Financial Management Practices, Firm Growth and Profitability of Small and Medium Scale Enterprises (SMEs)

Abstract

The study examined financial management practices using four components: working capital management practices, capital structure management, accounting information and financial reporting practice, and the use of capital budgeting techniques and fixed assets management. Performance of SMEs was examined from the context of profitability measured by Return on Assets and of growth. The study sampled 100 SMEs from Accra with data collected through the administration of a questionnaire. Data were analysed using descriptive statistics and Pearson correlation analysis. The results of the descriptive statistics revealed that working capital management practices had the highest mean score, followed by accounting information and financial reporting practices, capital structure management and finally, the use of capital budgeting techniques and fixed assets management, in that order. The Pearson correlation analysis showed a positive association between the four components of financial management practices and between SMEs profitability and growth. The results emphasize the need for SMEs to improve on their financial management practice to improve the profitability and growth of these firms. It is recommended that the use of capital budgeting techniques be improved, as this area of financial management, even though it impacts positively on the performance of SMEs had the least score. Most importantly, the managers of SMEs should use discounted cash flow techniques to evaluate investment and projects before committing the resources of the company. SMEs are encouraged to adopt IFRS for SMEs to enhance their financial reporting practices. This will also improve their decision making and access to capital which will allow these SMEs to expand.

Modelling key predictors that stimulate the entrepreneurial performance of small and medium-sized enterprises (SMEs) and poverty reduction: Perspectives from SME managers in an emerging economy

“…Furthermore, it is important to state that most of the research on access to credit facilities (Karimi 2014;Musah, Gakpetor & Pomaa 2018;Omondi & Jagongo 2018;Ratna et al 2018;Sibanda, Hove-Sibanda & Shava 2018) have determined the impact of access to credit facilities on SME development, economic results, export behaviour of SMEs and profitability. However, to the best knowledge of the researchers, there are not so many valid studies that have examined the effect of access to credit facilities on entrepreneurial performance and poverty reduction, and therefore the need for this present research.…”

Financial Management Practices and Growth of Small and Medium-Scale Enterprises: The case of Kassena-Nankana West District

“…Other studies (Mensah, Azinga & Sodji, 2015;Mbroh &Attom, 2011;Musah, Gakpetor & Pomaa, 2018;Prempeh, 2015) in Ghana revealed that most owners and managers of SMEs had limited formal education and weak management skills, and that these deficiencies inhibit the growth and sustainability of their businesses. For example, a study by Afrifa (2013) on the impact of education and work experience on SME financial management concluded that managers who had more education and experience were better placed for financial management.…”

Does Digital Transformation Promote Enterprise Development?

“…Studies have assessed the quality of enterprise development from various perspectives. Enterprise development can be reflected in increased profitability, such as higher net margin and return on equity (Musah et al, 2018), or asset utilization efficiency, such as an increased total asset turnover ratio (Dong et al, 2021). The ability to pay debts is an essential factor affecting enterprise development, as reflected by the debt-to-asset ratio (Jiang et al, 2021).…”