THE IMPACT OF FINANCIAL LITERACY ON THE PROFITABILITY OF SMALL SCALE ENTERPRISES IN CALABAR MUNICIPALITY, CROSS RIVER STATE
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THE IMPACT
OF FINANCIAL LITERACY ON THE PROFITABILITY OF SMALL SCALE ENTERPRISES IN
CALABAR MUNICIPALITY, CROSS RIVER STATE
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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