CAPITAL ADEQUACY AND PERFORMANCE OF SMALL SCALE ENTERPRISES (A CASE STUDY OF SAMCOM DATA TRADE & CO)

ABSTRACT
          The
research work was carried out to know about capital adequacy and performance of
small – scale enterprises by chosen Samcon Data Trade & Co as the case
study.
          In
carrying out the research, data were mainly gathered from primary source and
supplement with secondary data collection. Data gathered through primary source
were analysed through chi – square statistics.
          The
research reveals that there is inadequate capital affecting the firm’s business
operations and that the  source of
capital for this type of business is considered limited.
          The
research recommends that government should extend more subventions to support
the small firms and the same government should monitor disbursement of fund to
the firm and equally monitor the effectiveness of fund.



TABLE OF CONTENTS
Title Page                                                                                
Certification                                                                                      
Dedication                                                                                  
Acknowledgments                                                                            
Abstract                                                                                  
Table of contents                                                                   
CHAPTER ONE
1.0     Introduction
                                                                  
1.1     Background
of the Study                                                       
1.2     statement
of the problem                                                         

1.3     Objective
of the Study                                                  
1.4     Significance
of the Study                                                        
1.5     Scope
of the study                                                                
1.6     Research
Questions                                                       
1.7     Research
Methodology                                                 

1.8     Operational
Definition of Terms                                    
End Notes:                                                                     



CHAPTER TWO
2.0     Literature
Review                                                         
2.1     Definition
of Small Business Enterprises                      
2.2.1  Effective
Small Business Management                          
2.2.2  The Role of Small Enterprises in the Economy             
2.2.3  Finance
                                                                         
2.2.4  Sources
of Finance.                                                        
2.2.5  Function of Finance in Small Scale Enterprises
            
2.2.6  Capital
Adequacy                                                                    
2.2.7    Problems of Financing Small Scale
Enterprises.            
2.2.8  The
Role of Good Financial Programmes                      
Management in Development of Small
Scale Enterprises
2.2.9  Financial
Forecasting and Planning                               
          End note                                                                        
          CHAPTER THREE
3.0     Methodology
                                                                
3.1     Study
Design                                                                 
3.2           
Instrumentation                                                             
3.3           
Representatives
Of Sample                                            
3.4           
Sources,
Instruments And Method Of Data Collection  
End Note                                                                       
CHAPTER FOUR
4.0     Data Analysis and
Presentation                                              
4.1     Introduction                                                                            
CHAPTER FIVE
5.0     Summary
Recommendation and Conclusion                           
5.1     Summary of
Findings                                                    
5.2     Conclusion                                                                     
5.3     Recommendation.                                                          
Bibliography                                                                  

CHAPTER ONE
1.0     INTRODUCTION
          Every
step in the organisation and development of an enterprise, every manufacturing
operation, every marketing activity, requires the expenditure of capital in one
form or the other. The cost of land, buildings, tools equipment, materials,
supplies, salaries, wages, fringe benefits, taxes, electrical power must be
paid. Having observed that many persons underestimate the importance of the
adequacy of capital in running a concern on a profitable basis, this study is
being conducted to inculcate an effective understanding of the trends which the
adequacy of capital may take on the profitability of going concerns, most
especially small- scale enterprises.
          When
business commences, it requires finance or start –up capital. Usually a
significant proportion of this finance will be provided by the owners of
business in the form of equity shares. People intending to start their aim
business will use their life savings or re-mortgage their house they may use redundancy
payment from a previous job or a legacy from a relative. Whatever the source,
in addition to finance sought in form of loans from banks or finance houses
form the basis of the finance of the business.
          Some
small scale enterprises concern that do not realize the need for a prudent initiation
and management of their capital structure as fundamental to the survival and
success of the business sometimes fail, not because of power shortage or bad
business ideas, but because the capital 
framework required to sustain them was not in place. Therefore the
paramount importance to study the capital structure of a small- scale
enterprise and it’s adequacy in their performance.
1.1     BACKGROUND OF THE STUDY
          The
question of capital is an issue of great interest as it is observed as a very
important parameter used as a hedge against collapse of firms. As a business
grows, so will its need for cash. Its owners wish to expand it. The capital is
the “tap root” of a business and can only come from the original owners
available finds, perhaps with the help of his family and friends and often with
recourse to bank overdraft. Basically sources of business financing can be
classified into three they are:
1.       Short
term financing (up to 3 years0
2.       Medium
term financing (3 to 10 years)
3.       Longman
financing (10 and above)
          It
is however of great importance to know that each source bring its respective
costs and risks. Balancing this can result in a very skillful and tricky
management decisions. This forms the basis of the leveraging or gearing status
of the business which determines how well the business will perform and how
long it will pass the test of time. It is important that an optional
combination be made of both the borrowed and owned capital.
          The
role of an adequate capital in an optimal structure to the performance of small
scale enterprises cannot be overemphasized. It stands tall and top on the list
of major pre- requisites for a successful financial business.
          The
failure to appreciate the financial requirements of running a business has been
one of the chief causes of business failures. Some small scale enterprises make
enough money to be self supporting from the very start. Others, however, may
need several months or even years before they generate sufficient revenue to
catch up with the outlays required. These contingencies should be anticipated
when the financing of the business is initially undertaken. Otherwise, a
business that might be or has been highly successful may fail without such
precautions.
1.2     STATEMENT OF THE PROBLEM
          There
is growing recognition of the important role small scale enterprises play in
economic development. They are often described as efficient and prolific job create,
the seeds of businesses and the fuel of national economic engines (Udechukwu,
2003, Olorunshola; 2003).
          Despite
the potential role of small scale and medium scale enterprise SMEs to
accelerated growth and job creation in developing countries, their development
is hampered by a number of factors. A director at the national Directorate
of  Employment, Allaji Ismaila Umaru, has
identified the lack of capital and skills as the major problem retarding the
growth of small scale businesses in the country.
          Umaru,
who is the director of small scale enterprises, made the observation in
Ado-Ekiti in an interview with the news Agency of Nigeria. He stressed the need for
training of people in vocational skills and adequate financial assistance from
government at all levels. SMEs often have difficulties in obtaining capital.
Despite the numerous institutions providing training of and advisory services, there
is still problems of inadequate capital in the small scale business sector as a
whole. In adequate capital and skills places significant constraints on SME
development. Even though SMEs tend to attract motivated managers, they can
hardly compete with larger firms. In most cases, SMEs utilize foreign
technology with a scare technical support. The lack of capital or high interest
rate on loan borrowed can hamper small scale efforts to improve their
management.
1.3     OBJECTIVE OF THE STUDY
          The
broad objective of this study is to examine the relevance of capital adequacy
to the management and performance of small scale enterprise in Nigeria.
The specific objectives of the study are as follows:
1.       To
evaluate the role of capital in the activities and operations of small- scale
enterprises.         
2.       Identify
the small – scale, its development effect and role in the society.
3.       Highlight
the problems faced by the small –scale operations in obtaining credit
facilities.
1.4     SIGNIFICANCE OF THE STUDY
          There
are other critical elements that are germane to the survival and
competitiveness of small scale enterprises one of such factor is capital. This
study is significant because it would help to evaluate the role of capital in
the activities and operations of a vital segment of the real sector – small – scale
enterprises which have been identified as having very high potential in
promoting economic growth and development.
1.5     SCOPE OF THE STUDY
          This
study shall focus on the extent to which capital adequacy is relevant to the
management of Small Scale Enterprise in Nigeria. Most of the information
and data needed for the study would be gathered from existing literature and
from a survey that would be conducted among selected staff of Samcom Data Trade
& Co .
          The
study is strictly limited to carefully select small scale businesses across the
length and breadth of the country. They include motor mechanic, printing, photography,
electronic repairs, Farming, restaurant, retail distribution etc. All data
collected are effective and these things are done in order to ensure a random
data for an accurate decision, thus all reference from this work are of high
objectively and dependability.
1.6     RESEARCH QUESTIONS
          According
to the objectives stated above all research questions that will be examined in
the course of the study are as follows:
1.       What
role does capital plays in the activities and operations of Small Scale
Enterprises?
2.       What are the various sources of funds
that investor use in enhance/improve their economy?
3.       How has capital affected the performance
of small scale enterprise?
4.       What are likely consequences that may
arise in mis- management of fund on small scale enterprises?
5.       What are the benefits your organisation
derive from government financial programme.
RESEARCH HYPOTHESIS
          Based
on the research questions stated above the hypothesis to be tested in the cause
of this research are stated below:
HYPOTHESIS 1:
Ho:     That capital adequacy does not play significant
role in the
activities and operations of Small
Scale Enterprises.
Hi:     That capital adequacy plays significant role
in the activities and
operations of small scale enterprise.
HYPOTHESIS 2:
Ho:     That type and source of fund has no effect
on Small Scale
Enterprises.
Hi:
    That type and source of fund has
effect on small scale enterprises.
HYPOTHESIS 3:
Ho:
    That capital adequacy has not improved
the performance of small scale enterprises.
Hi:     That capital adequacy has improved the performance of small
scale enterprises.
HYPOTHESIS 4:
Ho:
    There is no significant relationship
between Mismanagement of funds and business growth.
Hi:     There is significant relationship between
Mismanagement of funds and business growth.
1.7     RESEARCH METHODOLOGY
          Explanatory
research methodology shall be adopted in this project. This is because a study
of this nature requires a wide collective of opinions on the subject matter and
one of the ways of achieving this is through administration of questionnaires.
As such self administered questionnaires shall be used to gather all relevant
information on the subject matter.
          The
respondents shall cut across different department of Samcom Data Trade &
Co. It also cuts across all the levels of organisational hierarchy to include
senior and junior staffs. All these people shall be included in order to have a
representation of all shades of opinions.
          The
data were gathered through the questionnaires were analysed using tables,
charts and simple percentage while the hypotheses were tested using Chi- square
statistical method.
1.8     OPERATIONAL DEFINITION OF
TERMS
1.       CAPITAL
ADEQUACY: Capital adequacy can be defined as the amount of capital relative to
a finance institution’s loan and other assets. Almost all banking regulators
require that banks hold a certain minimum of equity capital against their risk
weighted assets.
2.       SMALL-SCALE:-
The word small- scale can be operationally defined as something limited in
scope or extent.
3.       FINANCE:
Finance can be regarded as the science of the management of money and other
asset. It can also be regarded as the act of providing or obtaining funds or
capital.
4.       CAPITAL
MARKETS: This can be referred to as a financial market where long-term
securities are traded (i.e bought and sold)
5.       MORTALITY:
Mortality as related to small scale business means death or collapse of a small
scale business.



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