Professional Documents
Culture Documents
Group A PDF
Group A PDF
used, and how often they used them. Of the 98 responses, 83 (85%) indicated that they did use ratio analysis. Table 2
indicates how often these ratios were used by respondents for financial analysis purposes. Most of these firms (72%)
utilized ratio analysis on a monthly basis.
TABLE 2 HOW OFTEN DOES YOUR FIRM USE RATIOS?
*Response Frequency Percentage
Weekly 7.1% Monthly 72.4 Quarterly 40.8 Annually 45.9
*The number of responses was not the same on every question since respondents did not answer every question.
A topic that frequently surfaces when ratios are discussed is concerned with what ratios do firms utilize. Respondents
were asked to check ratios used from a list in the questionnaire. Table 3 summarizes the responses of these firms to this
question. Profitability and asset management ratios were used most heavily by the respondents.
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 30.3 Total Asset Turnover 24.2 Acid Test 22.2 Times
Interest Earned 7.1
FINANCIAL PLANNING. To assess the extent to which financial planning and forecasting were used, respondents
were asked if they actually engaged in these activities. Of 99 respondents, 89 (90%) indicated that they used financial
planning and forecasting on a regular basis. Respondents were asked to check techniques used from a list. Table 4
summarizes their responses to the question concerning which financial planning techniques they used.
TABLE 4 WHAT FINANCIAL PLANNING TECHNIQUES DOES FIRM USE?
Response Technique Percentage
Operating Budgets 83.8% Capital Budget 72.7 Cash Budget 59.6 Funds Statement 50.5 Computerized Planning Models
28.3
The above responses indicated heavy use of all the financial planning techniques except computerized planning models.
However, these responses were encouraging in that these basic finance concepts seem to be widely utilized by these
small manufacturers.
Working Capital Management
There were three questions included in this survey that sought information on working capital management practices of
these firms. Responses were sought on such topics as the importance of working capital management and techniques
used in managing cash, accounts receivable, and inventory.
Importance of Working Capital Management. As Table 5 indicates, working capital management was very important to
these firms. Approximately 56 percent of the respondents checked "very important" when asked to rank the importance
of working capital management. Working Capital Management is extremely important to small manufacturers since
they traditionally have a problem maintaining adequate working capital (liquidity). Their limited access to the capital
markets and the basic nature of the "entrepreneur" to assume greater risk undoubtedly contribute to the working capital
problem.
TABLE 5 HOW IMPORTANT IS WORKING CAPITAL MANAGEMENT TO YOUR FIRM?
Response Response Percentage
[1] Christiansen, Rolf, and Crumpton Ferrell, "Survey of Capital Budgeting Methods Used by Medium Size
Manufacturing Firms," Baylor Business Studies, (Nov-Dec 1980), pp. 35-43.
[2] Gitman, Lawrence J., and Charles Maxwell, "Financial Activities of Major U.S. Firms: Survey and Analysis of
Fortune's 1000," Financial Management, Vol. 14, (Winter 1985), pp. 57-65.
[3] Gitman, L.J., and V.A. Mercurio, "Cost of Capital Techniques Used By Major U.S. Firms: Survey and Analysis of
Fortune's 1000," Financial Management, Vol. 11, (Winter 1982, pp. 21- 29.
[4] Levin, Richard I., and Virginia Travis, "Small Company Finance: What the Books Don't Say," Harvard Business
Review, Vol. 65, (November-December 1987), pp. 30-32.
[5] Muse, William V., "If all the Business Schools in the Country Were Eliminated. Would Anyone Notice?"
Collegiate News & Views, Vol. 36, (Spring 1983), pp. 1-5.
[6] Patillo, Donald, "Capital Investment Practices of Small Manufacturers: American Versus Multinational," Journal of
Small Business Management, Vol. 19, (April 1981), pp. 29-36.
[7] Ross, Marc, "Capital Budgeting Practices of Twelve Large Manufacturers," Financial Management, Vol 15,
(Winter 1986), pp. 15-22.
[8] Scott, David F. Jr., Otha Gray & Monroe Bird, "Investing and Financing Behavior of Small Manufacturing Firms,"
MSU Business Topics, (Summer 1972), pp. 29-38.
[9] Scott, David F. Jr., and Dana J. Johnson, "Financing Policies and Practices in Large Corporations," Financial
Management, Vol. 11, (Summer 1982), pp. 51-59.