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IMPACT OF FINANCIAL LITERACY ON THE PROFITABILITY OF SMALL SCALE ENTERPRISES

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THE IMPACT OF FINANCIAL LITERACY ON THE PROFITABILITY OF SMALL SCALE ENTERPRISES

 

ABSTRACT

The focus of this research is on the impact of financial literacy on the profitability of some small scale enterprises in Calabar Municipality, Cross River State. An enquiry into their level of adoption of financial literacy was also studied. A review of related literatures was carried out to examine the extent of work done in the field. A carefully structured questionnaire was used to collected data on the level of adoption of financial literacy and also a financial literacy test. Stratified random sampling was adopted to divide the small scale enterprises into ten (10) strata, thereafter random sampling technique was employed. A sample of one hundred and fifty (150) respondents was used to carry out the study, which encompasses the different strata. One way analysis of variance (ANOVA) and Dependent T-test at 5% level of significance was used in the analysis of the research data. The result shows that the level of adoption of financial literacy by small scale enterprises in Calabar Municipality is low and that utilization of accounting records significantly influences their profitability. Thus, conclusion, recommendations and suggestions for further studies were proffered.

 

CHAPTER ONE

INTRODUCTION

Background of the study

Like little drops of water that forms a mighty ocean, the littleness of small scale businesses from the cradle has been the bedrock of industrialization in developing countries of the world. Globally, small scale enterprises have contributed enormously in improving the standard of living of the people by providing jobs to relieve the society of social embarrassment, stimulating indigenous entrepreneurship and utilizing scarce resources. Presently, as part of the Millennium Development Goals (MDGs), effort is being made to reduce poverty rate in developing countries. Effort is also being made to reduce the reliance of people on government and so-called llar„white jobs‟.These are achieved through the growth and development of small scale enterprises (Eneh, 2007). Furthermore, small scale enterprises play important roles in the economic growth and development of every nation. They are a veritable vehicle for the achievement of national macro-economic objectives in terms of employment generation at low investment cost and enhancement of apprenticeship training.

Financial literacy as the name implies occupies a centre-stage in the quest to achieve an overall degree of success in an organization, (Bernheim, 2008). It also enhances to a reasonable degree, a business goal of financial profit. Thus, financial literacy (or lake thereof) has played a key role in the success and failure of our nations business for the past centuries. Companies and businesses have therefore been charged with ensuring that adequate and proper books of accounts are kept so as to ensure reliability of their financial statements. This will in the long run help improve their level of profitability. Furthermore, profit can analogously be viewed as the life-blood of a business and hence the accounting bases, concepts and principles adopted ought to capture and report all the relevant information to ensure reliability in its measurement (Nelson and Onias, 2011). Also Enikanselu and Oyende (2009) made it clear that no business can run effectively without being financially literate and also having one form of accounting records or the other. It can therefore be deduced that appropriate financial literacy is important for a successful management of any business, whether big or small. Consequently, suffice is to say that it is crucial that financial literacy be encouraged among small scale enterprises so as to enable them be able to supply complete and relevant financial information needed to improve on decisions made by them, and to also enhance their profitability. This research study therefore examines financial literacy and its impact on profitability of small scale enterprises.

Statement of the problem

Since the present civilian administration came into being in 1999, it has put in place policy measures and support schemes to develop the small scale enterprise sub-sector and to increase its performance. In today‟s,small scaleNigeriaenterpriseshave not performed creditably well and they have not played expected significant role in spite of the fact that they have been regarded as the bulwark for employment generation and technological development. First and foremost is the problem associated with small scale enterprises lack of financial literacy which is evident in their inability to keep complete accounting records. This invariably has resulted into a situation where SSEs operating in the state cannot capture adequately the business profit. This is because in the process of calculating profit, financial data are assembled in a way that can help make informed judgment and take decisions about the business. These financial data cannot be assembled without adequate financial literacy. This problem has ultimately affected the profitability of small scale businesses. In addition to the above is SSEs lack of awareness of financial risk and opportunities, reckless expenditure, use of business funds for personal transactions, limited access to bank credit facilities and insurance policies. These and many can be addressed by being financially literate. Henceforth, the researcher believes that these inherent problems could be attributed to the neglect of financial literacy by small scale enterprises in Cross River State.

Objectives of the study

The main objective of this study is to clearly promote financial literacy as a

tool to improving on the profitability of small scale enterprises in Calabar municipality of Cross River State. The specific objectives of the study are as follows:

To examine the extent to which financial literacy is adopted by small scale enterprises in Calabar Municipality.

To dtermine the extent to which accounting records enhance the profitability of small scale enterprises.

To ascertain the problems that hinder the utilisation of accounting records by small scale enterprises.

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