Liu, Hongxia and Ali Salman, Saleh (2009) The Development of a Financial Index to Examine the Financial Performance of SME in China. Asia Pacific Journal of Economics and Business, 13 (1). pp. 57-71. ISSN 1546-9239

Abstract

Earlier studies have ignored cash flow indicators in evaluating the financial performance of small and medium enterprises (SMEs) in China. This paper aims to fill this gap by developing a financial index that concentrates on cash flows, debt-servicing capacity, profitability and asset utilisation to evaluate the financial performance of SMEs in China. Principal components analysis and an efficiency coefficient method are used to develop the required index, using a sample of 860 Chinese firms. While shown to have a potential capacity to develop and have efficient assets management skills, the sample SMEs exhibit a relatively weak capability of generating an operating cash flow; weak capability of exploring distribution channels; limited innovation capacity; and weak profitability and capability of paying their short-term loans. The study concludes that strengthening the efficiency usage of capital is an important step towards enhancing profitability.

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