Global Journal of Management and Business Research, A: Administration and Management, Volume 22 Issue 8

stockholders' equity), profit after tax (PAT) to total assets (return on investment (ROI)) and gross profit margin ratio (gross profit to net sales). There is no recommendation that particular attention should be paid to these ratios, and the business did not use them for measuring its financial performance. As a tool, the RPT method was implemented daily with very good results, as demonstrated by the fact that it was used by the business that had been in existence for 55 years. One firm used a cash flow system for financial performance measurement. The cash flow was done over a year, but was updated weekly. When any change was made, the system showed whether there would be enough money to implement this change, for instance for the next two months. If the business ever received less than its monthly expenses budget and the system showed that there would not be enough money in the immediate future, management would have to act fast and look for other sources of income so as to maintain the financial performance. The cash flow system was monitored regularly and instant measures were taken whenever the system predicted possible money shortage; in this way, the business kept running. Table 3 shows the ratios that were found to be most useful by the participants. Table 3: Ratios found most useful by the participants Ratios Number of respondents that found them more useful Cash flow to total debt 3 Cash flow to total current liabilities 2 Current ratio 2 Net working capital to total assets 2 Net operating margin 1 Income before interest and taxes [EBIT] 1 Operating profit to operating assets 1 Inventory turnover 1 Debt ratio 1 Customer days ratio 1 Acid test ratio 1 Profit after tax (PAT) to total assets 1 c) Reflection of ratio analysis results in actual operations It is important to realise that the results from financial ratios reflect in the actual operations of SMEs. Otherwise, what would high cash flow ratios mean, for example, if the money were not reflected in the business’s account? The responses of the participant SMEs that used ratios were fairly similar. • One stated that they did reflect in the business; • Two stated that they were 100% and 80% reflective of the actual operations respectively; • One indicated that they were very accurate; and • Two others stated that they provided an accurate reflection of the actual operations and were very good for current business operations. The question of how helpful the results from the ratios were to the financial performance of participant SMEs is a relevant one, since it would be interesting to know the extent to which ratio analysis contributed to the financial performance of SMEs. The following responses were obtained: • One participant said that they were good measures for the business’s budget and prepared the business for any disruption that might have been signalled. • Another interviewee indicated that the results of ratio analysis helped to form strategy for the next period by making it possible to take proper measures to correct any trouble shown by significant variations in some ratios. • An interviewee at another SME acknowledged that the results of ratio analysis helped the business to perform better, not only financially but generally, since financial performance is the driver of the rest. • The other participants said simply that these results were very helpful. • The business that used PRO ACC 5 indicated that manufacturing is a long-term process (whether at start-up or after a recession), and it can take years of operations before any return can be seen as a reflection of what emanates from financial ratios. In other words, the business may be growing, but it cannot see the money; only with time will the money become evident. • Another participant said that many ratios were not often used and that management accounts and cash flow were much better accounting measures for the business’s requirements. • One participant said that ratios are helpful, but would have to be adapted to new business strategies. Financial Performance Measurement of Manufacturing Small and Medium Enterprises in Pretoria, South Africa: A Multiple Exploratory Case Study 39 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals