3. Research Methodology
3. Research Methodology
3.1. Research Approach
The proposed research will focus on exploring whether the liquidity management techniques and long-term leverage management assist in improving the overall financial performance of the organisation. Concerning the research objective, the deductive approach will be applied. To attain the proposed objective of the research, different hypotheses are needed to be validated, for which the application of deductive approach in the research will be the most suitable approach. Apparently, the use of deductive approach in the research will allow framing hypotheses in accordance to findings drawn by the previous researcher to determine the relationship of liquidity management techniques and long-term leverage management approaches with organisational, financial performance. Additionally, the use of deductive approach will enable deduction various theories and emphasis precisely on the researched subject (Lodico et. al., 2010). Nevertheless, the deductive approach will assist in ascertaining whether different management techniques that are practically used by the organisations for liquidity management and long-term asset-liability management influence overall financial performance.
3.2. Data Collection Method
In this research, only secondary data will be extracted by reviewing the organisational Annual Reports and Financial Statements; managements information system reports. Secondary data will also be gathered by reviewing lately published journals, and peer-review articles that cover the research issue. The prime reason that a primary survey will not be conducted in this research is that conducting a primary survey with employees of different organisations will be quite difficult owing to privacy issue of sharing internal information and difficulty in getting approval from organisational authorities. In addition, employees are not able to provide their rational perspective on the studied issue due to their lack of knowledge of internal financial management approach. However, availability of organisational regularly published financial reports and inexpensive source to gather related relevant knowledge and information on the researching issue using the Internet source makes secondary sources a suitable data collection method for this research (Mooi & Sarstedt, 2011). The findings of the research will be heavily relying on the past and historical data that will be gathered by reviewing the annual financial reports of selected organisations operating in IT industry. The historical data will be gathered from 2012 – 2017 periods for all the selected organisations.
3.3. Study Population
The target population is noted to the particular population regarding which information in the research is anticipated. The population for this proposed research will be private limited companies in IT industry. The companies are selected from same industry, as organisations operating in different industries identified to adopt different capital structuring approach and financial practises (Baker & Martin, 2011).
3.4. Variables Tested
The research will aim to ascertain the influence of liquidity management techniques and long-term leverage management in the financial performance of the organisation. Thus, the key variables to be studied in the research will include liquidity management, long-term leverage, and financial performance. The independent variables in this research are interpreted as fundamental financial ratios used for determining liquidity, and long-term leverage dependent variable will be commonly used measures of financial performance.
3.4.1. Dependent Variables
To ascertain the target organisations financial performance, two ratios that will be used, include Return on Equity and Return on Assets (Thevaruban, 2016).
Return on Equity (ROE) will be considered as one of the dependent variables in the research, which provides an outlook of how efficiently the organisation is employing the invested capitals of shareholders (Thevaruban, 2016). The ratio is calculated as:
ROE = Net Income after Tax/ Total Equity
Another dependent variable in the research will be Return on Assets (ROA). The ratio is an important indicator of organisation profitability relative to the overall total assets of the organisation (Thevaruban, 2016). The formula used for calculating the ratio:
ROA = Net Income after Tax/ Average Total Assets
3.4.2. Independent Variables
For evaluating the liquidity management of organisations, Current and Cash Turnover Ratios will be used, whereas, to ascertain long-term leverage, Debt Ratio, Debt-to-Equity and Interest Coverage Ratio will be considered (Thevaruban, 2016; Enekwe et. al., 2014).
The Current Ratio (CR) measures the organisational short-term solvency position by dividing the value of current assets with current liabilities (Thevaruban, 2016).
CR = Current Assets/ Current Liabilities
Cash Turnover Ratio (CTR) reflects the number of times an organisation times in a financial year replenishes the cash balance with the revenue earned from sales during the year (Thevaruban, 2016).
CTR = Sales Revenue/ Average Cash and Cash Equivalents
Debt Ratio (DR) is determined by dividing the organisation’s total debt with the value of total assets and provides a reflection of organisational proxy to leverage, as debts involve repayment of fixed interests (Enekwe et. al., 2014).
DR = Total Debt/ Total Assets
Debt-to-Equity Ratio (DER) is identified to be important financial ratio and indicator of financial leverage by signifying the relative share of equity and debt used for financing the organisational assets (Enekwe et. al., 2014).
DER = Total Liabilities/ Total Equity
Interest Coverage Ratio (ICR) indicates the net operating income of the organisation (or EBIT) to amount of interest charged to the organisation (Enekwe et. al., 2014).
ICR = EBIT/ Interest Charge
3.5. Research Design
The research design of a particular research is identified to be concerned with the development of a plan that guides the overall process of conducting the research (Yin, 2013). In the research, Descriptive Research Design will be adopted, as the design is most suitable to elaborate a particular situation and characteristics of the data. The ration behind preferring descriptive research for this research is that it will allow gathering and make use of qualitative and quantitative data both to ascertain the relationship of liquidity management techniques and long-term leverage management with the financial performance of the organisations and determine the influence of such practises in the financial stability of the organisations.
4.0 Ethical Considerations
The research will follow the ethical standards which gives the guidance to prevent against manipulating data and motivate pursuing knowledge and truth. The accountability of handling data, confidentiality and copyright guidelines are adopt in a careful manner and required permissions will be taken in writing when necessary to reveal the case study information. The conclusion and recommendation will not be taken from pre-conceived desired outcome and will be based on the actual facts of the research findings.