FINANCIAL ANALYSIS AND WORKING

CAPITAL MANAGEMENT TECHNIQUES

USED BY SMALL MANUFACTURERS:
SURVEY AND ANALYSIS

Morris Lamberson, University of Central

Arkansas

Presentors :
Vijay
 CONTENTS

• Introduction
• Methodology
• Analysis of findings
• Conclusion
• Beyond Article
 INTRODUCTION
• Financial analysis: process of evaluating businesses, projects, budgets and
other finance-related entities to determine their performance and
suitability.
• Working capital management: strategy designed to monitor current assets and
current liabilities.
• Major objective: to provide insight into the importance of and utilization of
financial analysis and working capital management concepts by small
manufactures.
• Gap between theoretical and practical knowledge.
• Active partnership with industry
• A 1982 article by Gitman and Mercurio [3] suggested that finance
academicians and financial managers should develop a stronger
communication link to enhance the transfer of knowledge and needs between
them.
 Method of study

• Primary source of data

• Mail questionnaire
• 477 respondents
• Chief financial officers
 Findings and Data Analysis

• Findings of the study are analyzed on the following basis:

 Financial analysis and planning
 Working capital management

Ratio analysis was used to analyze financial planning

Lockbox, a sweep account and zero bank balances techniques
were used for managing cash and EOQ model and computer
model were used for inventory management
• Table 1 shows distribution of respondents by employee
size
Continued….

no. of respondents

60
50
40
30
48
20
26 29
10
0
100-200 201-350 351-500
 Continued…..

• Table 2 shows “how often does the firm use ratios”?

• Weekly 7.1% Monthly 72.4 % Quarterly 40.8% Annually

45.9%
Table 3: What ratios do you use?

Response ratio Percentage

Gross profit margin 76.8
Inventory Turnover 74.7
Net profit margin 66.7
Average collection period 63.6
Current ratio 62.6
Return on Assets 53.5
Return on equity 42.4

Debt 30.03

Total assets turnover ratio 24.2

Acid test 22.2

Interest earned 7.1

 Table 4: Financial Planning:
90% indicated that they used financial planning
and forecasting on a regular basis.
Response technique percentage

Capital budgets 83.8

Capital budget 72.7

Cash budget 59.6

Funds Statement 50.5

Computerized planning Models 28.3

Table 5: how important is working
capital management to your firm?
Response percentage

Very important 56.1

Important 32.7

Not very important 11.2

 Table 6: Does your Firm use specific
techniques in managing current
assets?
Current assets Cash and Accounts inventory
marketable receivable
securities

yes 28.3% 50.5% 62.2%

no 71.7% 49.5% 37.8%

 Conclusion/Recommendations
As from the article, small organizations aren’t using tool effectively:
• Importance and utilization of financial analysis and working capital
management techniques.

• Academics should reduce the gap between the implementation of

the finance concepts .

• Respondents considered financial analysis and working capital

management to be important and most of the firms were heavy
users of these concepts.
 Beyond Article

Difference between Small and Large Organization.

Cost vs Benefit
Difference in implication and impact of Financial tools in
small and large organsation
 Reference

• Working capital management and firm performance of

small and large firms in Malaysia
• Working Capital Management Practices of Small Firms
in the Ashanti Region of Ghana
Thank you