5.

1 INTRODUCTION This chapter brings into light the factors responsible for financial performance and the problems faced by the entrepreneurs of small-scale industries in the study area. The factors responsible for poor financial performance which lead to financial problems are measured with the help of Factor analysis. The factors responsible for financial problems in small-scale industries are also ranked in the order of merit by using Garretts ranking principle. 5.2 FACTORS RESPONSIBLE FOR FINANCIAL PERFORMANCE AND PROBLEMS Finance is a key input of product distribution and

development. It is therefore, aptly described as the life-blood of industry and is a pre-requisite for accelerating the process of industrial development. An important problem faced by small-scale industries in the country is that of finance. The problem of finance in small sector is mainly due to two reasons. Firstly, it is party due to scarcity of capital in the country as a whole. Secondly, it is party due to weak credit worthiness of small units in the country. Due to this weak economic base, they find it difficult to take financial assistance from the commercial banks and financial institutions. As such they are bound to obtain credit from the

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money lenders on a very high rate of interest and are thus exploited in practice. The small scale industries facing problems are regarding problem of raw material, problem of finance, problem of marketing, problem of underutilization of capacity, outdated technology, poor project planning and absence of vertical growth. Ancillary units face the problems of this own types, like delayed payment by parent units; inadequacy of technological support extended by parent units, non-adherence to quality and delivery schedules, disturbing the programme of the parent units and absence of a well-defined pricing system and regulatory laws. The lack of effective co-ordination among the various support organizations set up for the development of small scale industries. Quality consciousness is still low and cost structure is inappropriate affecting the competitive position of these industries. The problem of periodic markets, location problems, problem of space, infrastructural problems, market participants problem, lack of storage facility and quick post-harvest disposal, problem of quick and cheap transportation, problem of delayed payments, financial problems, inadequate market intelligence, slow performance of market operations and costly and inefficient labour are the major problem in financial performance.

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5.3 MEASUREMENT OF IMPACT OF FACTORS RESPONSIBLE FOR POOR FINANCIAL PERFORMANCE To measure the impact of factors responsible for poor financial performance on account of problems in financing, some problems like deliberate diversion of funds, poor collections, unplanned payments to creditors, high inventory, un productive expenditure, delay in sanction of loans, delay in sanction of working capital limits by banks, delay in implementation of project on amount, decrease in the level of stock, disturbed industrial relations, decline in operational ratios, under utilization of capacity, default in payment of interest and installment, frequent interruption in production, non submission of data to bank, irregular bank accounts, deterioration in the quality of product or service, accumulation of outstanding salaries, and P.F, high turnover of personnel, decline in technical efficiency, and poor financial performance are identified through pilot study and references from various books related to financial management. 5.3.1 MEASUREMENT In order to evaluate the factors responsible for poor financial performance to small scale industries on account of financial problems and to identify whether they are positively or negatively influencing the financial problems, factor analysis is employed. In factor analysis, each variable is assigned the factor loadings. The correlation coefficient between a variable and the underlying factor is known as the factor loading. The factor

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analysis was carried out in respect of small scale industrial units located in Thiruvananthapuram, district. The rotated factor matrix of the identified 15 variables are calculated to show the inter relationship among the variables and their influence on financial performance of the small scale industries units. The factor analysis model in matrix rotation is given as X = Af + e Where x = [x1, x2, x3 xp] f = [f1, f2, f3 fm] e = [e1, e2, e3 . ep] M = number of factor P = number of variables In this study, the variables have been identified to ascertain the financial problem of small sale industries in Thiruvananthapuram District with the help of classification table, the relationship between 15 variable and the financial problem have been studied the further analysis employed in the study shows the inter-relationship on the financial problem in the small scale industries. It has been in that variables such as decrease in this level of stock, disturbed industrial relations, declare in operational ratios, under utilization of capacity, default in payment of internet and installment

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frequent interruption in production, Non-submission of data to bank, irregular bank amounts, deterioration in the quality of pressure or service, accumulation of outstanding salaries and P.F, high turnover of personnel, decline in technical efficiency, have influential the financial problems on the small scale industries located in Thiruvananthapuram District. The rotated factor matrix for variables has been given in table 5.1

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TABLE : 5.1 ROTATED FACTOR MATRIX VARIABLES

h2 0.578 0.367 0.384 0.605 0.624 0.650 0.477 0.685 0.463 0.681 0.525 0.626 0.754 0.441 0.697 17.1888 17.1888

S.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Variables Decrease in the level of stock Disturbed industrial relations Decline in operations ratios Under utilization of capacity Delay in implementation of project on amount Default in payment of interest and installment Frequent interruption in production Delay in sanction of loans Irregular bank accounts Deterioration in the quality of product or service Accumulation of outstanding salaries and P.F. Unproductive expenditure High turnover of personnel Decline in technical efficiency High Inventory Percentage of variance

Factor 1 0.726 0.582 -0.521 -0.515 -0.043 -0.288 -0.120 0.0018 -0.006 0.114 -0.258 -0.135 -0.074 0.412 -0.279 4.0748 4.0748

Factor 2 -0.052 0.037 0.163 0.292 0.116 -0.705 0.667 0.019 -0.662 0.086 0.057 -0.771 -0.026 -0.326 0.754 5.333 9.4078

Factor 3 -0.170 -0.139 -0.222 0.187 0.779 0.106 0.086 0.031 -0.122 0.810 0.674 0.074 -0.033 0.222 0.224 3.879 13.2868

Factor 4 -0.139 0.084 0.193 0.469 0.036 0.299 -0.101 -0.827 0.099 0.067 0.033 0.092 -0.864 0.340 -0.008 3.902 17.1888

Cumulative percentage of variance Source : Primary data

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It could be seen from the table 5.1 that the 15 variables are grouped into four sets of factors. They are outlines as. FACTOR 1 : Under utilization of capacity 1. 2. 3. 4. 5. Decrease in the level of stock Disturbed industrial relation Decline in operational ratios Under utilization of capacity Delay in implementation of project on amount

FACTOR 2 : Irregular bank accounts 1. 2. 3. 4 Default in payment of interest Frequent interruption in production Delay in sanction of loans Irregular bank account

FACTOR 3 : Problems of producing quality product 1. 2. 3. Deterioration in the quality of product or services Accumulation of outstanding salaries and P.F Unproductive Expenditure

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FACTOR 4 : Outdated technology 1. 2. 3. High turnover of personnel Decline in technical efficiency High inventory turnover

1. UNDER UTILIZATION OF CAPACITY The first factor was termed as Under utilization of capacity accounts for 4.0748 percent various in the total variable set. The first factor is dominated by a set of four variables namely decrease in the level of stock, disturbed industrial relations; declare in operational rations , under utilization of capacity and delay in implementation of project. All these variables are positively loaded. It means a positive correlation between four variables. Any increase in these four variables will lead to the failure of finance in small scale industries 2. IRREGULAR BANK ACCOUNTS The second factor which is denoted as Irregular Bank accounts, accounts for 9.4078 percent variation in the total variable set. The variable default in payment of interest and installment, frequent interruption in production and irregular Bank account has been loaded in this second factor. All these variables are negatively loaded incept

frequent interruption in production.

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3. PROBLEMS OF PRODUCING QUALITY PRODUCT The third factor which is denoted as problems of producing quality product accounts for 13.2868 percent are loaded and the factors deterioration in the quality of product and accumulation of act standing salaries and P.F and unproductive expenditure. All this three available one of proselyte correlated another one negatively correlated. 4. OUTDATED TECHNOLOGY The fourth factor showed 17.1888 percent variation in the total variable sets. Outdated Technology they are high turnover of personal and decline to technical efficiency. It meant that there variable and the financial problems in small scale industries in Thiruvananthapuram District. 5.4 RANKING OF FACTOR RESPONSIBLE FOR FINANCIAL PERFORMANCE The major problem areas responsible for poor financial performance of small - scale industries are listed as finance, Marketing, Technical Labor and infrastructure. The Management of small business is based on two disciplined namely financing and marketing. The finance is the major area of operation in the small-scale industrial sector. neglected area in small - scale industry of India. It is

The small - scale

industries are largely suffering on finance front because of inadequate financial management. The financial assistance could not provide much relief to small - scale industries in tacking the financial problems. The poor

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financial management is one of the major reasons for sickness in small scale industry. In order to identify the factors responsible for financial problems some reasons were identified and listed. They were grouped on allied factors. The Garretts Ranking principle has been applied to rank the factor which has more influence in financial problem. The factors responsible for financial problems in small-scale industries have been ranked in the order of merit and most influencing factor is being ranked 1. By means of percent position formula, 100 (R - 5) and it is possible to convert any set of rank into scores if we may assume a normal distribution in the trait for which ranking is made. The financial problems faced by the entrepreneurs of smallscale industries are identified and responses of the entrepreneurs were obtained for the statements. The statements with reference to factors

responsible for financial problems are listed. The scores are obtained for each statement. The total and average scores obtained for each statement is shown in table 5.2

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TABLE : 5.2 FACTORS RESPONSIBLE FOR FINANCIAL PROBLEMS

Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. Factors Location Problems Decrease in the level of stock Problem of licensing Raw material problems Problem of machinery shortage Problem of transportation High rate of interest Heavy taxation Indifference of government Labour problems Delay in loan Power problems Decrease in the level of stock Disturbed industrial relations Decline in operational ratios Under utilization of capacity Default in payment of interest and installment Frequent interruption in production Irregular bank accounts Deterioration in the quality of product or service Accumulation of outstanding salaries and P.F High turnover of personnel Decline in technical deficiency Unplanned payments to creditors Deliberate diversion of funds Poor collections Higher Inventory Unproductive expenditure Delay in implementation of project on amount Delay in sanction of working capital limits by banks Govt. Economic policy Lack of entrepreneur background Delay in getting assistance Acute competition Lack of training programme by government Impact of liberalization Problem of price variation Poor product planning Lack of financial resources Poor advertisement and sales promotion Total scores 450 356 485 366 338 452 498 497 406 442 298 326 491 407 366 465 423 346 494 474 493 326 279 495 492 455 445 416 268 362 292 486 368 448 492 289 297 313 476 332 No of Respondent 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 Mean Scores 1.80 1.42 1.94 1.46 1.34 1.81 1.99 1.99 1.62 1.7 1.19 1.30 1.96 1.63 1.46 1.86 1.69 1.38 1.98 1.90 1.97 1.30 1.12 1.98 1.97 1.82 1.78 1.66 1.07 1.45 1.18 1.94 1.47 1.79 1.97 1.16 1.19 1.25 1.90 1.33

Source : Primary data

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It is inferred from the table 5.2 that the average means score is very high for the statements namely, high rate of interest (1.99), heavy taxation (1.99), irregular bank accounts (1.98), accumulation of outstanding salaries and P.F. (1.97), deliberate diversion of funds (1.97), unplanned payment to creditors (1.98), lack of training programmed by government (1.97), lack of financial resources (1.90), deterioration in the quality of product of services (1.90), problem of licensing (1.94), Decrease in the level of stock (1.96), underutilization of capacity (1.86) and poor collections (1.82). The average score is very low for the statement delay in loan (1.19), problem of price variation (1.19), government economic policy (1.18), delay in

implementation of project on amount (1.07), decline in technical efficiency (1.12) and poor product planning (1.25). 5.4.1 GARRETTS RANKING The 12 factors are listed in the table 5.4 each for detailed discussion as to identity which factor has more influence on financial problems in small- scale industries. A detailed discussion on 12 specific problems analyzed with the help of Garretts Ranking Technique. The

order of merit thus given by the respondent for the 12 specific problems was converted into ranks by using the formula.

Percent position

100 (R - 0.50) N

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Where, R N : : Rank given by the factor by respondents Number of factors ranked by the respondents

The ranks thus obtained were converted in to scores by referring to the table given by Garrett. Then for each problem, the scores of individual respondents were added and divided by the total number of respondents whose scores were added. The mean scores for all the

problems were arranged in the ascending order and ranks were shown in the order of importance in table 5.3

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TABLE : 5.3 FACTORS RESPONSIBLE FOR FINANCIAL PROBLEMS GARRETTS RANKING

Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Factors Licensing Problems Raw material procurement problems Technological updatement problems Machinery shortage High rate of interest Transport problems Heavy taxation Indifference of the Government Labour problems Delay in sanctioning in the Loan Power problems Other miscellaneous problems

Mean Scores 9.98 8.84 7.59 7.58 7.30 6.77 6.33 6.03 5.79 4.84 4.64 3.18

Rank 1 2 3 4 5 6 7 8 9 10 11 12

Percentage Position 4.17 12.50 20.83 29.17 37.50 45.83 54.17 62.50 70.83 79.17 87.50 95.83

Score Scale (100) 85 73 66 61 56 52 48 44 39 34 28 17

PRS 95.83 87.50 79.17 70.83 62.50 54.17 45.83 37.50 29.17 20.83 12.50 4.17

Source : Primary data PRS = Percentage Ranking

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It is evident from the table 5.3 that the major problems are licensing, raw materials, technical, machinery shortage, and high rate of interest, transport and heavy taxation, indifference of government, labour problems, and delay in loan and power problems. The major problem of small scale industries is licensing problems (95.83) percentile rank). The other important factors responsible for financial problems are raw materials procurement problems (87.50

percentile rank), technological updatements problems (79.17 percentile rank), machinery shortage (70.83 percentile rank), high rate of interest (62.50 percentile rank), transport problems (54.17 percentile rank) heavy taxation (45.83 percentile ranks), indifference of the government towards SSI (37.50 percentile rank), labour problems (29.17 percentile rank), delay in sanctioning the loan (20.83 percentile rank) power problems (12.50 percentile rank) and other miscellaneous problems (4.17 percentile rank), are important problems perceived by the small scale industries towards poor financial performance. 5.5. SUMMARY In this chapter, a theoretical explanation of factors

responsible for financial performance and the problems faced by entrepreneurs are given. The factors influencing financial performance and the problems are identifies with the help of factor analysis. 15 variables are poor funds management, shortage of working capital, lack of good management, lack of support from the bank, underutilization of capacity,

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irregular bank accounts, and problems of producing quality product and out dated technology. The Garretts ranking principle has been applied to rank the factors which have more influence on financial problems. The problems of licensing (9.98) raw material (8.84), technical (7.59), machinery shortage (7.58), high rate of interest (7.30), transport (6.77), heavy taxation (6.33), indifference of government (6.03) and labour problems (5.79) are the factors which score high in ranking.

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