Project On Micro and Small

FINANCIAL MANAGEMENT AS A
DETERMINANT OF PROFITABILITY:
A STUDY OF MSME IN ODISHA
A THESIS SUBMITTED TO
RAVENSHAW UNIVERSITY
FOR THE AWARD OF THE DEGREE OF
DOCTOR OF PHILOSOPHY IN
COMMERCE
By
SANDEEPAN BANERJEE
REGISTRATION NO. -12PH-COM-009
UNDER THE SUPERVISION OF
DR. KISHORE KUMAR DAS

DEAN & FORMER HEAD,
SCHOOL OF COMMERCE,
COE AND FORMER REGISTRAR,
RAVENSHAW UNIVERSITY, CUTTACK
RAVENSHAW UNIVERSITY
CUTTACK, ODISHA,
INDIA-753003
2018
Dedicated
To
My Loving Family
ii
TABLE OF CONTENTS
Title
Declaration
Acknowledgement
Certificate
List of Tables & Figures
Abbreviation
Chapter -I: - INTRODUCTION

01 - 40
1.1 Background of the Study
1.2. Statement of Research Problem
1.3. Need and Significance of Research
1.4. Objectives of the Study
1.5. Hypothesis of the Study
1.6. Scope of the Study
1.7. Review of Literature
1.8. Research Gap
1.9. Data Analysis – A Brief
1.10. Limitation of the Study
1.11 Organisation of Chapters
Chapter – II:- MSME SECTOR IN INDIA: AN OVER VIEW 01 - 09

2.1. Introduction
2.2 Brief History of MSME Sector in India
-Status of Filing of Entrepreneurs Memorandum
-Status of MSME, Employments, Investments and Gross
Output in India
-Contribution of MSME in total GDP of the country
2.3 Conclusion
01 - 14
Chapter – III:- RESEARCH METHODOLOGY
3.1. Introduction
3.2. Data Collection
3.3. Research Design
3.4. Statistical Tools
3.5. Methods of Data Collection
3.6 Conclusion
vi
Chapter – IV: - ANALYSIS OF DATA AND INTERPRETATION 01 - 106
4.1. Introduction
4.2. Demographic Profile
4.3. Interpretation of Survey Results
4.4. Factor Analysis
4.5 Test of Anova
4.6 Regression Analysis
4.5. Conclusion
01 - 06
Chapter – V : - TESTING OF HYPOTHESIS
5.1. Introduction
5.2. Testing of Hypothesis 1
5.7. Conclusion
Chapter – VI: - FINDINGS, CONCLUSION, AND SUGGESTIONS 1 - 14

6.1. Introduction
6.2. Research Methodology
6.3. Major Findings of the Study
6.4. Conclusion
6.5. Suggestions
6.6. Scope for Future Research
Bibliography
Appendices
vii
DECLARATION
I do hereby declare that the thesis titled, “FINANCIAL
MANAGEMENT AS A DETERMINANT OF PROFITABILITY: A
STUDY OF MSME IN ODISHA”, submitted to Ravenshaw
University, Cuttack, Odisha for the degree of DOCTOR OF
PHILOSOPHY IN COMMERCE is an original piece of work
done by me and it has not been published elsewhere or
submitted for any other Degree or Diploma in full or in part.
PLACE: CUTTACK (SANDEEPAN BANERJEE)

DATE: 10.04.2018 Research Scholar
iii
ACKNOWLEDGEMENT
“If GOD brings you to it (Ph.D), He will bring you through it”. “If the
only prayer you said in your whole life was thank you” that would suffice.
Therefore, I thank The Almighty for showering blessings on me to get
through this mammoth task of compiling my Ph.D thesis.
I would like to express my special appreciation and thanks to my

Guide Dr. Kishore Kumar Das, Dean and Former Head of School of
Commerce, COE and Former Registrar, Ravenshaw University, who has been
an amazing mentor for me. I would like to thank you for encouraging my
research and for allowing me to grow as a researcher. Your advice on
research as well as my career have been invaluable.
I express my sincere thanks to the faculty members and authorities of

Ravenshaw University, Cuttack for allowing me to conduct the study and
permitting me to present this work. I owe my thanks to the teaching and non
teaching staff of School of Commerce, Ravenshaw University, Cuttack, for
their support in course of this work.
A special thanks to my family. Words cannot express how grateful I am

to my parents, sister and wife for all the support they have provided me with.
I would also like to thank all my friends who supported me in writing and
inspired me to strive towards my goal.
Sandeepan Banerjee
iv
Dr. Kishore Kumar Das
Ph. D, M. Phil, M.Com, MBA, LL.B
Fellow-WBI, Australia, Associate-IIAS, Shimla
Dean and Former Head, School of Commerce
COE & Former Registrar, Ravenshaw University,
Cuttack- 753003,Email: drkkdasru@gmail.com
CERTIFICATE
This is to certify that the thesis entitled: “Financial

Management as a Determinant of Profitability: A Study of MSME
in Odisha” submitted by Sri Sandeepan Banerjee, for the
award of the Degree of Doctor of Philosophy in
Commerce in Ravenshaw University, Cuttack is a
record of an independent research work carried out by him
under my guidance and supervision. His work is original.
This has not been submitted elsewhere for the award of any
Degree or Diploma. I recommend this thesis for the
submission of the Degree of Doctor of Philosophy in
Commerce.
Place: CUTTACK (Dr. K. K. Das)

Date: Research Supervisor
v
PREFACE
Micro, Small and Medium Enterprises (MSMEs) in India have

developed strongly and immensely contributed to creating employment,
increasing GDP, raising the nation’s volume of exports, etc. MSMEs are
rightly described as the engine of economic growth. However, MSMEs
have found difficulties, on the way to development, due to lack of
adequate financial resources and its judicious management. These
challenges are further aggravated due to uncertainty within the business
environment. Consequently, MSMEs often faced obstacles during their
operations. This thesis examines the relationship between financial
management and profitability of MSMEs to determine whether financial
management practices and financial characteristics impact on MSME
profitability.
The objectives of the thesis are (1) To examine whether the
Accounting reports are perfectly and accurately maintained by female
entrepreneurs than male counterparts across gender groups (2) To
analyse if the Payback period and net present value of capital are more
effectively managed by young entrepreneurs across all age groups (3) To
inspect if Accounting reports are perfectly and accurately maintained by
entrepreneurs engaged with company type business across the business
types (4) To measure if there is any significant relationship between the
reasonable use of capital budgeting techniques and profitability of
MSMEs in Odisha and (5) To assess the involvement of owners in
preparing master budget in financial planning.
In terms of structure, this thesis has six chapters. The thesis
begins by defining the research problem and providing a justification for
the research study. Chapter One also reviews the research background
and presents definition of terms, significance and scope of the study.
Moreover, it examines the existing literature and identifies the research
viii
gap. Chapter Two presents an overview of the MSME sector in India. The
chapter also gives a thumbnail sketch of the trends of growth in micro,
small & medium enterprises.
Chapter Three describes the research methodology including
research design, data collection and data analysis methods. The
objectives of this chapter are: (1) to explain research methodology used
in this study (2) to justify the research methodology of the study and (3)
to demonstrate how research design, data collection and analysis can be
utilized in this study to answer the research questions outlined in
Chapter One.
Data analysis and interpretation are presented in Chapter Five.
This chapter puts forward descriptive findings of financial management
practices, financial characteristics and MSME profitability. This chapter
helps to systematically present the descriptive findings of the research
study and to interpret significance of these findings based on data
analysis. Finally, the thesis comes to a close with Chapter Six wherein
conclusions are summarized and applications of the research findings
are indicated.
The thesis provides descriptive findings of financial management
practices and demonstrates the simultaneous impact of financial
management practices and financial characteristics on MSME
profitability. With the findings as presented above, this research study
provides many implications for financial management practices and
contributes to knowledge of financial management of MSMEs in Odisha.
Sandeepan Banerjee
ix
ABBREVIATIONS
Notations Explanations
ANOVA Analysis of variance
CF Cash flows
CUR Current ratio
DER Debt ratio
E.q Equation
EBT Earning before tax
EBIT Earning before interest and taxes
EFF Efficiency of financial management practices
EOQ Economic order quantity
FAIS Financial and accounting information system
FALP Fixed asset management and long-term

planning practices
FDI Foreign direct investment
FSSB Financial Studies of the Small Business
GDP Gross domestic products
IRR Internal rate of return
x
MSME Micro Small Medium Enterprises
MIRR Modified internal rate of return
NPV Net present value
PRO Profitability
RE Retained earnings
ROA Return on asset
ROE Return on equity
ROI Return on investment
ROS Return on sales
SPSS Statistical Package for Social Science
TA Total assets
TAT Total asset turnover
xi
I. LIST OF TABLES
Table Page
Particulars
No. No.
1.1 Definition of Micro, Small and Medium Enterprises in India 3
2.1 List of MSME in Registered and Unregistered Sector in India 4
2.2 Number of Micro, Small & Medium Enterprises Registered 5
2.3 Compound Annual Growth Rate of MSMEs 5
Status of MSME Units, Employment, Investments and Gross Output
2.4 6
in India
2.5 Computation of Correlation 7

2.6 Share of MSME Sector in Total GDP 8
2.7 Computation of Correlation 8
2.8 Contribution of MSME Sector to Total Production 9

4.1 Gender 5
4.2 Age 6
4.3 Educational qualification 7
4.4 Types of Business 8
4.5 Type of Activity 10
4.6 Age of Business 10
4.7 Annual Sale 11
4.8 Investment in Fixed Asset 12
4.9 No. of Employees 13
4.10 Sources of Finance 13
4.11 Owners and Accountants 14
4.12 Period of Analyzing Financial Statements 15
4.13 Cash Budget Analysis 15
4.14 Surplus Analysis 15
4.15 Preparation of Surplus Budget 16
4.16 Surplus Verification 16
4.17 Credit Sales Analysis 17
4.18 Bad debt Analysis 17
4.19 Bad debt Position Review 17
4.20 Investment Management Analysis 18
4.21 Inventory Analysis 18
4.22 Financial Planning 19
4.23 Financial Review 19
KMO and Bartlett's Test on Management and Maintenance of
4.24 20
Accounts and Finance
Communalities on Management and Maintenance of Accounts and
4.25 20
Finance
Total Variance Explained on Management and Maintenance of
4.26 21
Total Variance (Rotated) on Management and Maintenance of
4.27 22
4.28 Component Matrix on Management and Maintenance of Accounts 22
xii
and Finance
Rotated Component Matrix on Management and Maintenance of
4.29 23
Component Transformation Matrix on Management and
4.30 24
Maintenance of Accounts and Finance
4.31 KMO and Bartlett's Test on Cash Management 24
4.32 Communalities on Cash Management 25
4.33 Total Variance Explained on Cash Management 26
4.34 Total Variance (Rotated) Explained on Cash Management 26
4.35 Component Matrix on Cash Management 27
4.36 Rotated Component Matrix on Cash Management 28
4.37 Component Transformation Matrix on Cash Management 29
4.38 KMO and Bartlett's Test on Receivable Management 29
4.39 Communalities on Receivable Management 30
4.40 Total Variance Explained on Receivable Management Practices 30
Total Variance (Rotated) Explained on Receivable Management
4.41 31
Practices
4.42 Component Matrix on Receivable Management 31
4.43 Rotated Component Matrix on Receivable Management Practices 32
Component Transformation Matrix on Receivable Management
4.44 33
Practices
4.45 KMO and Bartlett's Test on Inventory Management 33
4.46 Communalities on Inventory Management 34
4.47 Total Variance Explained on Inventory Management 34
4.48 Total Variance (Rotated) Explained on Inventory Management 35
4.49 Component Matrix on Inventory Management 35
4.50 Rotated Component Matrix on Inventory Management Practices 36
Component Transformation Matrix on Inventory Management
4.51 37
Practices
4.52 KMO and Bartlett's Test on Fixed Asset Management 37
4.53 Communalities on Fixed Asset Management 38
4.54 Total Variance Explained on Fixed Asset Management 39
4.55 Total Variance (Rotated) Explained on Fixed Asset Management 39
4.56 Component Matrix on Fixed-Asset Management 40
4.57 Rotated Component Matrix on Fixed-Asset Management Practices 41
4.58 Component Transformation Matrix on Fixed Asset Management 42
4.59 KMO and Bartlett's Test on Financial Planning 42
4.60 Communalities on Financial Planning 43
4.61 Total Variance Explained on Financial Planning 43
4.62 Total Variance (Rotated) Explained on Financial Planning Practices 44
4.63 Component Matrix on Financial Planning 44
4.64 Rotated Component Matrix on Financial Planning Practices 45
4.65 Component Transformation Matrix on Financial Planning Practices 46
4.66 Descriptive statistics (A3) 47
4.67 ANOVA (A3) 47
4.69 ANOVA (A4) 48
4.71 ANOVA (A6) 49
4.73 ANOVA (A7) 50
4.74 Descriptive statistics (B2) 50
4.75 ANOVA (B2) 51
xiii
4.77 ANOVA (B3) 52
4.79 ANOVA (B4) 53
4.80 Descriptive statistics (C1) 53
4.81 ANOVA (C1) 54
4.83 ANOVA (C2) 55
4.85 ANOVA (C4) 56
4.87 ANOVA (C6) 56
4.88 Descriptive statistics (D4) 57
4.89 ANOVA (D4) 57
4.91 ANOVA (D5) 58
4.93 ANOVA (D6) 59
4.94 Descriptive statistics (E3) 60
4.95 ANOVA (E3) 60
4.97 ANOVA (E4) 61
4.99 ANOVA (E5) 62
4.100 Descriptive statistics (F3) 63
4.101 ANOVA (F3) 63
4.103 ANOVA (F5) 64
4.105 ANOVA (F7) 65
4.107 ANOVA (A3) 66
4.109 ANOVA (A4) 67
4.111 ANOVA (A6) 68
4.113 ANOVA (A7) 69
4.115 ANOVA (B2) 70
4.117 ANOVA (B3) 71
4.119 ANOVA (B4) 72
4.121 ANOVA (C1) 73
4.123 ANOVA (C2) 74
4.125 ANOVA (C4) 75
4.127 ANOVA (C6) 76
xiv
4.129 ANOVA (D4) 77
4.131 ANOVA (D5) 78
4.133 ANOVA (D6) 78
4.135 ANOVA (E3) 80
4.137 ANOVA (E4) 81
4.139 ANOVA (E5) 82
4.141 ANOVA (F3) 83
4.143 ANOVA (F5) 84
4.145 ANOVA (F7) 85
4.147 ANOVA (A3) 86
4.149 ANOVA (A4) 87
4.151 ANOVA (A6) 87
4.153 ANOVA (A7) 88
4.155 ANOVA (B2) 89
4.157 ANOVA (B3) 90
4.159 ANOVA (B4) 91
4.161 ANOVA (C1) 92
4.163 ANOVA (C2) 93
4.165 ANOVA (C4) 94
4.167 ANOVA (C6) 94
4.169 ANOVA (D4) 95
4.171 ANOVA (D5) 96
4.173 ANOVA (D6) 97
4.175 ANOVA (E3) 98
4.177 ANOVA (E4) 99
4.179 ANOVA (E5) 100
4.181 ANOVA (F3) 101
xv
4.183 ANOVA (F5) 102
4.185 ANOVA (F7) 103
4.186 Model Summary 104
4.187 ANOVAb 104
4.188 Coefficientsa 105
4.189 Effective Management of Finance 106
II. LIST OF FIGURES
Figure Page
Particulars
No. No.
2.1 Number of Micro, Small & Medium Enterprises Registered 5
4.1 Gender 6
4.2 Age 7
4.3 Educational qualification 8
4.4 Types of Business 9
4.5 Age of Business 11
4.6 Sources of Finance 14
xvi

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FINANCIAL MANAGEMENT AS A

UNDER THE SUPERVISION OF

DR. KISHORE KUMAR DAS

Chapter -I: - INTRODUCTION

Chapter – II:- MSME SECTOR IN INDIA: AN OVER VIEW 01 - 09

Chapter – VI: - FINDINGS, CONCLUSION, AND SUGGESTIONS 1 - 14

I do hereby declare that the thesis titled, “FINANCIAL

MANAGEMENT AS A DETERMINANT OF PROFITABILITY: A

STUDY OF MSME IN ODISHA”, submitted to Ravenshaw

University, Cuttack, Odisha for the degree of DOCTOR OF

PHILOSOPHY IN COMMERCE is an original piece of work

done by me and it has not been published elsewhere or

submitted for any other Degree or Diploma in full or in part.

PLACE: CUTTACK (SANDEEPAN BANERJEE)

I would like to express my special appreciation and thanks to my

I express my sincere thanks to the faculty members and authorities of

A special thanks to my family. Words cannot express how grateful I am

This is to certify that the thesis entitled: “Financial

Place: CUTTACK (Dr. K. K. Das)

Micro, Small and Medium Enterprises (MSMEs) in India have

ANOVA Analysis of variance

CUR Current ratio

DER Debt ratio

EBT Earning before tax

EBIT Earning before interest and taxes

EFF Efficiency of financial management practices

EOQ Economic order quantity

FAIS Financial and accounting information system

FALP Fixed asset management and long-term

FDI Foreign direct investment

FSSB Financial Studies of the Small Business

GDP Gross domestic products

IRR Internal rate of return

MIRR Modified internal rate of return

NPV Net present value

ROA Return on asset

ROE Return on equity

ROI Return on investment

ROS Return on sales

SPSS Statistical Package for Social Science

TAT Total asset turnover

2.5 Computation of Correlation 7

2.8 Contribution of MSME Sector to Total Production 9

II. LIST OF FIGURES

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