of the year.
Indications have been given of recovery of capacity utilization to 59.2% for 2004 based on the development so far. The decline in capacity utilization reflects the pressures the sector has had to bear over the past 5 years, with output remaining weak and domestic production becoming increasingly expensive" (Intermarket Research, 2004). The negative impact of high interest rates was strong, while the fixed central was even stronger.
The next section explores how firms performed over the period 2000-2004 and performance trends under the conditions described in this section.
FINDINGS DRAWN FROM ANALYSIS OF COMPANY FINANCIAL STATEMENTS
Method Employed
Turnover and EBITDA data were obtained from each company for each financial year as detailed in Table 4.5 below. In addition, debtor days, creditor days and inventory turnover days were calculated for each company for each financial year as shown in Table 4.5.
Limitation
Analysis of Information Derived from Financials
Based on the above graph, it can be seen that cost management has become an important aspect in the management of companies. Source: Figure 4.7 above is derived from the average values of debtors, creditors and inventories from Table 4.5. The days are calculated based on the average value of inventories/debtors/creditors as of the balance sheet date, divided by the total turnover and multiplied by 365.
An analysis of the comments in some of the accounts reveals that most of the companies increased their export business to markets where credit terms vary between 30 days and 90 days. The observed overall effect on creditor days is an increase, but this is lower than debtor days. A notable explanation for this is that while most of the companies analyzed tried to increase exports, their raw material supplies were largely sourced locally.
Local suppliers have shortened their credit periods in light of the increasing inflationary pressure, while average debtors of the analysed. Companies operating in hyperinflationary environments suffer in this regard, as they find it difficult to reduce export credit terms, especially where the terms follow acceptable industry norms, while creditors at home will reduce their credit periods. Inventory turnover days increased over the period from an average of approximately 55 days to over 100 days before decreasing to an average of 80 days in 2004.
This is largely attributed to the hyperinflationary environment that has prompted all industry players to invest more in stocks instead of holding money market investments and cash balances.
FINDINGS DRAWN FROM RESPONSES TO THE QUESTIONNAIRES
Method Employed
This was largely a response to the high inflationary environment that resulted in avoidance of cash holdings, hedging against foreign currency shortages and supply shortages. One week Two weeks Three weeks One month Two months Three months Over three months. From the above table, 72.9% of the companies wanted to have inventory for more than two months.
Interviews revealed that some firms were comfortable holding equity hedge positions for periods of up to five months when they expected economic conditions to deteriorate.
Debtors and Creditors
The minute number still offered credit periods of 14 days, with no company exceeding this period. Interviews revealed that credit was given only to top-rated customers whose ongoing support was critical to operations.
Most of those who were getting loans for their customers reduced the period to seven days. A total of 76% of the companies that responded to the questionnaire stated that they did not make any capital investment in the period under review. Most indicated that they were considering investing in stocks and movable assets such as vehicles that could be easily disposed of should the need arise.
Respondents (86%) indicated that the impact of interest rates on their business was high, as it limited the extent to which they could obtain loans to finance their businesses, especially stock purchases. Nevertheless, they confirmed that they were still borrowing as much as was reasonable to fund operations. Respondents (74%) indicated that they passed on the cost of foreign currency purchases and thus pushed up their prices.
Some confirmed that they used currency on the parallel market as it was the only way to enable their businesses to continue trading. All respondents confirmed that inflation, foreign exchange and interest rates were the main determinants of their pricing structures.
SUMMARY OF RESEARCH FINDINGS
- A Collective Summary of Research Findings
- Chapter Conclusion
- Hyperinflation
- Cash Holdings
- S t o c k s (Inventory)
- D e b t o r s a n d Creditors
- Bank Borrowings
- Conclusions
- Recommendations
- Recommended Future Studies
Further analysis showed that this position arose from the fact that most of the listed companies exported some of their products to markets where they offered credit for periods ranging from 30 days to 90 days. 65% of the surveyed companies did not offer credit sales by the end of the period under review. Cash sales: The survey results show that 73% of sales made by companies were in cash.
Based on these results, the next chapter, which concludes this study, draws conclusions from the results and recommendations based on the findings of the study. The study found that interest rates rose significantly, confirming the findings from the literature review. Some companies that had borrowed too much virtually went bankrupt as a result of the acute increase in interest charges on borrowed money.
This is due to the fact that interest expenses can easily erode profits and make the company bankrupt. Based on the above, it is concluded that the cash conversion cycle of manufacturing companies in hyperinflationary environments should ideally eliminate the debtor phase to preserve value. Further research to prove that managing the cash conversion cycle actually improves the return on investment for shareholders in hyperinflationary environments.
No reference will be made to a specific organization, as such the names of the respondents and their companies are not required. If so, which of the following best represents the company's view of the associated interest costs:. Intermark Research, (2004) Study on the State of the Manufacturing Sector during Related Statistics and Experimental Design, Thousand Oaks, CA. 1999).
