Content uploaded by Kumarjay Anand Shakya
Author content
All content in this area was uploaded by Kumarjay Anand Shakya on Sep 26, 2023
Content may be subject to copyright.
323
ICCMR/23/COM/01
A Study on Financial Performance using Financial Ratios of Selected Public
Listed Micro, Small and Medium Enterprises of India
Kumarjay Shakya1,*, Swaty Parab2
1The CVM University, Anand, Gujarat, India
2SEMCOM, Anand, Gujrat, India.
*Email: kjayshakya@gmail.com
Abstract
India is growing as a World superpower and the economy is growing at a fast pace. Despite of the fact that large
enterprises contribute a large share in GDP, the contribution of micro, small and medium enterprises has also
remained significant over years. The micro, small and medium enterprises constitute a backbone of the Indian
economy, providing employment to more than 11 crore people and about 49.87% of total exports of India. about
28.77% of India’s GDP is contributed by 633.88 lakh MSMEs(Research & Information Division, 2019). The present
study focuses on the financial performance analysis of micro, small and medium enterprises in India. According
to Prowess IQ database upto 15.8.2023, the population frame of public listed MSMEs in India is estimated more
than 22,000 from which a sample of 333 public listed manufacturing MSMEs were selected based on stratified
random sampling method. 14 different financial ratios were utilized to understand the liquidity, profitability,
solvency and operating performance. statistical tests like mean, median, range, weighted average, standard
deviation and correlation were used to analyze the secondary data which was collected from Prowess IQ database
for the financial year 2022-23. The performance was bifurcated into low, medium and high-performance groups.
Overall, the performance of micro and small enterprises is very week in India because most enterprises struggle
with adequate operations management, which leads to lower profitability and liquidity performance.
Keywords: Financial Performance, Ratio Analysis, Micro, Small and Medium Enterprises, MSME, India.
1. Introduction:
Micro, Small, and Medium Enterprises (MSMEs) play an important role in the Indian economy, serving as engine
of innovation, employment generation, and economic growth. These enterprises, operate across diverse sectors,
from manufacturing and services to agriculture and technology. MSMEs have limited resources and manpower
compared to larger corporations and contribute raw material to large industries. MSMEs are lifeblood of Indian
economy contributing employment to 1109.89 lakh people and about 31.83% of India’s GDP(Research &
Information Division, 2019). As it holds a vital position in the economy it becomes essential to understand the
financial performance of this vital sector. There are different techniques used to study the financial performance
of industries among which financial ratios are the most common and widely used technique. Financial ratios help
in understanding the financial performance from different aspects and also helps in decision making(Tamplin,
2023). The present study examines the financial performance of selected public listed micro, small and medium
enterprises using fourteen different financial ratios.
2. Materials and Methods:
2.1 Literature Review:
In the research article by (Kharat et al., 2022), “Financial Performance Analysis of MSME” aims at Pre, during and
post COVID situation of MSME in India, key challenges and data analysis.It is an exploratory research which uses
observation to derive ideas and development of theory in future. The study utilizes secondary data collected from
news, articles and MSME annual reports through internet. A combination of quantitative and qualitative
measures used in the analysis of the theme of the subject. It concluded that there is lack of SME database in India
which hinders the further R&D in the sector. MSME sector being backbone of Indian Economy also needs
advancement and adoption of latest technology for finance and accounting.
324
In the study by (Yumna et al., 2020) on the topic “The Detrminants of Micro, Small and Medium Enterprises
(MSMEs) Financial Performance: A Literature Review” highlighted the key factors to be keep in mind while
analyzing the financial performance of MSMEs. It covers understanding derived from vast literature on financial
performance determinants. The study used systematic literature review (SLM) method. It explained that financial
performance is one of the most important factor in MSMEs and particularly the financial risk is high so proper
care to be taken related to financial risk management in this sector.
The research article by (Setiana et al., 2020), titled “Factors Affecting the financial performance of Micro, Small
and Medium Enterprises (MSMEs) During the COVID19 Pandemic in Yogyakarta City” highlighted the factors
affecting financial performance of companies during COVID19 pandemic. Secondary data was collected through
structured questionnaire. The area of study covers Yogyakarta City of Indonesia. Three key factors identified as
a means of financial performance were quality of financial report, credit given and tax relief. The study explained
through a regression model that three independent variables affect 38% on the dependent variable financial
performance of MSMEs during COVID19. Furthermore, there was a significant impact of credit facility on the
financial performance of the selected MSMEs during COVID19.
In the scholarly article by (Gade, 2020), on the topic “MSMEs Role in Economic Growth – a study on India’s Perspective”
highlights the contribution of MSME in the growth of Indian Economy. It is an exploratory research which utilized
secondary data collected from MSME Annual Reports of the year 2014-15. The study explained that the MSMEs
in India have grown consistently over the years. It’s a major contributor in GDP and India’s export, even though
certain factors like credit availability and technological upgradation is much needed.
2.2 Research Methodology:
2.2.1
Sample Size: 333 public listed Micro, Small and Medium Enterprises of India
2.2.2
Objective
To study the financial performance using financial ratios of selected public listed Micro, Small and
Medium Enterprises (MSMEs) in India.
2.2.3
Hypothesis
There is no significant difference between profitability ratios of selected MSMEs in India.
There is no significant difference between liquidity ratios of selected MSMEs in India.
There is no significant difference between solvency ratios of selected MSMEs in India.
There is no significant difference between operating ratios of selected MSMEs in India.
2.2.4
Data Collection
Secondary data is used in the study collected from Prowess IQ database online for the financial year
2022-23.
3. Results
The sample of 395 companies was collected from BSE MSME portal database and the financial data was collected
from the published financial reports of the company from the Prowess IQ database for the annual financial year
2022-23.
Total number of Micro, Small and Medium Enterprises
Table 1 showing descriptive statistics of selected Micro, Small and Medium Enterprises
From the data it is found that out of 333 listed companies, 44.7% were Medium enterprises followed by small
enterprises (39.3%) and micro (15.9%) enterprises. Based on the total annual sales turnover and net property plant
and equipments of the year 2022-23, 62 companies in the data set exceeded the sales turnover of more than Rs.250
crore which was 15.62% of the total 395 companies in the dataset collected from BSE SME Portal.
State wise number of MSMEs in India
MICRO, SMALL OR MEDIUM ENTERPRISES
Frequency
Percent
MICRO
53
15.9
SMALL
131
39.3
MEDIUM
149
44.7
Total
333
100.0
325
State
Frequency
Percent
Andhra Pradesh
1
.3
Bihar
1
.3
Chandigarh
2
.5
Chhattisgarh
3
.8
Daman & Diu
1
.3
Goa
2
.5
Gujarat
115
29.1
Haryana
4
1.0
Himachal Pradesh
2
.5
Jammu & Kashmir
1
.3
Jharkhand
1
.3
Karnataka
5
1.3
Madhya Pradesh
18
4.6
Maharashtra
128
32.4
NCT of Delhi
35
8.9
Punjab
10
2.5
Rajasthan
17
4.3
Tamil Nadu
6
1.5
Telangana
13
3.3
Uttar Pradesh
9
2.3
Uttarakhand
1
.3
West Bengal
20
5.1
Total
395
100.0
Table 2 showing descriptive statistics of State wise distribution of MSMEs
The highest number of public listed companies was located at Maharashtra (32.4%) and Gujarat (29.1%). The least
number of public listed companies in India was located at Uttarakhand, Jharkhan, J&K, Daman and Diu, Bihar
and Andhra Pradesh.
Sector wise number of MSMEs in India
Sector
Frequency
Percent
AGRICULTURE AND AGRI PRODUCTS
17
4.3
AUTO
8
2.0
BREWERRIES AND DISTILLERIES
1
.3
CHEMICALS
1
.3
CONSTRUCTION
2
.5
CONSUMER
15
3.8
DIAMOND CUTTING AND JEWELLERY
1
.3
ENGINEERING
49
12.4
FINANCIALS
22
5.6
HEALTH CARE
9
2.3
INDUSTRIALS
55
13.9
INFRASTRUCTURE
33
8.4
IT
16
4.1
LEATHER AND LEATHER PRODUCTS
1
.3
MANUFACTURING
2
.5
326
MEDIA
7
1.8
METALS AND MINING
15
3.8
NA
13
3.3
OIL AND GAS
1
.3
OTHERS
110
27.8
SERVICE
11
2.8
TELECOM
1
.3
TEXTILE
5
1.3
Total
395
100.0
Table 3 showing descriptive statistics of Sector wise distribution of MSMEs
From the different sectors of public listed MSMEs, most number of MSMEs was working at industrial and
engineering sector. The sectors like infrastructure, finance and IT are growing steadily in India.
Details of performance indicators measured between high, medium and low:
Table 4 showing Financial Performance Indicators using Financial Ratios
Sr. No.
Financial Ratio
Low
Medium
High
1
Current Ratio
Below 1.0
1.0 to 2.0
Above 2.0
2
Quick Ratio
Below 1.0
1.0 to 2.0
Above 2.0
3
Cash Ratio
Below 1.0
1.0 to 2.0
Above 2.0
4
Debt to Equity
Below 0.5
0.5 to 1.0
Above 1.0
5
Debt to Turnover
Below 1.0
1.0 - 2.0
Above 2.0
6
Return on Sales
Below 5.0
5.0 to 20.0
Above 20.0
7
Return on Assets
Below 5.0
5.0 to 20.0
Above 20.0
8
Return on Equity
Below 5.0
5.0 to 20.0
Above 20.0
9
Net Profit Margin
Below 5.0
5.0 to 20.0
Above 20.0
10
Gross Profit Ratio
Below 20.0
20.0 to 40.0
Above 40.0
11
Asset Turnover
Below 1.0
1.0 To 2.0
Above 2.0
12
Inventory Turnover
Below 5.0
5.0 To 10.0
Above 10.0
13
Debtors Turnover (Times)
Below 5.0
5.0 To 10.0
Above 10.0
14
Creditors Turnover (Times)
Below 5.0
5.0 To 10.0
Above 10.0
Data Analysis:
Liquidity Performance:
Current ratio, quick ratio and cash ratio showing liquidity performance of selected micro, small and medium
enterprise for the financial year 2022-23:
Table 5 showing descriptive statistics of Liquidity Ratios
CURRENTRATIO
QUICKRATIO
CASHRATIO
N
Valid
333
333
333
Missing
0
0
0
Mean
15.0318
8.7098
6.4099
Median
1.7700
1.0000
.9800
Std. Deviation
107.54184
99.27543
37.37543
327
Range
1805.95
1805.98
438.00
Minimum
.05
.02
.00
Maximum
1806.00
1806.00
438.00
The table shows the liquidity performance of selected micro, small and medium enterprises using current ratio,
quick ratio and cash ratio. The mean of current ratio is 15.03% and median is 1.77, which indicates a higher current
ratio and most of the companies have sufficient current assets to pay off their current liabilities. The mean of quick
ratio is 8.7% and the median is exact 1.00 which indicated strong ability to meet short term obligations using
liquid assets. The mean and median of cash ratio is 6.40% and 0.98, indicates that there may be some companies
who have reasonable low cash reserves to meet its obligations.
Bifurcation of Liquidity Performance of selected companies:
Table 6 showing Liquidity performance of selected MSMEs
Sr. No.
Financial Ratio
Low
Medium
High
1
Current Ratio
Below 1.0
1.0 to 2.0
Above 2.0
2
Quick Ratio
Below 1.0
1.0 to 2.0
Above 2.0
3
Cash Ratio
Below 1.0
1.0 to 2.0
Above 2.0
MICRO, SMALL OR MEDIUM ENTERPRISES
TOTAL
MICRO
SMALL
MEDIUM
Count
Percent
Count
Percent
Count
Percent
CURRENT RATIO
LOW
6
16%
13
34%
19
50%
38
MEDIUM
19
12%
55
36%
80
52%
154
HIGH
28
20%
63
45%
50
35%
141
QUICK RATIO
LOW
26
15%
62
37%
81
48%
169
MEDIUM
8
9%
37
42%
44
49%
89
HIGH
19
25%
32
43%
24
32%
75
CASH RATIO
LOW
27
16%
61
36%
83
49%
171
MEDIUM
7
7%
42
45%
45
48%
94
HIGH
18
27%
28
42%
21
31%
67
Among current ratio 12% of micro enterprises, 36% of small enterprises, and 52% of medium enterprises have a
medium performance. This indicates that a substantial portion of medium-sized enterprises falls into the medium
current ratio category.
Among quick ratio, 15% of micro enterprises, 37% of small enterprises, and 48% of medium enterprises have a
low quick ratio. A large proportion of medium enterprises show low quick ratio, whereas relatively higher
proportion of small enterprises showed a high quick ratio compared to micro and medium enterprises.
Among Cash ratio, 16% of micro enterprises, 36% of small enterprises, and 49% of medium enterprises have a
low cash ratio. A large number of small and medium enterprises showed medium cash ratio and a large number
of micro enterprises indicated high cash ratio.
Solvency Performance:
Debt to equity ratio and Debt turnover ratio showing solvency performance of selected micro, small and medium
enterprise for the financial year 2022-23:
Table 7 showing descriptive statistics of Solvency Ratios
DEBT_TO_EQUITY
DEBTOR_TURNOVER
N
Valid
333
333
328
Missing
0
0
Mean
.6719
.5308
Median
.2800
.4200
Std. Deviation
1.75564
1.54262
Range
26.29
27.35
Minimum
.00
.00
Maximum
26.29
27.35
The table shows the solvency performance of selected micro, small and medium enterprises. The mean of Debt to
Equity ratio is 0.6719, which explains that, most number of enterprises have more equity financing than debt
financing. The median Debt to Equity ratio is lower at 0.2800, indicating potential skewness in the data with some
entities having significantly higher debt ratios.
Bifurcation of Solvency Performance of selected companies:
Table 8 showing Solvency Performance of selected MSMEs
Sr. No.
Financial Ratio
Low
Medium
High
1
Debt to Equity
Below 0.5
0.5 to 1.0
Above 1.0
2
Debt to Turnover
Below 1.0
1.0 - 2.0
Above 2.0
MICRO, SMALL OR MEDIUM ENTERPRISES
TOTAL
MICRO
SMALL
MEDIUM
Count
Percent
Count
Percent
Count
Percent
DEBT TO EQUITY
LOW
35
17%
92
45%
78
38%
205
MEDIUM
8
12%
16
25%
41
63%
65
HIGH
10
16%
23
37%
30
48%
63
DEBTOR TURNOVER
LOW
50
16%
125
39%
147
46%
322
MEDIUM
2
29%
3
43%
2
29%
7
HIGH
1
25%
3
75%
0
0%
4
Among debt to equity ratio, most number of micro, small and medium enterprises show low debt to equity
ratio. Overall 205 (38%) have low ratio, 65 (12%) have medium ratio and 63 (12%) have high ratio.
Among debtor turnover ratio, most number of micro, small and medium enterprises have a low debtor turnover
ratio, this indicates that most of the enterprises are taking longer time to recover their money from debtors on
credit sales. Overall 322 (96.67%) have low ratio, 7 (2.17%) have medium ratio and 4 (1.20%) have high ratio.
Profitability Performance:
Return on sales, return on assets, return on equity, net profit margin and gross profit margin showing profitability
performance of selected micro, small and medium enterprise for the financial year 2022-23:
Table 9 showing descriptive statistics of Profitability Ratios
RETURN_ON_
SALES
RETURN_ON_
ASSETS
RETURN_ON_
EQUITY
NP_RATIO
GP_RATIO
N
Valid
333
333
333
333
333
Missing
0
0
0
0
0
Mean
360.5848
5.7483
.8761
-43.8425
6.3387
Median
23.6300
6.3200
5.3500
2.6900
9.3400
Std. Deviation
3629.80962
13.01280
253.44796
298.78774
76.88301
Range
65856.04
155.99
6133.62
4050.47
1165.91
Minimum
.00
-94.28
-4121.68
-3957.89
-925.00
Maximum
65856.04
61.71
2011.94
92.58
240.91
329
The table explains the profitability performance of selected micro, small and medium enterprises. The mean of
return on sales is 360.58% which is high but the median is 23.63 which indicates that the data consists outliers and
is skewed to one end. The net profit margin is -43.84% and median is 2.69 which indicates that number of
enterprises are struggling to earn higher net profit.
Bifurcation of Profitability Performance of selected companies:
Table 10 showing Profitability performance of selected MSMEs
Sr. No.
Financial Ratio
Low
Medium
High
1
Return on Sales
Below 5.0
5.0 to 20.0
Above 20.0
2
Return on Assets
Below 5.0
5.0 to 20.0
Above 20.0
3
Return on Equity
Below 5.0
5.0 to 20.0
Above 20.0
4
Net Profit Margin
Below 5.0
5.0 to 20.0
Above 20.0
5
Gross Profit Ratio
Below 20.0
20.0 to 40.0
Above 40.0
MICRO, SMALL OR MEDIUM ENTERPRISES
TOTAL
MICRO
SMALL
MEDIUM
Count
Percent
Count
Percent
Count
Percent
Return on Sales
LOW
28
25%
45
39%
41
36%
114
MEDIUM
2
5%
18
44%
21
51%
41
HIGH
23
13%
68
38%
87
49%
178
Return on Assets
LOW
34
26%
50
38%
48
36%
132
MEDIUM
18
10%
75
41%
90
49%
183
HIGH
1
6%
6
33%
11
61%
18
Return on Equity
LOW
39
24%
63
39%
61
37%
163
MEDIUM
10
8%
55
42%
67
51%
132
HIGH
4
11%
13
35%
20
54%
37
Net Profit Margin
LOW
33
15%
80
37%
105
48%
218
MEDIUM
14
16%
38
43%
37
42%
89
HIGH
6
26%
12
52%
5
22%
23
Gross Profit Ratio
LOW
31
12%
95
37%
130
51%
256
MEDIUM
8
23%
17
49%
10
29%
35
HIGH
14
36%
18
46%
7
18%
39
The Return on Sales, a large number of medium enterprises have a high-performance level compared to micro
and small enterprises, while in Net Profit Margin, a large number of small enterprises fall into the medium and
high-performance categories. The gross profit margin for most of the medium enterprises is low, whereas for
micro and small enterprises shows medium-performance. Overall most of the MSMEs shows low net profit
margin and gross profit margin. The return on assets of 54.95% MSMEs indicate a medium-performance which
is the highest compared to other profitability factors.
Operating Performance:
Asset turnover, inventory turnover, debtor’s turnover and creditors turnover showing operating performance of
selected micro, small and medium enterprise for the financial year 2022-23:
Table 11 showing descriptive statistics of Operating Ratios
ASSET_
TURNOVER
INVENTORY_
TURNOVER
DEBTORS_
TURNOVER
CREDITORS_
TURNOVER
N
Valid
333
332
333
333
Missing
0
1
0
0
Mean
28.4489
18.8266
13.2632
34.3855
Median
2.8900
.0000
3.2700
3.9000
330
Std. Deviation
110.36349
82.61253
66.44474
185.76346
Range
1280.97
1232.93
896.46
2241.20
Minimum
.00
-.13
.00
.00
Maximum
1280.97
1232.80
896.46
2241.20
The table explains the operating performance of selected micro, small and medium enterprises. The Asset
Turnover ratio has a high mean of 28.44 times, indicating that, enterprises are efficiently using their assets to
generate sales. The standard deviation (110.36349) and range (1280.97) suggests substantial variability in asset
turnover values within the dataset. Inventory Turnover ratio, explains a mean (18.82 times) and a negative
minimum value (-0.13), which could indicate data issues. Debtors Turnover (13.26 times) and Creditors Turnover
(34.38 times) also display variations in their mean and median, which indicates differing levels of efficiency in
managing debtors and creditors.
Bifurcation of Operating Performance of selected companies:
Table 12 showing Operating Performance of selected MSMEs
Sr. No.
Financial Ratio
Low
Medium
High
1
Asset Turnover
Below 1.0
1.0 To 2.0
Above 2.0
2
Inventory Turnover
Below 5.0
5.0 To 10.0
Above 10.0
3
Debtors Turnover (Times)
Below 5.0
5.0 To 10.0
Above 10.0
4
Creditors Turnover (Times)
Below 5.0
5.0 To 10.0
Above 10.0
MICRO, SMALL OR MEDIUM ENTERPRISES
TOTAL
MICRO
SMALL
MEDIUM
Count
Percent
Count
Percent
Count
Percent
Asset
Turnover
LOW
25
35%
32
44%
15
21%
72
MEDIUM
4
9%
18
40%
23
51%
45
HIGH
19
9%
75
37%
108
53%
202
Inventory
Turnover
LOW
5
16%
13
42%
13
42%
31
MEDIUM
0
0%
6
40%
9
60%
15
HIGH
0
0%
19
29%
47
71%
66
Debtors
Turnover
LOW
38
17%
101
45%
83
37%
222
MEDIUM
2
3%
20
34%
36
62%
58
HIGH
3
8%
7
18%
28
74%
38
Creditors
Turnover
LOW
36
21%
73
43%
59
35%
168
MEDIUM
2
4%
11
22%
38
75%
51
HIGH
3
3%
36
40%
50
56%
89
The Asset Turnover ratio, a higher percentage of medium-sized enterprises are having a high-performance
compared to micro and small enterprises, which indicates a high potential in utilizing assets to generate sales in
business. Similarly, Inventory Turnover, Debtors Turnover, and Creditors Turnover vary across different
enterprise sizes and performance levels. The inventory turnover ratio of medium enterprises shows high-
performance followed by small enterprises. The debtors turnover ratio and creditors turnover ratio shows low
performance for a large number of small and medium enterprises.
Correlation of Liquidity ratios of selected Micro, Small and Medium Enterprises:
H01: There is no significant difference between liquidity ratios of selected MSMEs.
Table 13 showing Karl Pearson's Correlation Analysis between Liquidity Ratios
CURRENTRATIO
QUICKRATIO
CASHRATIO
CURRENTRATIO
Pearson
Correlation
1
.925**
.064
Sig. (2-
tailed)
.000
.244
QUICKRATIO
Pearson
Correlation
1
.042
331
Sig. (2-
tailed)
.450
CASHRATIO
Pearson
Correlation
1
Sig. (2-
tailed)
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
The Pearson Correlation coefficient between Current Ratio and Quick Ratio is 0.925. This indicates a strong
positive correlation between these two ratios. The p-value is 0.000, which is less than the significance level of 0.01
hence we accept the null hypothesis and conclude that there is a strong and positive correlation between current
ratio and quick ratio.
Correlation of Solvency ratios of selected Micro, Small and Medium Enterprises:
H02: There is no significant difference between solvency ratios of selected MSMEs.
Table 14 showing Karl Pearson's Correlation Analysis between Solvency Ratios
DEBT_TO_EQUITY
DEBTOR_TURNOVER
DEBT_TO_EQUITY
Pearson Correlation
1
.000
Sig. (2-tailed)
.998
DEBTOR_TURNOVER
Pearson Correlation
1
Sig. (2-tailed)
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
The Pearson Correlation coefficient between Debt-to-Equity Ratio and Debtor Turnover is 0.000 which indicates
a very weak correlation between the two ratios. Hence, we reject the null hypothesis and accept alternate
hypothesis suggesting that there is no significant relation between solvency ratios of selected MSMEs.
Correlation of Profitability ratios of selected Micro, Small and Medium Enterprises:
H03: There is no significant difference between profitability ratios of selected MSMEs.
Table 15 showing Karl Pearson's Correlation Analysis between Profitability Ratios
RETURN_
ON_SALES
RETURN_
ON_ASSETS
RETURN_
ON_EQUITY
NP_RATIO
GP_RATIO
RETURN_
ON_SALES
Pearson
Correlation
1
-.217**
-.890**
.013
.008
Sig. (2-
tailed)
.000
.000
.812
.891
RETURN_
ON_
ASSETS
Pearson
Correlation
1
.050
.060
.160**
Sig. (2-
tailed)
.364
.274
.003
RETURN_
ON_EQUITY
Pearson
Correlation
1
.000
.001
Sig. (2-
tailed)
.998
.984
NP_RATIO
Pearson
Correlation
.393**
332
Sig. (2-
tailed)
.000
GP_RATIO
Pearson
Correlation
1
Sig. (2-
tailed)
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
The Return on Sales (ROS) has a significant negative correlation with Return on Assets (ROA) with a coefficient
of -0.217. The Return on Sales (ROS) has a strong correlation with Return on Assets (ROA) and Return on Equity
(ROE). Additionally, Net Profit Ratio and Gross Profit Ratio are positively correlated, which indicates that
profitability at both the net and gross profit levels tend to go hand in hand. Hence, we accept the null hypothesis
and conclude that there is a significant relationship between profitability ratios of selected MSMEs.
Correlation of Operating ratios of selected Micro, Small and Medium Enterprises:
H04: There is no significant difference between operating ratios of selected MSMEs.
Table 16 showing Karl Pearson's Correlation Analysis between Operating Ratios
ASSET
TURNOVER
INVENTORYT
URNOVER
DEBTORS
TURNOVER
CREDITOR
TURNOVER
ASSET_TURNOVER
Pearson Correlation
1
-.038
.068
.121*
Sig. (2-tailed)
.490
.214
.027
332
INVENTORY_TURNOVER
Pearson Correlation
1
-.015
-.025
Sig. (2-tailed)
.784
.655
332
332
DEBTORS_TURNOVER
Pearson Correlation
1
.138*
Sig. (2-tailed)
.012
CREDITORS_TURNOVER
Pearson Correlation
1
Sig. (2-tailed)
**. Correlation is significant at the 0.01 level (2-tailed).
Correlation is significant at the 0.05 level (2-tailed).
Asset Turnover has a weak positive correlation with Debtors Turnover with a coefficient of 0.068. The correlation
is not statistically significant at conventional significance levels (p-value = 0.214). Inventory Turnover has a very
weak negative correlation with Asset Turnover with a coefficient of -0.038. Debtors Turnover has a weak positive
correlation with Creditors Turnover with a coefficient of 0.138 and the significance value is 0.012 which is less
than 0.05 hence we accept the null hypothesis and conclude that there is significant relationship between debtors
turnover and creditors turnover. Overall, some correlations are statistically significant, while others are not.
Hence, we reject the null hypothesis and conclude that there is no significant relation between operating ratios of
selected MSMEs.
4. Major Findings
In all three liquidity ratios, entities in the "MEDIUM" category are the most common performance level across
all three business size categories. This suggests that a significant number of micro, small, and medium-sized
enterprises have a moderate level of liquidity, which is often considered a balanced position.
Micro-sized enterprises tend to have a "MEDIUM" level of debt-to-equity ratio, while small-sized enterprises
have a "LOW" level, and medium-sized enterprises predominantly have a "MEDIUM" level of debt-to-equity
ratio. This indicates variations in the capital structure among different-sized businesses.
The Profitability ratios for medium-enterprises tend to have "MEDIUM" or "HIGH" performance levels, while
micro and small enterprises, have "LOW" performance levels.
The mode for these efficiency ratios varies among different business sizes.
The Asset turnover and inventory turnover for medium-enterprises have the highest performance levels,
indicating efficient use of assets and inventory for generating sales.
333
The debtors turnover shows "LOW" performance for micro and small enterprises but "MEDIUM" performance
for medium-enterprises.
On average the Creditors turnover is "LOW" for micro and small enterprises but "MEDIUM" for medium-
enterprises.
5. Conclusions
The study related to the financial performance of micro, small, and medium enterprises, varies across a range of
key financial ratios. Medium-enterprises generally showed better liquidity, profitability, and efficiency
performance compared to micro and small enterprises. Medium-enterprises exhibit "MEDIUM" to "HIGH"
performance in Current Ratio, Return on Sales and Asset Turnover ratios, suggesting a balanced approach to
financial management. On the contrary, micro and small enterprises showed "LOW" performance in areas
including Debt to Equity Ratio and Net Profit Margin, indicating improvement in capital structure and
profitability. Overall, this analysis underscores the importance of size in influencing financial performance and
highlights that smaller businesses to enhance their financial health and competitiveness.
References
[1] Kharat S, Singh N, Chugh P, Narang K. FINANCIAL PERFORMANCE ANALYSIS OF MSME SECTOR.
EPRA International Journal of Multidisciplinary Research (IJMR)-Peer Reviewed Journal.
2022;9(November):87–100.
[2] Yumna A, Cheisviyanny C, Tasman A, Susanti A. The Determinants of Micro , Small and Medium
Enterpeises ( Msmes ) Financial Performance : A Literature Review. 2020;152:521–5.
[3] Setiana CIDS, Setiawan A, Supriadi D, Najib KH, Ardhian T, Handoyono NA, et al. Factors Affecting the
Financial Performance of Micro Small and Medium Enterprises ( Msmes ) During The Covid 19 Pandemic
in Yogyakarta City To cite this article : Ayem , S ., Aji , A . W ., & Wahidah , U . ( 2020 ). Factors Affecting
the Financial Perform. 2020;122–8.
[4] Gade S. MSMEs ’ Role in Economic Growth -a Study on India ’ s Perspective MSMEs ’ Role in Economic
Growth – a Study on India ’ s Perspective Introduction : 2020;(July).
[5] Bapat V, Raithatha M. Financial Accounting. 1st ed. Vol. 1. New Delhi: Tata McGraw-Hill; 2012. 1–468 p.
[6] Research & Information Division LSS. Micro, Small and Medium Enterprises in India [Internet]. 2019 [cited
2023 Aug 28].
[7] Tamplin T. Finance Strategists . 2023 [cited 2023 Aug 28]. Ratio Analysis. Available from:
https://www.financestrategists.com/accounting/accounting-ratios/accounting-ratios/
