The Role of Financial Management in a Co-Operative Organization


There have been great deals of research conducted in areas that are either directly in line with what the researcher is doing. Most of them exposed money questions than they were able to answer which consequently stimulate further researches like this.

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It is assumed that this project and other researches on this topic will be invariably and eventually adopted by financial manager who bring it into the mainstream of the standard financial management.

Nevertheless there are many invaluable contributions so far so far made by some academicians, which have constituted a milestone in the field of finance. The researcher will look into what I maintain said on profit maximization if it stresses the efficient use of capital resources. The researcher disagreed with rather than agree with some other authorities on matter, we shall see that profit maximization has the following weaknesses.


  1. It ignores the time value of money. That is, money received today has a higher value than money received next year because of the possibility of reinvestment.
  2. It overlooks quality aspect of future activities. Some businesses may [place a high value on the growth of sales and therefore will be willing to accept lower profit in other to gain the stability provided by a large volume of sales.
  3. It is vogue, in that there are numbers of concepts related to profits like gross profits, net profits before tax, short medium and long run profits, it is not clear which is to be maximized.


William baumol proposes a revenue maximization model which illustrates how multiple goals can influence a firms decision up to the side of it’s output, by so doing he assumes that as long as minimum level of profit is earned to stockholders. The firm will devote its attention to increase total.

As Rex V. Brown (1974) on his decision analysis for the manager stated that, “the decision we are facing in this problem will affect the difference between the cash that comes into this company and the cash that goes out for some time to come, certainly for five or possibly ten years and that is what I’m interested in” It is observed that his decision involves the time value of money .the test of financial success in the short run is harder to judge because the financial function is accompanied by many measurable activities, management is confronted with the risk of reviewing all data and selecting the appropriate action.

As Kenneth d Duft (1979) said, “further to take corrective in the short run become the major factor contributing towards ultimate financial collapse”

However. The quoted author is interested in the short run for the financial manger to make decision so the researcher agreed with the vice president of the consulting firm of Booz Alean and Harniltine has to say ample evidence exits that the chief executive officers share is bee filled increasingly by individual who either has followed the formal financial career or derive their cooperate experience between financial and general management post. Another management consultant fills that the roles of a financial manger get even more important because the decision-making environment is becoming increasingly complex. The chairman chief executive officers of a general electric identified this: cooperate debt has already doubled since 1966 and is no well over three lion, debt equity ratio are string and well over the cost of managing that debt at double digit interest rate become burdensome in deed

Therefore, for effective management, the financial manager should know the maximizing debt required and avoid rescheduling of such interest in confirming the fact that financial management will continue to gain executive must be of lenders of innovation in management philosophy and techniques. As a top level professional, the financial executive must have an n overall view of the cooperation. He has been too more and sensitive to humanistic values and he must not restrict himself to acting only on the basis of a purely technical analysis of problem.

It then appear that in time to come, the financial manager will take an additional responsibility to financial management become important. Financial management is attaining its standard in most developing countries like Nigeria. This can be seen in the increasing growth of the duties of the financial controller in the industry of study.





Financial ratio is the basis of understanding the evaluation. It provides the framework the financial manager can plane his future requirement.

It helps the financial related to the firm existing strength and weaknesses. The financial ratio and planning serve for this purposes.

  • The financial manager: the financial manager of firm uses the financial ratio in making decision towards the responsibility and duties.
  • The creditors, investors, and lenders, use it to evaluate the performance of the firm
  • Comparison may be made with the financial ratio for earlier period in the same business in order to disclose trends. The dome time employed for purpose of Interface Company. The financial ratio employed by the company of study shall be basically seen as chapter four.




However, financial ratios generally are classified as follows;

  • Equity ratio: which are primarily concerned to share holders
  • Profitability ratio: this seen to show management overall effectiveness as shown by the return generated by sale and investment
  • Liquidity ratio: which provide a measure of the firm ability to its short term obligation
  • Activity ratio: this provides and indicates managerial capabilities in utilizing the firm resources.
  • Leverage ratio: this measures the extent to which the firm has been financed by debt as well as a measure of its financial risk. Due to the inability of entrails, investors, and individual in this developing countries, to read financial statement and interpret he ratio, “ financial ratio and not wildly used in developing countries of Africa



Financial forecasting is the future projection of revenue and cost. This is important of the financial management since it constitute the basis for planning for financing the receivable managing investing in additional plant capacity and inhering personnel


There are four type of financial forecast;

  • Funds forecast
  • Industrial forecast
  • Economic forecast
  • Sale forecast


When questioned “ which of the following are used by your firm in forecasting additional fund needed to support the higher volume of sale and also plane for profit”

  • Recreation analysis
  • Break even analysis
  • Operations leverage
  • The percentage of sale method


According to the financial controller of union bank Plc Enugu who said that B and D are the method used by the firm for financial forecasting and profit planning.

The simplest approach in the forecasting requirement express the firm need in terms of the percentage of annual sale invested on each individual balance sheet item. This method assumed that certain item in firm balance changes in some fixed proportion to changes in sales because of the increase transaction associated with higher sale volume, cash required to operate the business increase.

Similarly, if the credit volume term do not change increase sale volume result the higher. Level of receivable outstanding. The increase or decrease in fixed asset will be the function of existing plane utilization.

Note: payable long-term debt and common equity do not increase spontaneously with the sale increase because they are not always frequently. Bearing the forgoing in mind, the forecast of capital requirement under the percentage of sales method can either be calculated through the construction of a profound sheet or by he application of the following method;



S (s – L/s (s) – MS (1 – d)

Where EFN = external fund needed



S  = liabilities that is spontaneously increasing in sale

S = liabilities that increase spontaneously with sales

D = dividend payment ratio

Si  = total sale projected for next years

M = profit magine

So = last year sale

S = change in sale (Is – Sn)


This researcher cannot solve any example of the fact that the company did not disclose any material fact required





The planning procedure that is indispensable to financial manager is the break-even analysis, which is an analytical technique for studying the relationship between fixed calls. Variable cost volume of production and profit.

Therefore, break even point is that level of production or sale the whose total revenue is equal the total cost or where profit before interest payment and taxes are 0. Summarily, it is device for determining the point at which sale will just cover the total cost. It a No. Profit, No. Respond



The nature of break-even analysis is depicted in the basic break share below.

A horizontal line presents the chart I on limited basis with volume produced shown on the horizontal axis fixed cost of 4000.00. Three are fixed regardless of the number of unit produced. Variable are assumed to be 1.7 Kobo per unit. Total cost rise by 1.70. The amount of the variable cost for each additional unit produced.

Production is assumed to be sold at 2. Per unit so the total income is pictured as a straight line which must also increase with production. The scope (or the rate of asset) of the total income is sticking than that of the total cost line.

This must be true because the firm is gaining 2.00 of revenue for every paid out for labour and material. The variable cost up to the break even point found at the intersection of the total income and total cost lines, the firm suffers loses. After the pint , the firm begging to make profits. The chart indicates a break even point at a sale and level of begins to make profit. The chart indicate a break even pint as a sales and level of 10.00 and a production level of 5000.00

More exert calculation of the break even point can be imputed algebraically be dividing fixed cost by contribution per unit. This can be expressed as follows;


Qb = F

S – V

Where Qb = break even quantity

F = fixed cost

S = selling price

V = variable cost

Qb = 4000.00

2.00 – 1.20

= 4,000.00


= 5,000.00 unit



Sources and uses of funds is another aid in profit planning used by financial manager. It is so important because it sees how the firm has obtained fund and how those fund has been used. The flow funds or sources or user of find statement (as t is some time called) is a third very importantly financial statement other than the balance sheet and income statement. The flow of fund statement show the movement of fund into the funds current asset account from external; sources such stock holders, creditor and customers on one hand. And the movement to meet the firm obligation that is the required stock paid dividend etc. on the other hand, he movement are shown for a specific period of time normally, the same period the firm income statement. The illustration below shows sources of supply of funds to firm working capital pools and use removing funds from the pools. The working capital pools consist of all the current asset account of the firm. To some extent, the pools measures not the working capital only transaction that affect non – current are classified as sources and used of fund.


However, the general statement of sources and application do funds of union bank Nigeria Plc Enugu for the years ended 31st March 2003 shall be attached on chapter four for further consideration.



The financial mangers decision relating to current asset has an inline on the firm sale volume profitability and risk. Since working capital is refers to the firm investment in short tem asset such as cash, short-term securities, accounting receivables and investor decision regarding the above consideration part of working capital management.

Managing working capital allows the financial manager necessary and required caution against uncertainty. Working capital equal to current asset  – current liabilities (CA – CL) CWC.

Working capital provided the day-to-day need of cash while the current asset assets of a firm are those assets that can be converted into cast within one year. Its constitute part of permanent asset need of the firm circulating capital is often referred to, represent a large investment and also tend to be relatively relative. They are worthy of the financial manager careful attention” the components of working capital are generally considered to poses liquidity. And therefore constitute the first line of defense against technical insolvency, the firms’ inability to meet its measuring obligation or the inability to pay dust as they come. Therefore lack of synchronization between the constituent of the working capital is yet another unit factor the require the attention.

However, on the company union firm of study union bank Nigeria Plc Enugu, the working capital as at 31st March 2003, the general balance sheet is as follows


Wc = Ca – CL

Current asset = 214, 885,000000.

Current liabilities  = 201, 099,550,000

Working capital  = 13, 786,000000



Having looked into working capital management in its interlay, it become pertinent t pay much attention to some time that constituted current asset via working capital such as cash receivable. Marketing security and stock, the management of working capital or current capital is the financial manage. Most time ensuring job require time because with its short tenor circulating capital continually adsorbing and realizing cash.

To minimize company’s investment, the financial manager should keep the circulating capital at the lowest level of consistent of profitability and safety.

In so doing, he will enable the firm to increase the asset turnover and produce a high rate of return on asset. From the banking inventory, current asset consist of investors. The writer will concentrate on the above.



The firm frank trade to protect its sale   forms the competitors and attracts the potential customers to buy its share at favorable terms. When the share sells it share and not receive cash immediately. The firm is said to have granted trade credit to customers.

Effective handling of the firm account receivable. Is based on sound credit policy. Sound credit policy has three main parts;

  • Effective collection practice
  • Proper classification of credit customers.


Apricot limits of both the amount and duration of credit for each class of customers. Union bank account receivable consist of account, staff vehicle, loan, age new debtors, staff advance, loan prepaid, withholding tax on investment, income investment, income accrue and other debtors of the Nigeria CASH.


Before a firm can control the begin with management asset, it must.

The firm of study “union bank of Nigeria Plc, cash consist of fixed deposit cash or demand deposit and cash at hand.

Holding cash is a necessary evil cash, which earns not return, so having it on hands lowers the average return the firm earns on the total assets.

Then when examine the reason for people and firm holding cash balance in form of cash and current account.

  • Speculative reason
  • Transaction reasons
  • Investment reasons
  • Precautionary reasons


The respondent responds positively to the transaction reasons. The transaction motives of the firm needs pools of cash because its receipt and expenditure are perfectly synchronized a company usually known as transaction balances.



The budget is a detailed forecast of a firm expected cash flow (inflow and outflow) strengthen several periods a heads. It serves not only for the expected level of cast but also to indicate when the management should take step to deal with an impending shortage or excesses. The pools of the prudent financial manager are the cash budget and he forecast the cash monthly or weekly and sometime on daily basis.





Knowing the management is the controlling and co-coordinating and control of the total enterprise effort to archive the enterprise objective. Then facilitate the effective management performance in the financial planning and control, which ensure the effective management performance. In financial planning and control, this helps to regulate flow of funds. It may be out of place for money inspite of his ability of negotiate a bank loan, the difficult condition may cause the banker the soundness of the firm management and accordingly to reduce the firm of credit planning. It is the design of the future state of the entity of the future as of the effective way of bringing it about.

Hence the chapter deals with the general view of budgeting process with reference to union bank of Nigeria Plc Enugu state.



According to concept framework of Spencer (1980) define budgeting as itemized estimate of expected revenue and expenditure for a giving period in the future and also tells us where revenue is expected to come from and where expenditure is expected to go.

Budgeting can be defined as a comprehensive and coordinated plan express specific period in the future.


It also a management tool for both planning and control. The basic element of a budget is:


  • It is expressed in financial term
  • It is a comprehensive
  • It is plan for the firm operation and resource
  • It is plan for specific period

However according to Hangreen, budget is a quantitative expression of plan of action and aid to cor-odination, plan implementations.


It aids planning, performance, evaluation, cor-odination, plans implementation, communication, motivation and authorized action. Budget defines objective estimate fun and guides the means of attachment.

The current techniques of programme planning and budgeting system suggest that a sound budgeting programme executive programme.

  • Report to authority
  • Define intention and specific commitment
  • Evaluate expected benefit
  • Get a regular flow of information
  • Set objective
  • Monitor performance
  • Computer relevant cost and prepare action plan



Budgeting being part of the total planning activity of union bank Plc Enugu being with a statement of cooperate goal or objective of the firm.

To archive the companies’ objectives, management develop financial policies, which is influenced by the economic and competitive environment and customers attitude.

Before the implementation of the policies and decision of the firm, estimation in terms and revenue and cost are made, plan relating to sales.

Forecast, expenditure for advertising, material, labour and transportation constitute budget.

This budgets form the fiancé manager to project data by establishing cast budget pro-form income statement and balance sheet for coming period and identifying the source and uses of this funds. The development of the financial plan provides the basis for measuring whether actual performance is in keeping with plan or budgeted performance of the firm controlling and planning.



Budgeting been the only comprehensive approach to management recognized the role of a financial manager and provide a farm work for the implementation of such fundamental aspect of scientific management. Hence, the budgeting purpose can be identifying as follows;

  1. Basically, budgeting system is employed t improve the operation of the company
  2. It is an ongoing effort of the company towards the specification of what should be done to accomplishes stated goal as much a possible. It is a continues monitoring procedure, reviewing and evaluating performance with reference to the previously established standard.
  3. Generally, the firm budgeting system improves internal co-ordination. This is because the budget system enables the mangers of each section of the firm to see the relation on this part of the industry to the entire firm.


Consequently, budgeting can be regarded as a scientific device introduced in management for the harmonization of the fund, division avoiding unnecessary wastage of the firm resources and efforts.

Budgeting therefore mandate its manager to establish a proper report between the activities of his department and that of other department.

  1. Budgeting by seeking the meaningful participation of the employees of the firm in the formulation of plan and policies increase the moral and thus the productivity of the employees.





Though there is different type of budgeting undertaking by cooperation. Such as co-operative budget, capital budget, profound balance, profound balance sheet, income statement, cash budgeting is being treated because it is the main concern of the financial manager of the firm.

Having been established, there are two little cash endangers to the liquidity of a banking firm and too much cash tends to inspire profitability, there, the need to plan the need to plan cash in such a way that the firm always maintain and official cash balance to meet its needs. The idle cash in unprofitably manner cannot be over emphasizing. Hence cash budget becomes the ever significance system to plane for and control the cash system receipt and payment. Cash budgets can be defined as a summary statement of the firms expected cash inflow over a projected period of time. “This information helps the financial manager to determine the future cash needs of the firm, plan for the finance of these needs and exercise control over the cash and liquidity of the firm”

From the proceeding discussion the following can be deduced as the uses of cash budgets to the financial manager


  • Planning reduction of short long-term debts
  • . Checking accuracy of long range cash forecast
  • Scheduling payments in connection with capital expenditure programmes
  • Taking advantages of cash discount offered by supplies
  • Planning forward purchases of inventories



Whereas budgeting system is an excellent planning tools and a systematic approach to problem solving? It cannot be overemphasized that is, it is not goal proof, and the firm’s financial manager encounters budgeting system of the firm. The following are some of the more significant problems.


  1. The budgeting problems sometimes grow to be so complete and so detailed that they become cumbersome, meaningless and unduly expensive hence, the management has been on his toes to avoid over budgeting by not only it simple to understand but precise in formal and flexible
  2. Secondly, the systems goals do supercede the firm’s goals when they are not used as definite target to achieve the overall firm objectives and not altered as circumstances change therefore confusing the means with the end result.


  1. It causes resentment and frustration if care is not taken when the system is used as a pressure tackle and unrealistic targets are set which in turn leads to inefficiency and lower morale


  1. The budgetary system hides inefficiency of some department when there is absence of proper system of actual performance evaluation and re-examination of standards



Capital is manmade asset and is not consumed immediately but later aid in production of consumable goods. The financial manager functions are summed up in 3A’s namely Anticipation, Acquisition and allocation. Capital budgeting deals with the aspect of financial manager’s job, which allocates funds. Efficient allocation of capital is one of the most important functions of financial manager in modern time. These functions involve the firm’s decision to commit funds in long-term assets and other profitable activities. The firms decision to invest in a long-term asset is of considerable significance since it tends to influence the firms wealth , determine its size set the pace and direction of its growth and affect its business risk .

The commitment of the firms fund in long-term assets and other profitable activities, which is a clear manifestation of efficient allocation of capital, is among the most vital function of the financial manager.

To say the least this influences the firm’s wealth, determine its size, set the pace of direction of the firm’s growth and affect its business risk.



Druker (1985) outlined types of investment decisions as follows

When a firm decides to consider making an investment decision, such a decision is usually referred to as capital budgeting or capital expenditure. A capital budgeting decision of a firm can take any of the following shapes. According to Druker (1985) this always balance present means and future results, results in the immediate future and results in the more distant future. Management must always anticipate the future, which means that management must always make decisions that affect the future.

  1. Selecting between alternatives
  2. Mechanization of the production process
  3. Expending the business
  4. Introducing new products


In capital budgeting decision, financial managers are concerned with the cost of funds that are to be raised now (and in the future) not with funds already at hand.


The budgeting process has been:

  1. Project generation
  2. Project selection
  3. Project coalition
  4. Project execution


Capital budgeting process is not only the most significant decision are but the e expenditure involved are very large, and this affects the firms operation on long term basis and are generally irreversible.

Therefore, capital expenditure decision are among the class of decision which are best reserved for consideration of the highest level of management



The financial manager of the firm in furtherance of his aim measure the economic worth of each investment adopts a appraisal method after considering the following characteristics.


  1. Provide a ranking of projects in order of their desirability
  2. Ability to recognize he fact that bigger benefits are preferable to smaller ones and early benefits are preferable to distinguishing the evaluation criterion should provide a means of later ones. Between acceptable and unacceptable projects
  3. Ability to solve he problem of choosing among alternative project. Hence, it becomes pertinent to note that there are great numbers of investment criteria for appraisal methods in use and the one used varies from firm to firm depending on the circumstance.


On this note, the financial manager of any corporate organization may be using one or more of those appraisal techniques but disclose neither the methods nor the work sheet of ones evaluated to the management policy of the firm

Nevertheless, the following methods are available to the firm’s financial manager for project evaluation.

  1. Net present value
  2. Payable method
  3. Benefit cost ratio
  4. Average cost of return
  5. The capital budgeting decision is important because they are difficult to make.


These decisions require an assessment of future events, which are uncertain. It is really a complex problem to estimate the future benefits and costs correctly in quantitative terms.

The researcher had wanted to elaborate on these appraisal methods adopted by the financial manager of the corporate organization but constrained by the unavailability of necessary information.



The significant accounting policies adopted by the firm in the preparation of its financial statements are as follows:



The financial statements are prepared under the historical cost convention modified to include certain real properties at a valuation

Investment in subsidiaries and associated companies are stated at cost.

The accounts of Union Homes Savings and Loans Limited Union Trustees Limited and Union Merchant Bank Limited have been consolidated



  1. Credit facilities are classified as either performing or non performing and as stated after the deduction of appropriate provision
  2. Credit facilities are considered non-performing when interest or principal are due and unpaid for ninety days more.


  1. In Union Bank, specific provision are made on all non performing accounts and a general provision of at least 1% is made on risks assets not specifically provided for .



Interest income is recognized on an accrual basis. Interest accruing on non performing account is suspended and recognized in the profit and loss account on a cash basis only



Fixed assets are stated at cost or valuation less accumulated depreciation



Equipment on lease is accounted on the straight-line basis at the following annual rates to write off the cost or valuation over the estimated useful lives

Freehold buildings                         20%

Leasehold buildings

50 years and over                            12%

Below 50 years                                 over the term of the lease

Motor vehicles                                  20%

Other fixed assets                              20%


Equipment on lease                            Over the life of the lease

  1. Transactions in foreign currencies are translated to the Naira at the rate of exchange ruling at the balance sheet data and the difference arising therefore is dealt with in the profit and loss account.



Investments are stated at costs, less provision for diminutions in the value of investments.


No provision has been made for differed taxation since there is a reasonable probability that there will be recurring differences, which will ensure that the differed tax will not materialize in the foreseeable future.


Arrangements for retirement and gratuity benefits for members of staff are based on the provisions of the staff pension and gratuity scheme, which is non-contributory.

The contributions are calculated at 10% (25% from January, 2001) of basic salary, lunch subsidy, and housing and transport allowance and there are changed to the profit and loss account.

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