Application of Accounting Ratios in Measuring Solvency of Small Scale Industries in the Manufacturing Sector of Cross River State, Nigeria

This research study is aimed at determining the Accounting ratios applied in measuring solvency of Small Scale Industries in the Manufacturing Sector of Cross River State. This research purpose was motivated by the preponderance of Small Industries failure in Cross River State due to poor business financial conditions. The design adopted is descriptive survey. The study was guided by seven research questions and seven hypotheses. The instruments used were questionnaire and an interview schedule. Population for the study comprised 667 respondents made up of 345, 163 and 159 Accounting staff working in Palm Oil, Wood; and Bread Baking Factories, respectively. The entire population was studied. Data collected were analyzed using mean and standard deviation for research questions and ANOVA for hypotheses. The major findings are as follows: (1) Processes relating to accounting ratios applied by Small Scale Industries are: computing the value of total current assets and current liabilities, conducting analysis of debtors to ascertain doubtful balances, ascertaining equity capital from total capital, determining gross and net profits, computing cost of goods sold; and determining the value of average inventory for the year end. (2) Accounting ratios and processes not applied are: current ratio, quick ratio, interest coverage ratio, capital employed to net worth ratio, return on capital employed ratio, operating expenses ratio, net assets turnover ratio, current assets turnover ratio, comparing ratios of current year to previous year’s ratios obtained by the business organization, comparing ratios of current year to previous year’s ratios with that of similar business(es) in the same industry. These findings have far reaching implications even in education. Since accounting staff do not apply ratios, it implies that management should engage the staff on training and retraining to upgrade their capacity in handling accounting ratios. Based on the findings, the following recommendations were made: (a) only qualified and competent accounting staff should be employed in small scale industries, accounting ratios should be applied by management of Small Scale Industries to improve the financial situation and operational efficiency of Small Scale Industries; and Agencies and Ministries in-charge of small scale industries should be committed to the success of the system and at the same time be concerned on the mental development of staff through training and retraining programmes.

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