Micro, Small and Medium Enterprises: A Key Driver in Economic Development

Abstract

Micro, Small and Medium Enterprises (MSME) plays an important role in development of country. It
contributes high share of GDP. It not only contributes to GDP but also provides employment in rural
area, by which, standard of living of people will increase and unemployment rate will be low. They
are source of growth in developing and transitioning economies. It contributes 90% of the total
enterprises in developed countries and it helps to strengthen the economy, creates employment
opportunities for skilled, semi-skilled and unskilled, and increases the standard of living; as a result,
there will be an increase in GDP rate. Both the Central and State Governments should give priority
for the development of this sector by making them more competitive. This study makes an attempt to
focus on the operational efficiency and understand the ethical aspects. The study evaluates the
financial aspects of the company through making use of ratio analysis and provides recommendations
to the organization. This research has been done to find out main areas of risk and what measure
entrepreneurs are taking to be away from going on crises. The study is descriptive in nature. It is
purely based on secondary data sources, which comprises of Balance sheet, Profit and Loss
Account and Tax Returns. The business was established in 2010. As it is unable to penetrate the
market properly in the initial years the capacity utilization is poor. As a result, it was declared as
NPA in 2013. The promoters and the management are keen in reviving the unit. As a part of
resolution, they started improving the capacity utilization, trying to reduce the debt and improving the
working capital etc. It is appearing that the restructuring process is going on well. The company's
liabilities are more and we can see that the Net Profit for the past three years is negative which shows
that the company is not able to perform well. In the year 2012 and 2013, the company raised loan
from Vijaya Bank and it had an overdraft balance from the same bank; and in 2015, the company
again raised a loan from three more parities; they are Bajaj Finance, Fullerton India and Religare.
The interest coverage ratio is declining, indicating that the company is unable to pay interest on
outstanding debts. Finally, it is concluded that the company's overall performance is not good. But, if
it takes, appropriate measures, the firm will be at least able to meet its short term needs (working
capital).