CHAPTER ONE
INTRODUCTION
BACKGROUND
OF STUDY
The
Nigerian Breweries Plc was incorporated first, as Nigerian Breweries Limited on
16th November, 1946 and later as Nigerian Breweries Limited on the
commencement of operations in a second breweries at Aba in 1957. In accordance with the companies and allowed
maters Act of 1990, the name was again changed to Nigerian Breweries Plc, since
the formal incorporation in 1946, 51 years have rolled by, 51momentous years
that saw the company grow from its
modest beginnings into the ground company that it is today. The company now has five Breweries from which
their highly refreshing high quality brands are distributed to all the nooks
and corners of this great country.
The
company has kept pace with key international development, thus ensuring that
their systems, processes and operational procedures are always in conformity
with proven best practices in most parts of the world. This has been evident in the vision and
professionalism demonstrated in the way the business ha been managed in the
past 51 years. The company now has a
portfolio of eight high quality brands, star and Gulder lagers Maltina Amstel
Malt drinks and legend extra stout, Schweppes Bitter Lemon, Schweppes Tonic
Water and Schweppers Soda Water, all the above improvements in the company
would not have been possible with out the company being solvent.
The
old business adage “you have got to have money to make money” is simply a
recognition that most companies needs funds in order to operate profitably. The need for funds in a manufacturing company
which Nigerian Breweries Plc is no exception affected by everything that
happens to the company. While the
amounts needed in this company is inluenced by many factors and fluctuate over
a period of time, this company have substantial investment in the current asset
of stock, customers (debtors) and cash also in fixed assets such as building
plants and equipment.
As
a result of scare resources which is visible in almost all manufacturing
companies, the assets disclosed on the balance sheet at any point in time are
reflection of the cumulative investment decisions of management.
A
weak liquidity position poses a threat to the solvency of the comparing and
makes it unsafe and unsound. This
company does not consider the use of the techniques for determining solvency
very important and as such the only technique they use are as follows:-
(a)
Total
capital to total profit Assets and
(b)
Dividends
to profit after tax
What the company does most of the time
is forecasting and assumption. The
company is always interested in cash and upheld it as the best technique for
measuring the companies solvency. As a
giant, this company always meet up with their cash requirement. Their ratios for measuring solvency will be included in the
study. (David E.L 1981)
1.2 STAEMENT OF THE PROBLEMS
1.
One of
the important factor that has contributed much in drilling the activities of
this company is liquidity problems and its attend and insolvency. At times the company find it difficult to
meet up with their maturing financial obligations due to late arrival of funds.
2.
The
economic recession in the country and the political uncertainty have also
aggravated this problem of liquidity and this has become a great concern to the
company. A common issue in the
board meeting of this company is how to
survive through solvency.
3.
With
the increase in the activities of this company over the years, a critical look
at the balance sheet of this company reveals a corresponding increase in the
level of bad debts.
1.3 OBJECTIVE OF STUDY
(1)
The
objective of this study is to undertake a performance analysis of the Nigerian
Breweries Plc towards finding, out the
extent of their success or failure. This
involved the determination of their solvency or liquidity position.
(2)
An
investigation would also be carried out into the possible areas of improving the solvency of the company for
better performance and growth.
1.4 RESEARCH QUESTIONS
(A)
Does
your firm make use of any technique/methods in the determination of its
solvency?
(B)
What
benefit does your firm device from its accumulated investments?
(C)
When
your firm runs short of cash, how does raise the required fund?
(D)
Apart
from ordinary shares, what are the other sources oif funds to the firm?
(E)
How
can the company be assessed considering the present economic situation in the
country?
1.5 RESEARCH HYPOTHESIS
The following Hypothesis has been
formulated to which the study will attempt providing answers.
Ho: The Nigerian Breweries Plc does not make use
of any techniques/methods in the determination of its solvency.
HI: The Nigerian Breweries Plc makes use of
techniques/methods in the determination of its solvency.
Ho: The Nigerian Breweries Plc does not drive any
benefit from the accumulated investments of the industry.
HI: The Nigerian Breweries Plc make adequate
benefit from the accumulated investments of the industry.
Ho
: Apart from the ordinary share the
Nigerian breweries Plc does not make use of other sources of fund.
HI: Apart from the ordinary share the Nigerian
Breweries Plc makes use of other sources of funds.
1.6 SIGNIFICANCE OF THE STUDY
After carrying out the study, the
researcher will be in a position to establish the solvency position of the
Nigerian Breweries Plc. The reason for
their success or failures, solvency or insolvency must have discovered, and
this will help the researcher put up recommendation for improvement.
These recommendations will be of much
significance to:
(1)
The
management of the Nigerian Breweries Plc in their decision making
(2)
Students
in their research work
(3)
Any
other person undertaking a work on solvency both as a problem solving tool as
well as an academic exercise.
(4)
To any
other person especially students on how to make proper use of techniques such rations in determining the solvency
of any company.
1.7 SCOPE LIMITATIONS AND DECILITATIONS
The researcher encounted a lot of
problem in the course of this work (study), which nearly frustrated his effort
in achieving meaningful result.
One of the most striking thing that
could have frustrated my carrying old this work was dearth of information in
this company. Getting into the companies
company took a week before the actual problem began which is seeing the Brewing
accountant, who latter rendered some help.
I was not given 100% help as required due to what they called company’s
secrecy. I was just helped for the sake
of academic exercise and at last when I was fully understood by the management
team of the company, I was given some help which I consider adequate for this
work.
TIME/COST: The researcher was also constrained to use only one company as
case study (Nigerian Breweries Plc) which is relatively small, instead of the
six quoted Breweries in the country because of time/cost functions. The researcher still believe that the bigger
the sample the better the result.
1.8 DEFINITION
OF TERMS
1.
Solving: State of being solvent, that is having enough
money to pay your debts.
2.
Liquidity:
In banking perspective, this simply means being able to meet every financial
commitment (BROWN C. 1940)
3.
Techniques: By this I mean the various way of finding
whether a company can be able to meet its current liabilities with current
asset or whether a company could be able to pay its debt.
4.
Total
capital to total profit after tax and dividend to profit after tax are both
techniques used in measuring solvency.