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

• Seven of the participant businesses indicated that they knew nothing about bankruptcy prediction models. One interviewee said that she knew very little about them. Another said she had some knowledge, but never used them. Yet another said she had never heard of them. Consequently, all the questions about bankruptcy prediction models were not applicable to the participant SMEs, since they could not use what they did not know. V. C onclusion and R ecommendations The researchers endeavoured to explore and describe the financial performance measures used by manufacturing SMEs in Pretoria. The study was undertaken because so many studies are conducted focusing on obstacles faced by SMEs in obtaining finance, and not enough focus is placed on how these SMEs in fact manage their finances. Studies have revealed that many SMEs find themselves in financial difficulties because their cash flow is not properly managed (Kim & Sohn, 2010). The objective of identifying financial tools used by manufacturing SMEs in measuring their financial performance was achieved during the field study. The findings revealed the following ratios to be the most widely used by participants: • Cash flow to total debt (used by six participants); • Current ratio (used by six participants); • Working capital to total assets (used by five participants); • Cash flow to average total current liabilities (used by five participants); • Gross profit margin ratio (used by four participants); and • Inventory turnover (used by four participants). Compared with the ratios identified by various authors in the literature as the best financial measures (Edmister, 1970 and Vallely, 2008), current ratio, networking capital to total assets, and cash flow to total debt are the ratios that appeared to be most widely used by the participants. Compared with the ratios used in the bankruptcy prediction models presented, of the five ratios in the Altman Z-score, only working capital to total assets, and sales to total assets were used by participants. As for the five ratios used to measure predictive accuracy in Daya’s second test, only cash flow to average total current liabilities and net income to total assets were used by the participant SMEs. Some ratios were not emphasised by the above authors as being among the best financial measures, but were found to be used by many of the participants. These were: • Gross profit margin ratio (used by four participants); and • Inventory turnover (used by four participants). None of the participants used bankruptcy prediction models. In fact, almost all the participant SMEs knew either nothing or very little about bankruptcy prediction models. The limited use of ratios and non use of bankruptcy prediction models raises the issue of the second objective of the study, which was to recommend necessary improvements on financial performance measurement of SMEs. This will be discussed under recommendations. Interviewees’ lack of knowledge of bankruptcy prediction models may necessitate relevant training for the financial officers of SMEs. This touches on the third objective, which will also be discussed under recommendations. The researchers found that most of the participants used financial ratios to measure their financial performance, but to a very limited extent. Very few ratios were used by individual SMEs, and most of the ratios used were not the best indicators identified in the literature. However, some of the interviewees acknowledged the need to use more ratios. It is recommended that SMEs use the bankruptcy prediction models not necessarily for predicting failure, but as a tool to constantly assess how they are doing financially so as to take appropriate measures should a threat be perceived. It was found that most of the participants knew nothing or very little about the models, which is indicative of a need for relevant training. SMEs would benefit by using more ratios, especially those referred to in the literature section, to improve their financial performance measures. SMEs should probably consider using the six ratios mentioned above as the ratios most widely used by participants, since these seem to be working well not only for the majority of participants, but for businesses in general. The owners and/or managers of SMEs should enrol their financial staff at relevant institutions such as universities for training in bankruptcy prediction models. The models presented in this article may be used by SMEs as well, since they are simple and inexpensive, and should not pose problems to trained financial staff. Those SMEs that can afford it should try to use specialised software (e.g. PASTEL or PRO ACC5), which was found to be effective by the small number of participants who used such packages. The SMEs would then be able to use ratios that are computed from the software. This article will contribute to filling the gap in the literature on SME financial performance measurement. If taken seriously by SMEs, the information presented will help them in effective financial performance measurement by drawing attention to the various tools that are available to them as well as the necessity of training financial staff in various measures. Financial Performance Measurement of Manufacturing Small and Medium Enterprises in Pretoria, South Africa: A Multiple Exploratory Case Study 40 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals