CAPITAL ADEQUACY AND PERFORMANCE OF SMALL SCALE ENTERPRISES (A CASE STUDY OF SAMCOM DATA TRADE & CO)

TABLE OF CONTENTS

Title Page

Certification

Dedication

Acknowledgments

Abstract

Table of contents

CHAPTER ONE

1.0     Introduction

1.1     Background of the Study

1.2     statement of the problem

1.3     Objective of the Study

1.4     Significance of the Study

1.5     Scope of the study

1.6     Research Questions

1.7     Research Methodology

1.8     Operational Definition of Terms

End Notes:


CHAPTER TWO

2.0     Literature Review

2.1     Definition of Small Business Enterprises

2.2.1  Effective Small Business Management

2.2.2  The Role of Small Enterprises in the Economy

2.2.3  Finance

2.2.4  Sources of Finance.

2.2.5  Function of Finance in Small Scale Enterprises

2.2.6  Capital Adequacy

  • Problems of Financing Small Scale Enterprises.

2.2.8  The Role of Good Financial Programmes

Management in Development of Small Scale Enterprises

2.2.9  Financial Forecasting and Planning

End note

CHAPTER THREE

3.0     Methodology

3.1     Study Design

  • Instrumentation
  • Representatives Of Sample
  • Sources, Instruments And Method Of Data Collection

End Note

CHAPTER FOUR

4.0     Data Analysis and Presentation

4.1     Introduction

CHAPTER FIVE

5.0     Summary Recommendation and Conclusion

5.1     Summary of Findings

5.2     Conclusion

5.3     Recommendation.

Bibliography

 

 

CHAPTER ONE

1.0     INTRODUCTION

Every step in the organisation and development of an enterprise, every manufacturing operation, every marketing activity, requires the expenditure of capital in one form or the other. The cost of land, buildings, tools equipment, materials, supplies, salaries, wages, fringe benefits, taxes, electrical power must be paid. Having observed that many persons underestimate the importance of the adequacy of capital in running a concern on a profitable basis, this study is being conducted to inculcate an effective understanding of the trends which the adequacy of capital may take on the profitability of going concerns, most especially small- scale enterprises.

When business commences, it requires finance or start –up capital. Usually a significant proportion of this finance will be provided by the owners of business in the form of equity shares. People intending to start their aim business will use their life savings or re-mortgage their house they may use redundancy payment from a previous job or a legacy from a relative. Whatever the source, in addition to finance sought in form of loans from banks or finance houses form the basis of the finance of the business.

Some small scale enterprises concern that do not realize the need for a prudent initiation and management of their capital structure as fundamental to the survival and success of the business sometimes fail, not because of power shortage or bad business ideas, but because the capital framework required to sustain them was not in place. Therefore the paramount importance to study the capital structure of a small- scale enterprise and it’s adequacy in their performance.

1.1     BACKGROUND OF THE STUDY

The question of capital is an issue of great interest as it is observed as a very important parameter used as a hedge against collapse of firms. As a business grows, so will its need for cash. Its owners wish to expand it. The capital is the “tap root” of a business and can only come from the original owners available finds, perhaps with the help of his family and friends and often with recourse to bank overdraft. Basically sources of business financing can be classified into three they are:

 

  1. Short term financing (up to 3 years0
  2. Medium term financing (3 to 10 years)
  3. Longman financing (10 and above)

It is however of great importance to know that each source bring its respective costs and risks. Balancing this can result in a very skillful and tricky management decisions. This forms the basis of the leveraging or gearing status of the business which determines how well the business will perform and how long it will pass the test of time. It is important that an optional combination be made of both the borrowed and owned capital.

The role of an adequate capital in an optimal structure to the performance of small scale enterprises cannot be overemphasized. It stands tall and top on the list of major pre- requisites for a successful financial business.

The failure to appreciate the financial requirements of running a business has been one of the chief causes of business failures. Some small scale enterprises make enough money to be self supporting from the very start. Others, however, may need several months or even years before they generate sufficient revenue to catch up with the outlays required. These contingencies should be anticipated when the financing of the business is initially undertaken. Otherwise, a business that might be or has been highly successful may fail without such precautions.

1.2     STATEMENT OF THE PROBLEM

There is growing recognition of the important role small scale enterprises play in economic development. They are often described as efficient and prolific job create, the seeds of businesses and the fuel of national economic engines (Udechukwu, 2003, Olorunshola; 2003).

Despite the potential role of small scale and medium scale enterprise SMEs to accelerated growth and job creation in developing countries, their development is hampered by a number of factors. A director at the national Directorate of Employment, Allaji Ismaila Umaru, has identified the lack of capital and skills as the major problem retarding the growth of small scale businesses in the country.

Umaru, who is the director of small scale enterprises, made the observation in Ado-Ekiti in an interview with the news Agency of Nigeria. He stressed the need for training of people in vocational skills and adequate financial assistance from government at all levels. SMEs often have difficulties in obtaining capital. Despite the numerous institutions providing training of and advisory services, there is still problems of inadequate capital in the small scale business sector as a whole. In adequate capital and skills places significant constraints on SME development. Even though SMEs tend to attract motivated managers, they can hardly compete with larger firms. In most cases, SMEs utilize foreign technology with a scare technical support. The lack of capital or high interest rate on loan borrowed can hamper small scale efforts to improve their management.

1.3     OBJECTIVE OF THE STUDY

The broad objective of this study is to examine the relevance of capital adequacy to the management and performance of small scale enterprise in Nigeria. The specific objectives of the study are as follows:

  1. To evaluate the role of capital in the activities and operations of small- scale enterprises.
  2. Identify the small – scale, its development effect and role in the society.
  3. Highlight the problems faced by the small –scale operations in obtaining credit facilities.

1.4     SIGNIFICANCE OF THE STUDY

There are other critical elements that are germane to the survival and competitiveness of small scale enterprises one of such factor is capital. This study is significant because it would help to evaluate the role of capital in the activities and operations of a vital segment of the real sector – small – scale enterprises which have been identified as having very high potential in promoting economic growth and development.

1.5     SCOPE OF THE STUDY

This study shall focus on the extent to which capital adequacy is relevant to the management of Small Scale Enterprise in Nigeria. Most of the information and data needed for the study would be gathered from existing literature and from a survey that would be conducted among selected staff of Samcom Data Trade & Co .

The study is strictly limited to carefully select small scale businesses across the length and breadth of the country. They include motor mechanic, printing, photography, electronic repairs, Farming, restaurant, retail distribution etc. All data collected are effective and these things are done in order to ensure a random data for an accurate decision, thus all reference from this work are of high objectively and dependability.

1.6     RESEARCH QUESTIONS

According to the objectives stated above all research questions that will be examined in the course of the study are as follows:

  1. What role does capital plays in the activities and operations of Small Scale Enterprises?
  2. What are the various sources of funds that investor use in enhance/improve their economy?
  3. How has capital affected the performance of small scale enterprise?
  4. What are likely consequences that may arise in mis- management of fund on small scale enterprises?
  5. What are the benefits your organisation derive from government financial programme.

 

 

RESEARCH HYPOTHESIS

Based on the research questions stated above the hypothesis to be tested in the cause of this research are stated below:

HYPOTHESIS 1:

Ho:     That capital adequacy does not play significant role in the

activities and operations of Small Scale Enterprises.

Hi:     That capital adequacy plays significant role in the activities and

operations of small scale enterprise.

HYPOTHESIS 2:

Ho:     That type and source of fund has no effect on Small Scale

Enterprises.

Hi:     That type and source of fund has effect on small scale enterprises.

HYPOTHESIS 3:

Ho:     That capital adequacy has not improved the performance of small scale enterprises.

Hi:     That capital adequacy has improved the performance of small

scale enterprises.

 

HYPOTHESIS 4:

Ho:     There is no significant relationship between Mismanagement of funds and business growth.

Hi:     There is significant relationship between Mismanagement of funds and business growth.

1.7     RESEARCH METHODOLOGY

Explanatory research methodology shall be adopted in this project. This is because a study of this nature requires a wide collective of opinions on the subject matter and one of the ways of achieving this is through administration of questionnaires. As such self administered questionnaires shall be used to gather all relevant information on the subject matter.

The respondents shall cut across different department of Samcom Data Trade & Co. It also cuts across all the levels of organisational hierarchy to include senior and junior staffs. All these people shall be included in order to have a representation of all shades of opinions.

The data were gathered through the questionnaires were analysed using tables, charts and simple percentage while the hypotheses were tested using Chi- square statistical method.

1.8     OPERATIONAL DEFINITION OF TERMS

  1. CAPITAL ADEQUACY: Capital adequacy can be defined as the amount of capital relative to a finance institution’s loan and other assets. Almost all banking regulators require that banks hold a certain minimum of equity capital against their risk weighted assets.
  2. SMALL-SCALE:- The word small- scale can be operationally defined as something limited in scope or extent.
  3. FINANCE: Finance can be regarded as the science of the management of money and other asset. It can also be regarded as the act of providing or obtaining funds or capital.
  4. CAPITAL MARKETS: This can be referred to as a financial market where long-term securities are traded (i.e bought and sold)
  5. MORTALITY: Mortality as related to small scale business means death or collapse of a small scale business.

 

END NOTES

Udechukwu, F. (2003) Survey and Small Scale and Medium Scale

Industries and their Potentials in Nigeria. In Small and Medium Scale Industries Equity Investment Scheme (SMIEIS) Lagos Central Bank of Nigeria.

 

 

Olorunsola J.A (2003) Problems and Prospects of Small And

Medium Scale Industries Equity Investment Scheme (SMIEIS) Lagos Central Bank of Nigeria

 

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