ADIGRAT UNIVERSITY

COLLEGE OFBUSINESS ANDECONOMICS

DEPARTMENT OF ACCOUNTIING AND FINANCE

EVALUATION OF CASH MANAGEMENT PRACTICE (In case of

Commercial bank of Ethiopia, Edagahamus branch)

PREPARED BY:

ABDUSELAM MISBAHU

ID NO 2531/05

ADVISOR: - BEYENE G. (MSC)

A SENOIR ESSAY PAPERD SUBMITTED TO ADIGRAT UNIVERSITY FOR

PARTIALFULLFILLMENT OF THE A WARD OF BACHELOR OF ARTS
DEGREE IN ACCONTING AND FINANCE.

June, 2015

ADIGRAT ETHIOPIIA
AKNOWLEDGEMENT

First and for most I praise to ambiguity Allah and I would like to thanks my Adviser BEYEN .G Next to
God for all participation to give advice for the research paper.

Second I would like to express my appreciation to all my family those who have contributed to the
success full computation of this research.

Thirdly I would like to express great gratitude Edagahums bank manager and I would like to extend my
thanks to my beloved friends who support me all the way to my life.
 ABSTRACT

The study was conduct to evaluation of cash management practice in commercial bank of Ethiopia
Edagahamus branch. Cash management is in general of major importance in business enterprise, because
cash is a means of acquiring goods and service and also means to operate business to generate profit. This
study would enable use better understanding about evaluation of cash management.

IN this study primary data would be used for conduct this study. Obvious the source of data includes
primary data .the method of data collection of primary data was collected through questionnaire is
consider
 Table of contents

Content page

Acknowledgement…………………………………………………………………

Abstract………………………………………………………………………………

Table of contents……………………………………………………………………

List of table…………………………………………………………………………..

CHAPTER ONE

Introduction................................................................................………………….…..1

1.1 Back ground of theStudy...................................................................................1

1.2 Statement of the Problem...........................................................................................2

1.3 Objectives of the Study......................................................................... …….…...….2

1.3.1 General objective...............................................................................................2

1.3.2 Specific objective..............................................................................................2

1.4. Research methodology...............................................................................................3

1.4.1. Source of data….................................................................................................. 3

1.4.2. Sampling and sample design……………………………..……………………3

1.4.3Methods of data analysis...................................................................................3

1.5 Significance of the study...........................................................................................3

1.6 Scope of the study ...................................................................................................4

1.7organization of the paper...........................................................................................4

2. Chapter two review of literature……………………………………………………

2.1.1 Definition of cash ……………………………………………………………………

2.1.2 Definition of cash management………………………………..................................

2.2 Concept of cash management…………………………………………………………

2.3 Factor determine cash needs………………………………………………………..

2.4 Objective of cash management………………………………………………………..

2.5 Requirement of cash balance …………………………………………………………

2.6 The cost of holding cash ……………………………………………………………….

2.7 Cash planning ………………………………………………………………………….

2.8 Cash forecasting and budgeting………………………………………………………

2.9 Investing idle cash ……………………………………………………………………..

2.10 Inter-corporate deposit……………………………………………………………….

2.11 Mutual funds …………………………………………………………………………

2.12 Bank reconciliation ………………………………………………………………….

2.13 Function of cash management ………………………………………………………..

CHAPTER THREE

3. Data analysis and presentation …………………………………………………………

3.1 Demo graphic characteristics of respondents ……………………………………….

3.2 Analysis of general data ……………………………………………………………….

3.2.1 Cash management ………………………………………………………………….

3.2.2 Money market instrument…………………………………………………………..

3.2.3 Controlling cash receipt and payment ……………………………………………

3.2.4 Policy and procedure of cash management …………………………………….

3.2.5 Cash management practice …………………………………………………………

3.2.6 Petty cash ………………………………………………………………………….

3.2.7 Ratio analysis …………………………………………………………………….

3.2.8 Cash flow statement ………………………………………………………….

CHAPRETR FOUR

4. Conclusion and Recommendation ……………………………………………………..

4.1 Conclusion ……………………………………………………………………………

4.2 Recommendation ………………………………………………………………………

Reference …………………………………………………………………………………..

Appendix …………………………………………………………………………………...
 List of Tables
Table 3.1 gender distribution of respondent

Table 3.2 ages of respondents

Table 3.3 educational levels of the respondents

Table 3.4 distribution of working position

Table 3.5 working condition of respondents

Table 3.6 does the commercial bank of Ethiopia edagahamus branch prepares cash budget

Table 3.7 if you answer for question number 3.6 is yes how many times per year does it prepared

Table 3.8 does the commercial bank of Ethiopia edagahamus

Branch deal with money market instrument

Table 3.9 if your answer is yes on the above question what the main types of money market instrument
are

Table 3.10 does the bank use controlling system of cash receipt

Table 3.11 does the commercial bank of Ethiopia edagahamus branch has policy and procedures in cash
management?

Table 3.12 do the banks manage cash effectively

Table 3.13 if your answer on the above question is yes how cash management practice in bank

Tables 3.14 are there petty cash in the commercial bank of Ethiopia edagahamus branch

Table 3.15 does the bank use ratio analysis to evaluate their cash management?

Table 3.16 does the CBE edagahamus branch prepare annual cash flow statements?

Table 3.17 does the CBE edagahamus branch management strongly focus on the cash management
operation
 CHAPTRE ONE

1. Introduction

1.1 Back ground of the Study

Cash is the important current asset for the operations of the business. It is the basic input needed to keep
the business running on continues basis. It also ultimate output expected to be realized by saving the
service or product manufacture by the firm. The firm should keep sufficient cash neither more or less.
Cash shortage will disrupt the firms manufacturing operation which excessive cash will simply remain
idle, without contributing anything to words the firms’ profitability (mittra gassahe, 1981)

Cash is the money which firm can disburse immediately without any refraction. The term cash include
copies, currency &censure held by the firm& balance in it bank accounts. Sometimes near cash items,
such as marketable securities or bank term deposits, are also in to cash(mosich, 1999)

Cash is holding affirm for several reason, an important for holding is to meet the firm day to day
transact ,their working cash balance must maintained to provide readily access to fund. It is the ultimate
out put out put expected to realize by several services activities. Thus a major function of financial
managers isto maintain a sound cash positions. Cash storage will disrupt organization services given
operation while excess cash will simply remain idle without contribution anything to words the
profitability. Cashis to meet the compensating balance requirement of the firms commercial bank, when
bank, provide loan other service to business the often require that specified level of balance be maintained
in the bank as compensation for providing the service .Cash management is the major of any business
enterprise because cash is amends of acquiring goods and services in addition carefully scuttling of cash
transaction is required because cash may be readily miss appropriated (Mittra Gassehe, 1981).

Cash management is the movement of funds through financial institution to optimize liquidity .It is the
management of corporate funds to increase income earned by minimizing investment and reducing
interest paid by minimizing borrowing cash management .Cash management assumes more important
than other current asset because cash is the most significantand at least asset that affirm holds .It is
significant because it is used to pay affirm obligation (Mosich, 1999).
 1

1.2Statement of the problem

Cash is the most liquid asset as result it could be taken or embezzled by the employers or managers
financial intermediate are play great role to provide effective and efficiently to evaluate and control cash
management (mosich,1989).

Cash is both fundamental resource and the means by which the entity ability to purchase asset services
debit pay employees and control operations, Thus effective cash management directly correlates with
entities ability to realize it is goals and objectives cash is also clearly the single most important element of
banking operations, specially an environment like Ethiopia were banking technology and cultural of credit
are not get developed (Mittragassehe, 1981).

Tonnage effective and efficient why of cash is to have bestknowledge of likely payment timing and in
best position to influence likely cash flows .The study conduct to address the following research question.

1. Does the bank prepare cash management?

2. Does the bank use it cash effectively?

3. Does the bank deals with money market instrument?

4. Does the manage cash payment and receipts properly?

5. Does the bank manage cash operation strongly?

1.3 Objective of study

1.3.1 General objective

The main objective of this study is the evaluation of cash management

Practice in commercial bank of Ethiopia, Edagahamus

1.3.2 Specific Objective

 To determine how the bank is prepare their own cash budget

 To identify the policy &procedure of cash management
 To examining how the bank deal with money market
 To determine how the bank manage cash payment and receipt
 To identify the strengths and weakness of the bank on cash management
2
1.4. Significance of the Study
The study is the following significance the outcome is more useful to management of the bank by
providing brief information about cash management practice in the commercial bank of Ethiopia,
Edagahamus branch.
The study was attempted to find out problem related with cash management. The study was use
better approaches deals with to maintain cash management level in any organization; it will
provide information for future research, those who wants to conduct a detail research. It was
enables the research to gain the research knowledge & experience. Finally, in this research paper
was use as secondary source for other researches who under take related research.

1.5. Scope of the Study

This study geographically wascovering more information the commercial bank of Ethiopia,
Edagahamusbranch. Beside to this, it is conceptually cover evaluation of cash management
practice to cover come the prevailing problems, to know the bank that are more strongly operating
& evaluate their strong & weak sides. This study will be focus on the evaluation of cash
management practice oncommercial bank of Ethiopia ,Edagahamus branch call for good skill,
experience, time, organize date ,manpower, budget ,&other relevant information.
1.6. Research design and Methodology
1.6.1. Source of data
To collect the necessary data study is use primary source of data. Primary source data is collect
from the respondents through questionnaires. These questionnaires constitute from both open and
close ended questionnaire.
1.6.2. Sampling design and sampling size
This study non probability sampling design is used order to collect data from the employee and
managers. The researcher use for many reason, among these non-probability sampling technique is
less cost and fewer complexes,(Robert,wat,beig , 1989).
The sample selection carries out by a research. In order to get a reliable representation of the
population and take the data for two years from the banks. This data focuses in the year 2006 &
2007 use analyzing data the research focus on the employees of the organization by use techniques
to acquire the necessary information and to make clear investigation for the current research. The
total population of study was including 30 employees out of total the research was study only 8
select employees taking this into account on factors it find

1.6 .3 Instruments of data collection

Primary data was conduct through questionnaire from permanent works of the bank to get detail
&enough information from respond requiring to the evaluation of cash management practice in
commercial bank of Ethiopia, Edagahamus branch

1.6.4. Method of data analysis

The necessary data is collected from questionnaires respondents are through descriptive statistics
that is qualitative &quantitative method. Qualitative method, are obtain from questionnaires are
analyze qualitatively method to arrive certainconclusion while, quantitative method, analyze the
questionnaire data using percentage &table by taking certain variables
1.7organization of the study
This research paper wouldcontain four chapters. The first chapter deal with the introduction part
which contain the back ground of study ,the statement of the problem, objective the study,
methodology of study,singnifincance of study, scope and organization of study , the second
chapter deals about the review of related literature ,the 3 rdchapter deals about data presentation and
analysis, the 4th chapter deals about conclusion and recommendation .
 CHAPTER-TWO

REVIEWING OF RELATERATURE

2. Introduction

Every company should have to manage cash properly and efficiently. As we know cash is the most
liquid asset and it needs effective control. As its liquidity the cash is the asset that is mostly simple for
embezzlement and fraud. Cash management is the general process that is used to manage cash. This study
evaluates the cash management practice ion commercial bank of Ethiopia Edagahamus Branch and this
chapter includes the general concepts that related to cash management.

2.1. Definition of cash

Cash is any medium of exchange that bank will accept. Face value and liquidity, high quality fixed
income instruments. With duration of less than one year. Cash include currency and coins on and. Bank
deposit, personal check, bank draft, money order, credit card and etc. (Robert wat.B.1989)

Cash is the most susceptible to theft than any other assets and therefore require carefully management to
ensure that it’s being used as efficiently as possible. Determining to ash receiving or paying needs
schedule and to maximize cash disbursement to cash balance are among cash control ,manger ale to
determine the optimal cash balance the bank has to hold at any time.

Cash is defined as demand deposit plus currency. Cash is often called “non-earning asset” it needed to
pay for labor and raw material, to buy fixed asset. To pay taxes, to service de, to pay dividend and so on.
However cash itself can’t produce goods and service means it is used to buy or sell good service
(Brigham, 1995).

2.1.1 Definition of cash management

 Before define cash management, the concept of management is responsibility of controlling and
protecting on asset of business enterprise (mosich, 1999) from this concept cash management is
controlling and protecting the most liquid of asset which is called Cash

Cash management can also defined as “having the right money in the right place at the right time to meet
government’s obligations in the most cost effective way” through achieved by ensuring; more accurate
and timely for casting of cash flows and balance. Greater efficiency and responses in cash management
processing and service provision, management of consolidated risk position and integrations of cash and
debt management

Cash management is in general major importance in the business enterprise because cash is means of
acquiring good and service (Brigham, 1995).

Generally cash management is center of forecasting and internal controls the responsibilities of
management with respect to cash are:

 To assure that there is sufficient cash to carry on operation

 To invest ide ash

 To prevent loss of cash due to theft or misappropriations

2.2. Concept of cash management

Cash management seeks to accomplish a cash cycle at minimum cost that over cash that over
cash position to keep the organizations sufficient liquidity and use excess cash in some profitable
way (mittra gassehe, 1981).

The facts of cash evaluate for which the management has to evolve strategies are:

Management the cash flow

The Cash inflows have to be accelerated and cash outflows have to be decelerated. But in doing
so we should take care of harming the customers.

Investing idle ash

Surplus cash balance should be properly invested to earn profit. Well managed organization
frequently review here bank balance for the purpose of transferring any cash.
Optimum cash level

The bank should decide the optimum cash level, the appropriate level of cash balance while
deciding so, it should ensure to avoid both the excess cash and danger of cash deficiency.

Cash management strategies

Cash management has changed significantly for two reasons

There was an upward trend in interest rate that increases the opportunity cost of holding cash.
Technological development particularly computerized electronic fund transfer mechanism the way
cash is managed.

Effective cash management encompasses proper management of cash flow out flow, which
include.

A. Improve forecast of each flows

B. Synchronizing cash inflow and out flows

C. Using float

The float is the different between the total amount of drawn and actual amount shown in
organization

D. Accelerating collection

Cash collection can be accelerated by reducing delay between the times.

2.3. Factors determining cash needs

The working capital needs of firms are influenced by numerous

 Nature business

 Market conditions

Nature of business

The working capital requirement of a firm is closely related to the nature of it bossiness. A
services firm like electricity under taking or transport Corporation which has a short
 operating cycle and which sells predominantly on cash basis as a modest working capital
requirement. On the other hand a manufacturing concern likes a machine tools unit, which
has a long opting cycle and which sells largely on credit has Avery substantial working
capital requirement (Mittra gassehe, 1981).

Market condition

The degree of competition prevailing n the market has an important bearing on working capital needs.
Where competition is keen. A larger inventory of finished is required to promptly serve customers who
may not be inclined to wait because other manufactures are ready to meet their need. Further generous
credit term may have to be offered to attract customers in a highly competitive market. Thus working
capital needs tend to be high because of greater investment in finished goods inventory and account
receivable, if the market is strong and competition weak a firm can manage with a smaller inventory of
finished goods use customers can be served with me delay further in such a situation the firm can insist on
cash payment and avoid lock ups of funds in account receivable it can even ask for advance payment,
particular total (Robert, watt.Beig 1989).

2.4. Objective of cash management

There are two primary objectives of cash management systems

i. To meet the cash disbursement need (meet payment schedule)

ii. To minimize committed fund on cash (minimization of idle cash).

To meet the cash disbursement need

A basic objective of cash management is to meet the cash disbursement need. That is to have sufficient ash
meet the cash disbursement need hardly be over emphasized the advantages of adequate cash are:

 To help to create good relationship with creditors

 To prevent from insolvency /bankruptcy.

 To lead the strong d credit rating.

Minimization of idle cash

 There are to conflicting aspect have to be reconciled, minimization of cash balance. First act a high
level of cash ensures prompt payments together will all advantages. But it also implies that large funds
will remain idle, as cash is non-earning asset and the firm will have to forgo profit (mosich, 1999).
Second as a low level of cash balance may be failure to meet the payment schedule.

2.5. Requirement of cash balance (motive of holding cash)

Cash balance is requiring for four primary reasons. These are

 Transactional requirement

 Precautionary motive

 Speculative motive

 Compensation balance motive

Transaction requirement

The related amount cash needed to satisfy transaction requirements is affected by a number of factors, such
as industry in each the firm operates. It is well known utilities can forecast cash receipts quite accurately,
because of stable demand for their services. To some happy transaction motivates is the cash necessary
(required) to handle day to day and frequent transaction of the company.

Precautionary motive

Cash inflow and out flows are unpredictable, with the degree of predictability varying among firm’s
industries. Therefore, the firms need to hold some cash in reservoir random, unforeseen fluctuations in
flow and out flow (Brigham, 1995).

Generally precautionary motive is cash important to handle un expected events or transaction.

Speculative motive

Cash is held for speculative purpose in order to take advantage of potential profit making situations. It
means cash is maintained to take advantage of opportunity.

 Price increase or decrease

 Discount advantage
  A chance to speculate on interest rate movement by buying securities when interest are expected to
decline

Compensating motive

Bank provides of services to business firms, such as clearance of cherub. Supply of credit information
is to transfer fund and loan (Brigham 8 th edition) It is hold cash to compensate bank balance and use
for:

 Striking employees settlement

 Settlement for filed employees

 Compensation for accident or damage

 Settlement of government fines

2.6. The cost of holding cash

When a firm olds cash in excess of some necessary minimum, it incurs cost of capital (opportunity cost).
The opportunity cost of excess cash (need currency or bank deposit) is the interest income that could be
earn in the next best use, such as investment in remarkable securities.

Given the opportunity cost of holding cash, why would a firm old cash in excess of it is compensating
balance requirements? The answer is that cash balance must maintain to provide liquidity necessary for
transactions need paying bills. If the firm maintains too small cash balance, it may run out of cash. If this
happens, the firm may have to raise cash on short- term basis. This could involve for example selling
marketable security or borrowing. An active such as selling marketable security and borrowing involves
various costs. As noted above holding cash has opportunity cost. To determine the appropriate cash
balance .The firm must weigh the benefit of holding cash against this cost. To be optimal bank must use
different method managing cash, like preparation of cash budget, investing idle cash different financial
instrument opportunities (Robert, wat. Being. 1989).

2.7. Cash planning

Cash planning is techniques to plan and control the use of cash it protects t financial condition on the
firm by developing a project cash settlement from a forecast of expected cash inflow and outflow for
given period, Cash planning may be done on daily, weekly or monthly based. The period and cash
frequency of cash planning generally depends up on the size of the firm and philosophy of management.
Large firms prepare daily and weekly forecast. Medium size may usually prepare weekly and monthly
forecast. Small size firms may not prepare formal forecast because of non-availability of information and
small scale types of operations (MittraGasseh 1981)

2.8. Cash forecasting and budgeting

Cash forecasting: cash forecasting are needed to prepare cash budget. It is may be done on short or long
term basis. Generally forecast covers periods of one year or less considered as sort term; those extending
beyond one year considered as long term forecasting provide a basis on which to measure the difference
between actual events and plans, so that nature and intent of corrective action can more clear defined.

Cash budgeting: Cash budgeting is the most significant device to plan and control receipts and payments.
A cash budget is a summary settlement of the firms expected cash inflow and outflow over the project
period (Robert W. being 1989). There are two types of cash forecasting: these are as above mentioned:

 Short- term cash forecast

 Long – term cash for cast

Short – term cash forecast

It is comparatively easily to make short-term forecasts. The important functions of short-term forecasts
are:-

 To determine operating cash requirement

 To develop credit policy

 To plan purchase of material

 To anticipate short- term financing

 To scheduling payment in connecting with capital expenditure

 To manage investment of surplus cash

The short- term forecasts help in determining the requirement for a predetermined period to run business.
If the requirement were not determined, it would not be possible for the management to know how much
cash balance to be kept in hand, to what extent bank financing depends up on and weather surplus funds
would be available to investing in marketable securities (Brigham 1995).

A short term forecasting method the two most common method of forecasting:-

i. To receipt and disbursement method and

ii. To adjust net income method

To receipt and disbursement method

The primary aim receipt and disbursement forecast is to summarize the cash flows and in and
out during predetermined period. In case of those companies were cash items of income and
expenditure (expense) involves flow of cash. This method is favored to keep a close control
over cash. Three broad sources of cash inflows can be identified.

1. Operating

2. Non- operating

3. Financially

Cash sells and collection from customers the most important part of operating cash inflow. Non-
operating cash inflow includes sells of old assets and dividend interims income. The magnitudes of these
items are generally small when internally generated cash flows are not sufficient, the firm report to
external financial resources (Howells peter 2000)

This constitutes the financial cash inflow

Adjusted net income method:

This method of cash forecasting involves the tracing of working capital flows it is
sometimes called the source and approaches. Two objective of cash adjusted net income
approaches are:

1. To Project the company need for cash at future date and

2. To show weather the company need for cash at future date and how much will have to
be borrowed or raised in the capital market.
It is in fact a project cash flow statements based on project form financial statements. It generally has
three section:- source of cash use of cash and adjusted cash balance . This procedure helps in adjusting
estimated corning on actual basis to cash basis (Robert. W Kolb; 1989). It also helps in anticipating the
working capital investment.

The benefits of adjusting net income method are:-

 If the highlight the movement in working capital items. And this helps to keep a control on firm’s
working capital

 It helps in an anticipating a firm’s financial requirements.

The major limitation of this method is it fails to trace cash flows and therefore it is utility in controlling
daily cash operations is limited

Long –term forecasting.

Long –term cash forecasts are prepared to give an idea of company’s financial requirements in the
distance future. Long term cash forecast may make for two three or five or more years in the futures once
a company has developed a long term forecast, it can be used to evaluate the impact of, say, new product
development or plant acquisitions on the firm’s financial, for a given year.

2.9 Investing idle cash

Idle cash is a situation in which production has shutdown is simply not working or one in which cash in
active (not invested). More terms can apply to any asset that is not being but productive uses. Being idle
an undesirable situation, since this an opportunity costs of not earning returns on the idle asset. (Mosich,
1999).

Investing idle cash has two primary functions. The first function is a major contributor to earnings. T
second function of investing idle cash is to provide the bank with liquidity to meet expected or
unexpected cash need. Because the minimum investment required purchasing money market instruments
is generally very large, the market is dominated by commercial bank, it states and local government,
financial and non –bank institutions and more recently mutual fund.

This large investor purchase money market instruments convert, temporary cash surplus I to highly
interest bearing investment (Robert w.kolb. 1989).
Commercial bank is investing idle cash through short-term and long-term principles of market
instruments. Short – term principles of market instruments are money market instruments such as:-

 Treasury bill

 Certificate deposit

 Commercial paper

 Bank deposit

Treasury bill

This are the most frequently issued marketable securities. They are sold weekly or monthly on the
auction basis and have a maximum maturity of one year. It is short –term obligations or promissory note
issued by the government, sold at discount from its face value and redeemed of its face value up on
maturity. The difference between issue price and redemption price, adjusted for the time value of money,
is return on treasure bills. They can be bought and sold any time; thus, they have liquidity. Also, they do
have default (Mittra Gasseh, 1998)

Commercial paper

Commercial papers are short-term, unsecured securities issued by highly credit worth large companies.
They are issued with maturities three months to one year. Commercial paper is marketable securities and
therefore liquidity is not a problem.

Certificate of deposits

Certificates of deposit are paper issued by banks acknowledging fixed deposits for a fixed period of
time. Certificate deposits are negotiable instruments that make them marketable securities (mittra gassehe
1989). The bank agrees to pay the amount deposited plus interest to bears to bears of the receipts on the
date specified on the certificate.

Bank deposit
 A firm can deposit its temporary cash in bank for a field period of time, The interest rate depend on
maturity period.

2.10. Inter-corporate deposit

Inter-corporate lending borrowing or deposit is poplar short-term investment alternative for companies in
the India. Generally a cash surplus company will deposit /lend its funds in a sister or associated company
or without outside company with high credit standing. In practice, companies can negotiate inter-
corporate borrowing or lending for very short periods. The risk default is high but returns are quite
attractive (Howells peter and bainkeith 2000)

2.11Mutual funds

Mutual funds focus on short-term marketable securities such as Treasury bill certificate deposit,
corporate deposit or call money. They a minimum lock- in period 30 days, and after these periods, an
investor can with draw his or her money any time at short notice or even across the counter in the some
cases. (Larson Ej 1998).

1.12Bank reconciliation

Bank reconciliation is the method of analysis that had detail information about the items that are
responsible for different between the balances reported in the bank statement and balance of the cash
account in the ledger. It is a good account practice to check currency of the bank statement as soon as
collected the bank. (Robert wat beng; 1989).

Cash in the bank depositors in the bank’s ledger liability credit balance. It might seem that the two
balances should be equal.

But they are not to be equal on any specific dates because of either or both of the following;-

1/ Delay by either party in recording transactions

2/ Errors by either part in recording transaction

2.13Function of cash management

Collection, custody and disbursement functions

The functions having to do with the collection custody, and disbursement of cash are so familiar that I
shall do well only on aspects that realized to the cash flows cycle and to problem of cash management
and centralized and decentralized systems of control.

Where cash collections are decentralized it is necessary to provide for depositor in more than
one city and to establish some system for prompt collection and report of receipts. Under
decentralized systems of cash receipts, controlling is sometimes difficult, because transfer of
funds must be ordinary been made to disbursing bank. This requires prompt transfer methods and
good communication between local officers to avoid lost time and consequent loss of the use of
funds. Where collections are made at one or only a few locations, on the other hand, control is
facilitated, especially if disbursements are made at the same points. Centralization of receipts ma
not, however, always be the most economical systems, since availability and use of the cash may
be delayed in the course of mailing and depositing (Larson, EJ 2000)
CHAPTER THREE

DATA REPRESENTATION AND ANALYSIS

INTRODUCTION

In the previous chapter the researcher include in the related literature review regarded to the evaluation of
cash management in this chapter percent’s and analysis the data that is collected from primary data source
through questionnaires to collect data the researcher used nonrandom sample method and distributed total
8 questionnaires to the employees of CBE. The researcher collects all questionnaires distribution so the
rate of questionnaires collection is 100%.

As the data collection the researcher presents and analysis the collected data as follows;

3.1demographic characteristics of respondent

Table 3.1 gender distribution of the respondents

Gender Number of respondent Percentage (%)

Male 6 75%

Female 2 25%

Total 8 100%

Source: researchers own computation from primary source.

As in the above table majority (75%) of the respondents are male and the remaining (25%) of them are
females. This implies that most of the employees in the bank are male.

Table 3.2 ages of the respondent

Age Number of respondent Percentage (%)

<18 0 0%
18-25 4 50%
 26-40 4 50%
41-55 0 0%
Total 8 100%
Source: researchers own computation from primary source

The researcher observed from above table (50%) of the respondents are between the age of 18-25 years
the(50%) of the respondents are age between 26-40 years and the rest (0%) are between 41-55 years from
the respondent answer the researcher conclude that the majority of employees age are between 18-25
years.

Table 3.3 Educational levels of the respondent

Educational level Number of respondent Percentage (%)

Diploma 0 0%
BA degree 8 100%
Ma degree 0 0%
Ph. D 0 0%
Total 8 100%
Source: researchers own computation from primary source

The table shows the educational levels of the employees of the respondents 8(100%) are BA Degree there
is no respondent less than BA degree holders. From the respondent point of view, the researcher
concludes that all of the CBE; Edagahamus branch employees highly literate and they know how
accounting is practicing in the bank related to cash management.

Table 3.4 distribution of work position

Work position Number of respondent Percentage (%)

Accountant 1 12.5%
Auditor 1 12.5%
Loan office 0 0%

Clerk 5 62.5%
 Manager 1 12.5%

Total 8 100%

Source: researcher own computation from primary

As shown in the above table 5(62.5%) of the respondent are clerk 1(12.5%) are accountant 1(12.5%) are
auditor and the other. O (0%) are loan officer and the rate 1(12.5%) are managers. In general, according
to the response of the respondent the work position of the bank is clerk

Table 3.5 working condition of respondents

Working condition Number of respondent Percentage (%)

Permanent 8 100%

Temporary 0 0%
Total 8 100%
Source: researchers own computation from primary sources

The table shows the working condition of employees. All of the respondent 8(100%) are permanent.
There is no respondent of temporary working condition.

3.2 analyses of general data

3.2.1 Cash budget

Cash budget is scheduled expected cash receipts and disbursement. If predict the effects on cash position
at given level of oppression as cash budget is summarized settlement the firm expected cash inflow and
outflow project period

Table3.6 dose the commercial bank of Ethiopia degahamus branch prepares cash budget?
 Description Number of respondent Percentage )(%
Yes 8 100%

No 0 0%

Total 8 100%

Source; researcher own computation from primary sources

As show on above table the researcher can observe of the respondent 8(100%) said the bank dose prepare
cash budget the researcher believed that based on the respondent the bank dose prepare cash budget

Table3.7 if you answer for question number 3.6 is yes how many time per year dose it prepare?

Description Number of respondent Percentage (%)

1 time 5 62.5%

2 time 2 25%

3 time 1 12.5%

Total 8 100%

Source; researcher’s own computation from primary sources

As shown on the above table 5(62.5%) respondent are said one time 2(25%) respondent are said tow
times but the rest 1(12.5%) is said three times this implies that the bank prepares the cash budget once
annually but the rest respondent who said two times and three times can be from miss understanding of
the questions or the lake of competence in professional experience

3.2.2Money market instrument

Money market instrument are securities or investment that have high liquidity and sort term maturity.
Highly liquidity means the security can be converted to easily the money market is the market for short
term investment that is close substitute to cash the short term investment is liquidity easy marketable with
little change of loss or low default risk cost exchange transactions. Table 3.8 does the commercial bank of
Ethiopia, edagahamus branch deal with money market instrument?

Description Number of respondent Percentage (%)

Yes 8 100%
 No 0 0%

Total 8 100%

Sources; researcher, s own computation from primary sources

Table 3.8 show about money market instruments of commercial bank of Ethiopia, edagahamus
branch .indicates The above table indict that the majority of respondents 8(100%) are said that the bank
deal with money market instrument but the rest 0(() %) of them are said the bank does not deal with
money market instrument from the respondent point of view the researchers concludes that the bank deal
with money market instrument

Table 3.9 if you answer is yes on the above question what the main types of money market instrument of
the bank?

Description Number of respondent Percentage %

Treasury bill 3 37.5%

Certificate deposited 3 37.5%

Commercial paper 2 25%

Total 8 100%

Source; researchers own computation from primary sources

The above table show that the respondent 3(37.5%) are said bill.2(25%) of respondents are said
commercial paper 3(37.5%) of respondent are certificate deposit in general as the response of respondent
the treasury bill is the main type of money market instrument of the bank

3.2.3 Controlling cash receipts and payments

Controlling of cash payment and receipts is important to the effectiveness and efficiency of the bank
according to the data obtained from the respondent the controlling cash payment through made by
authorize person carefully and controlling cash receipt is properly collecting and

Recorded cash without any loss. Based on their ides the researcher asked respondents of the bank the
following question;
Table 3.10 dose the bank use controlling system of the receipt and payment?

Description Number of respondent Percentage %

Yes 8 100%
No 0 0%

Total 8 100
Sources; researchers own computation from primary sources

As show on the above table all respondent the bank controlling their cash payment and receipts projects
the researcher also conclude based on the response of respondent about the bank control the cash payment
and receipts As known controlling cash payment and receipt is the primary reason for effective control
over all cash holder for better profit ability of the organization

3.2.4 Policy and procedure of cash management

Policy and procedure in cash management are more important for any business of organization. To
manage their cash operations that bank should policy and procedures

Table 3.11.does the commercial bank of Ethiopia, edagahamus branch has policy and procedure in cash
management?

Description Number of respondent Percentage %

Yes 8 100%

No 0 0%

Total 8 100%

Source researcher own computation from primary source

The above table shows the all respondent replied that the commercial bank of Ethiopia, edagahamus
branch has policy and providers in cash management practice. From this the researcher concludes that the
bank has policy and procedures to guide their cash management practices.

3.2.5 Cash management practices

The bank cash management practices must be able to accurately assess their current cash position and
more fairly reliable prediction that to meet the bank expense in addition to this the bank manage its cash
in effectively it be come to competitors in rapidly growing business environment and to be profitable
organization for the long preside of time

Table 3.12 dose the banks manage cash effectively?

Description Number of respondent Percentage

Yes 8 100%

No 0 0%

Total 8 100%

Source; researchers own computation from primary sources

As shown on above table or respondents forwarded the commercial bank of Ethiopia edagahamus branch
effectively manage its cash operation from the respondent point of view the researcher conclude that has
effectively manage its cash operation As known cash is the most sensitive asset so that it required a good
management and holding for better profitability of the organizational to become effective the management
of area related

3.13 If you answer on the above question is yes how dose cash management practice in the bank?

Description Number of respondent Percentage %

Satisfactory 6 75%

Good 0 0%

Very good 1 12.5%

Excellent 1 12.5%

Total 8 100%

Source researcher own completion from primary sources

The above table show that the degree of cash management practice in commercial bank of Ethiopia
degahamus branch of the majority respondent 6(75%) are forwarded the degree of cash management
practice are good 0(0%) respondent are very good and the reset 1(12.5%)

respondent are replied excellent 1(12.5) from the respondent point of views the researcher conclude that
the degree of cash management practice in commercial bank of Ethiopia edagahamus branch is good since
the commercial bank of edagahamus branch are to manage its cash and they give more influence of cash
management.

3.2.6. Petty cash fund

Most organization is frequently needed for the payment of relatively small amount such as postage due
transportation change As the sometimes establish a petty cash funds is to meet cash payment for petty
cash and day to day expense the petty cash fund is replenished when its cash exhausted and at the end of
accounting period.

Table 3.14 there petty cash end in the commercial bank of Ethiopia edagahamus branch?

Description Number of respondent Percentage %

Yes 8 100%

No 0 0%

Total 8 100%

Sources; researchers own completion from primary sources

The above table shows that the majority of all respondents 8(100%) for world for CBE edagahamus
branch has rest cash fond rest 0(0%) of then for world that there is no petty cash in the bank the researcher
besd on respondents for world there is petty cash fond in the bank which is important for day to day cash
management for organization and wisely expended those need small expense.

3.2.7. Ratio analysis

Ratio analysis is used to majors fin shale performance of the organization and help to antiseptic footer
condition and more important as starting point for planning action in affect the future course of event.
Ratio analysis used to evaluate companies liquidity positions such as abilities short terms of obligation;
which means cash and other current asset ability to meet with current liability. Ratio analysis is used to
evaluate cash management of the organization to meet current obligations

Table 3.15 dose the bank you ratio analysis to evaluate their cash management?

Description Number of respondent Percentage %

Yes 6 75%
 No 2 25%

Total 8 100%

Source the researchers own compaction from primary sources

As shown on the above table most 2(25%) of respondents say to the bank does not you ratio analysis to
evaluate cash management 6(75%) of them for warded the bank is ratio analysis to evaluate their cash
management from the respondents for worded one came conclude that the CBE edagahamus branch death
not youth ratio analysis to evaluate cash management, which means only the offices prepared or you ratio
analysis

3.2.8 Cash flow and statement

Cash flow statement are explains how company option and youth cash during the same peered the sores of
cash no has cash inflow he youth this called cash out flow. Along with an income statements and balance
sheet, cash flow statements included in annual report to sheer holder of peptic own companies and
covered auditor opinions.

Table 3.16 dose CBE edagahamus branch prepare annual cash flow statements?

Description Number of respondent Percentage %

Yes 8 100%

No 0 0%

Total 8 100%

Source; researchers own compaction from primary sources

As shown in the above table 8(100%) all of respondents are prepare annual cash flow statement from the
respondent point view the researcher can conclude the does prepare annual cash flow statement.

Table 3.17 dose the CBE edagahamus branch management strongly focuses on cash management on
operation?

Description Number of respondent Percentage %

 Yes 6 75%

No 2 25%

Total 8 100%

Source researcher own competition from primary resource

From the above table respondents are send the bank management strongly faces management operation.
The CBE; edagahamus branch as its own strength and weakness regarding cash management. The
strength of the bank in cash management is consented with minimizing a productive cash balance,
investing temporally excess cash advantage and to make the best.

Possible arrangement for meeting lend and an expecting demand on the banks cash and to minimize the
risk of Bing enable to the discharge climes age nest the firm as bank arise. In also the branch manage the
cash effectively by identifying slick and pike season and complying with the cash holding limit by the
branch.

On other hand, the wackiness of the bank regarding cash management of the is monthly statement is not
provided for each account. It manse the bank probed the statement annually and sometime methyl is
statement not providing for echo account it men’s the bank proved the statement annual sand seem times
the cash supplied form national bank of Ethiopia Eshoo sinter is very delayed creating shortage of cash
within the bank.
CHAPTER FOUR

CONCLUSION AND RECOMMENDATION

4.1 Conclusions

The study was conducted on evaluation of cash management practice in commercial bank of Ethiopia
general edagahamus branch As it is tried to present and analysis the data collected from primary data
questionnaires in this chapter the researcher present conclusion and giving recommendation how to
improve the cash management practice in the organization in the researcher concludes the study as follow;

The most of employees of the commercial bank of Ethiopia edagahamus branch are the age between 18-
25 and the majority of the employees are permanent working condition. Commercial bank of Ethiopia
edagahamus branch is prepared cash budget for their organization benefit to completewith their sector .the
organization is deal with money market,instrument of Treasury bill, commercial paper and certificate
deposit, bank using controlling system of cash receipt and payment also the organization have the
designed policy and procedures regarding to the cash management. The commercial bank of Ethiopia,
edagahamus branch has petty cash fund, which is important for day to day cash management operation of
the organization and easily expressed those need smallexpense, the bank are manage cash disbursement
properly reduce loss,commercial bank of edagahamus branch are not use ratio analysis of cash
management.
4.2Recommendation

Based on the funding conclusion the research recommended the following points as appropriatesolution to
improve the weakness and strength of the bank.

 The CBE edegahamus branch evaluates should forecast futurecash flow, because forecasting
future cash flow is the most significant device to evaluate cash receipt and payment.
 The researcher recommended the CBE edegahamus branch have to deal with money market
instrument, in order to use it as additional source of fund in addition to the common income
source.
 The annual cash flow is prepared all has at head office level. Instead of preparing only at head
office CBE edegahamus branch should have prepared there annual cash flow statement in order to
explain their cash out flow and in flow.
 The cash budget CBE edegamus branch preparedonlyat head office level.The branch should be
advisable to preparation to cash budgetbecause it is important to forecast the general future
business condition of the bank.
 The CBE edegahamus branch should have its own specific manuals to enhance or ensure on
effective cash mechanism.The commercial bank of Ethiopia edegahamus branch does not prepare
there annual cash flow statement because lack management system in bank.
Reference

Hence in this section the researcher attempted to high light the encourage activates for

There improvement and recommended of the limitation for the future improvement.

Howells peters and bail Keith (2000) financial markets and institution 3th edition

Brigham Eugene F (1995) International management

Nerson, EG, modern advanced accounting ninth edition grow Hill Book

Mittra Gasseh (1981) intermediate accounting seventh

Mossich A.N intermediate accounting sixth edition

Mosich I.M (1999) cost accounting, intermediate accounting

Robert, what, beige (1989) financial accounting fifth edition

Robert w.kolb (1989) financial institution capital market.

Appendix

Adigrat University
College of Business and Economics
Department of Accounting and Finance

Questionnaire

The aim of this questionnaire will be to conduct a research on the topic evaluation of cash management
practice on commercial bank of Ethiopia, Edagahamus branch.

I am highly appreciating your contribution by responding this questionnaire in advance!

Part; one respondent profile

1. Age: 18-25

26-40 4o-55above60

2. Gender: Male Female

3. Educational status, Diploma Degree Master
PHD
4. Occupation status: ManagerLoan Officer Auditor Check Accountant
 5. Working condition: Permanent Temporary
6. Does the CBE, Edagahamus branch prepare cash budget?
Yes No
7. If your answer for question number 6 is yes how many times per year it prepare?
One time two times
Three timesfour times
8. Does the commercial bank of Edagahamus branch deal with money market instrument?
Yes No
9. If you answer is yes on question number 8 what are the main types of money market instrument
0f the
bank?....................................................................................................................................................
.......................................................
10. Do the bank use controlling system of cash receipt and payment?

Yes No

11. Does the commercial bank of Ethiopia,Edagahamus branch have policy and

Procedure in cash management?

Yes No

12. Does the bank manages cash effectively?

Yes No

13. If your answer on question number 12 is yes how does cash management practice in

thebank?

Satisfactory good very good excellent

14. Are there the petty cash in the CBE,Edagahamus branch?

 Yes No

15 Does the use ratio analysis to evaluate their cash management?

Yes No

16. Does the CBE,Edagahamus branch prepare annual cash follow statement?

Yes No

17. does the CBE, Edagahamus branch management strongly force on cash management

Operation?

Yes No