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THE IMPACT OF CREDIT ON THE PERFORMANCE OF AN ORGANIZATION

ACASE STUDY OF SSEBAGALA & SONS ELECTRO CENTRE LTD

CHAPTER ONE

1.0 INTRODUCTION

The study will provide the background information which will highlight the historical background of the problem. It will then explain the statement of the problem, objectives of the study, research questions, scope of the study, significance of the study

1.1 Background of the study

Credit is a risky enterprise because repayment of credit can seldom be fully guaranteed, it involves implicit contracts between lenders and borrowers, thus, a well managed credit can lead to better performance of small and medium, enterprise, (Falk et al, 2004), Credit management is a system which is very essential for lending institutions to stay in business and as such an institution with poor credit management ability is at risk of collapse, (Fehr et al, 2005).

The money given out by banks with a future date of repayment (credit) is crucial to the economy due to its multiplier effect. Nnanna, (2001) observes that the bank credit is important for the take-off and efficient performance of any enterprise.Firm’s assets are typically financed with a combination of debt and equity, referred to as firm’s capital structure. Capital structure decision is one of the most important financial decisions taken by a firm because it has an impact on the firm’s financial performance (Ahmad et al, 2012).

There has been an increase in the recognition of the role played by business organization both small and large because of the numerous benefits they play in the economy, including provision of jobs and taxes to the economy (Ebaid, 2009).

According to (Shubita & Alsawalhah, 2012), the determination of a firm’s optimal financial structure is a difficult one since it involves an analysis of several factors, key among them risk and profitability. The decision becomes even more difficult, in times when the economic, social, technological and political environments in which the firm operates exhibits high degree of instability (Shubita & Alsawalhah, 2012). According to  Chiang, Chan and Hui (2002) financial performance as measured by profitability and capital structure, a subset of financial structure, are interrelated hr further asserts that the choice among ideal proportion of debt and equity can affect the value of the company, as well as financial performance.

The inability to access long-term finance can force firms to use short-term debt to finance long-term projects. This will create mismatches of assets and liabilities and depletes working capital. Depletion of working capital will negatively affect firm operations. It is crucial that the primary source of loan repayments should be cash flows from the project ((Salazar, Soto & Mosqueda, 2012).

Maritala (2012) examined the optimal level of capital structure which enables a firm to increase its financial performance. The study found that there was a negative relationship between the firm’s debt ratio and financial performance measured by return on assets and return on equity. Fosu (2013) also conducted a similar study in South Africa to investigate the relationship between capital structure and corporate performance with focus on the degree of competition.

Root (2009) contends that, debt management is an act of trying to get one’s debt under control and become responsible for repaying associated obligations. It can therefore be inferred that debt management is a conscious measure taken by a debtor or agents hired on their behalf to reduce the debt burden or strategize to eliminate the debt through acceptable payment terms. Cecchetti et al. (2011) observe that a reasonable debt level improves welfare and enhances growth but high level debts can lead to a decline in growth of a firm.

1.2 Statement of the problem

There has been a considerable increase in the number and size of the small scale enterprises in Uganda, however most of the business face a challenge of debts from creditors who are mainly Banks and micro finance institutions (Kasekende, 2003), Most of the firms in Uganda donot have the necessary capital to acquire necessary equipments that are vital for growth and development , this has therefore prompted them to seek for an alternative financing options to increase capital and be in position to import new machinery and equipments necessary for expansion and start up (Mutebile, 2010) , this has however not yielded positive results as majority of the these firms have not presented positive growth patterns. It’s basing on this background that this study therefore intends to investigate into the impact of credit on the performance of an organization, with specific references to Sebbaggalla and sons electrical centre.

1.3 General objectives of the study

To investigate into the impact of credit on the performance of Ssebagala & Sons Electro Centre Ltd.

1.4 Research Objectives

1. To establish benefits of credit on the performance of ssebagala & Sons Electro Centre Ltd.
2. To establish the challenges of credit to the performance of ssebagala & Sons Electro Centre Ltd.

• To establish factors that affects the performance of Ssebagala & Sons Electro Centre Ltd.

1.5 Research Questions

1. What are the benefits of credit on the performance of Ssebagala & Sons Electro Centre Ltd?
2. What are the challenges of credit to the performance of ssebagala & Sons Electro Centre Ltd?

• What factors affect the performance of Ssebagala & Sons Electro Centre Ltd?

1.6 Scope of the study

This section includes the content scope, geographical scope and time scope of the study.

1.6.1 Content scope

The study will focus on benefits of credit, challenges of credit and factors that affects the performance of Ssebagala & Sons Electro Centre Ltd.

1.6.2 Geographical scope

The study will be carried out at Ssebagala & Sons Electro Centre Ltd located at Nakasero Plot 9, Market Street, Tourist Hotel Building. The reason for choosing the organization is because during the years of 2013 to 2016 , Ssebaggala and sons has been one of the best performing SMEs in Uganda.

1.6.3 Time scope

The period of reference will be from 2013 to 2018, this time period has been chosen because during this time period Ssebagala & Sons Electro Centre Ltd has been one of the top 100 SMEs in the country.

1.7 Significance of the study

The study will help financial institutions have information on the benefits of credit to an organization so as to enable the government develop plans regarding credit policies.

The study will provide literature to future researchers on the related field.

The study will enable the student get research skills which will be helpful in further studies.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter reviews the literature in the study in line with study objectives.

2.2 Benefits of credit on the performance of an organization.

The first advantage is maintenance of complete control over the business. The lender charges a company interest for the use of a loan, but the lender does not have the right to say how a company should manage its business. The ownership of the business stays completely in the hands of the corporate directors and shareholders. This also means that lenders will not be entitled to any of the profits that companies make from the business; the borrowing company is merely required to repay the loan within the fixed time period Root (2009).

Cecchetti et al. (2011) observe that a reasonable debt level improves welfare and enhances growth but high level debts can lead to a decline in growth of a firm. Reinhart et al. (2009) reinforces this assertion by arguing that debt impacts positively to the growth of a firm only when it is within certain levels. He opines that a firm becomes vulnerable to financial crisis when the ratio goes beyond certain levels. Stern Stewart and Company shares a similar view that high level of debt increases the probability of a firm facing financial distress. Therefore Cecchetti et al. (2011) contends that over borrowing by a firm can cause bankruptcy and financial ruin. Accumulating high levels of debt by a small scale enterprise will constrain its ability to undertake project that are likely to be profitable, however it also helps the business to retain its autonomy.

Credit is appropriate for companies which pursue an aggressive growth strategy, especially when they have access to low interest rates. Though a company may lose some of its assets if it is unable to repay its loans, the company won’t lose corporate control or ownership to outsiders. Companies wishing to make use of debt financing are recommended to seek appropriate legal advice from the company’s lawyers and accountants for better information on asset protection.

Boah, (2010) adds that a credit policy is the primary means by which management and the board of an institution guides the lending activities. It therefore, provides the scope for achieving the loan portfolio quality and returns, guides the risk tolerance levels in a manner commensurate with the institution’s strategic direction. The credit policy also addresses the procedures of recovering loan from customers which are due for payment but stuck in the portfolio (Zeller, 2010)

Companies can deduct their interest payments (but not the principal repayments) as a business expense. The interest rate which a company pays is usually based on the prime interest rate, and the interest that the company has to pay on a company loan is tax-deductible. This means that debt financing covers up part of a company’s business income from taxes and reduces the company’s tax liability Soumadi and Hayajneh (2012) . A study by Ahmad et al.(2012) in Malaysia which sought to investigate how capital structure impacts on a firm’s performance by analysing the relationship between return on assets (ROA), return on equity (ROE) and short-term debt and total debt established that short-term debt and long-term debt had significant relationship with ROA.

Credit helps the organization to be able to improve on its cash management policies which helps it to improve on its performance. cash management may be defined as an activity at serving the dual purpose of increasing sales revenue by extending credit to customers who are deemed a good credit risk and minimizing risk loss from bad debts by restricting or denying credit to customers who are not good credit risk. It is also directly related to operation, quality, sales and the effectiveness of credit control lies in procedures employed for judging a prospect’s creditworthiness, rather than in procedures used in extracting the owed money also called credit management (Keneth, 2004).

Credit enables the business organization to be able to build a good Character, which improves on managerial performance. This evaluates the applicants’ traits to analyze the willingness to meet the credit obligations. (Kakuru, 2000) highlighted the following variables to consider when analyzing applicant’s character. This is done considering the applicant’s banking behavior from the bank records, the level of education, mental status, operation stability, contact, attachment to government agencies and the previous dealing with bank. This is done to ascertain the applicant’s honesty.

Maintenance of ownership, a primary advantage of issuing bonds and borrowing money from lenders is that a company maintains complete ownership. This is not the case with equity financing because stockholders have ownership rights in a company. The benefit of maintaining ownership is that management has complete control over the decisions made on behalf of the company. Management also has the ability to choose its own board members. The only obligation a debtor has to a lender is to pay back the principal and interest. When the business pays back its loan in full it maintains ownership of its business Maritala (2012).

Tax benefits are received by the organization, another advantage of Credit is that companies receive tax deductions for the interest paid on debt. In most cases, the Internal Revenue Service considers the interest paid a business expense and allows businesses to deduct the payments from their corporate income taxes. This is beneficial for businesses because it allows them to use the money saved to grow the business Fosu (2013).

Achievement of greater financial freedom, Businesses using Credit to raise capital have more flexibility than those using equity financing because they are only obligated to the investor or lender for the repayment period. After all money is paid back, the business is completely free from its obligation. Companies also have greater flexibility because the paperwork to obtain debt financing is less complicated and less expensive than equity financing of Thevaruban (2009).

Credit rating, another disadvantage is that Credit affects the credit rating of a business. A company that has a significantly greater amount of debt than equity financing is considered risky. A company with a lower credit rating that issues bonds typically will have to pay a higher interest rate to attract investors. Companies who have to pay more in interest may experience a cash flow problem in the future Suwastika and Anand (2012).

Cash qualifications, Companies seeking debt financing must meet the lender’s cash requirement, which means companies must have sufficient cash on hand. This is difficult for businesses depending on debt financing for a cash infusion. Some companies may have to put up collateral to qualify for financing, which puts assets at risk if they fail to repay the debt (Datta, 2010).

It improves on the capacity of the organization; This evaluates the applicants’ ability to pay the debt when advanced in the required period. This is ascertained by evaluating the value of customer’s capital and asset offered as collateral against the loan. This may be judged by assessing the customers’ capital and assets which may act as security (Erik, 2005). According to research (Ralston& Wright, 2003) showed that, total commitment as a percentage of net income was accorded first priority in assessing credit worthiness 56% of respondents, followed by income requirement, credit checks and credit history of the applicants. This implies that credit unions consider capacity to reply the most critical lending principle in determining whether or not a borrower belongs to high-risk segment.

2.3 Challenges of credit to performance of an organization.

Fadzil et al (2005) said that an effective cash planning system unequivocally correlates with organizational success in meeting its revenue target level. Effective internal control for revenue generation involves; regular a review of the reliability and integrity of financial and operating information, a review of the controls employed to safeguard assets, an assessment of employees’ compliance with management policies, procedures and applicable laws and regulations, an evaluation of the efficiency and effectiveness with which management achieves its organizational objectives (Ittner, 2003).

Most organizations no longer set up internal control system as a regulatory requirement but also because it helps in ensuring that all management activities are appropriately carried out (Kenyon and Tilton, 2006). Further, organizations are making it a point of duty to train, educate, and sensitize their employees on how to use these internal control systems since its effectiveness depends on the competency and dependability of the people using it. All these control actions ensure that any risks that may affect the company’s ability to achieve its goals are appropriately avoided and should occur at all levels and in all functions of the organization ((Doyle et al, 2005).

Kotey, Reid and Ashelby (2002) contends that performance is measured by either subjective or objective criteria, arguments for subjective measures include difficulties with collecting qualitative performance data from small firms and with reliability of such data arising from differences in accounting methods used by firms.

Whittington and Kurt (2001) found out that objective performance measures include indicators such as profit growth, revenue growth, return on capital employed. Financial consultants Stern Stewart and Co. created Market Value Added (MVA), a measure of the excess value a company has provided to its shareholders over the total amount of their investments (John and Morris, 2011). This ranking is based on some traditional aspects of financial performance including: total returns, sales growth, profit growth, net margin, and return on equity.

Case studies on cash planning in Belgium illustrate the importance of the control environment when studying internal auditing practices. Sarens and De Beelde (2006) found that certain control environment characteristics like tone-at-the-top, level of risk and control awareness, extent to which responsibilities related to risk management and internal controls are clearly defined and communicated are significantly related to the role of the internal audit function and fraud detection within an organization.

Kakucha (2009) evaluated the level of effectiveness of cash planning of enterprises operating in Nairobi. The study was quantitative and was conducted between September 2007 and June 2009 using a sample of 30 small businesses as listed in the National Social Security Fund (NSSF) Register of Kenya. Primary data was collected from the managers of the small business using interviews and examination of documents pertaining to internal controls. The study established that there are deficiencies in the systems of internal controls, with the degree of deficiencies varying from one enterprise to another. The components of internal control that were missing in most businesses surveyed were: firstly, risk analysis, and secondly lack of proper flow of information.

In addition, the study established that the sample population had limited awareness of what constituted an effective system of internal control. The study also found that there is a negative relationship between the age of an enterprise and the effectiveness of its system of internal control while a negative correlation between the resources held by an enterprise and its internal control system weaknesses exists. The recommended that these was need to enlighten the operators of small business of what constitutes an efficient and effective system of internal control through forums and seminars.

Amudo and Inanga (2009) also carried out a study in Uganda to evaluate the cash planning that the regional member countries of the African Development Bank Group institute for the management of the Public Sector Projects that the Bank finances. There are 14 projects of the bank‟s public sector portfolio in Uganda. The data received and analyzed is for eleven projects. Three projects were omitted because they were not fully operational to install effective internal control systems. The study identified the following six essential components of an effective internal control system: control environment, risk assessment, control activities, information and communications, monitoring and information technology. The outcome of the evaluation process was that some control components of effective internal control systems were lacking in those projects. These rendered the control structures ineffective.

Wee Goh (2009) studied 208 firms on audit committees, boards of directors, and remediation of material weaknesses in internal control. He measured the effectiveness of the audit committee by its independence, financial expertise, size, and meeting frequency, and the effectiveness of the board by its independence, size, and meeting frequency, and by the duality of the chief executive officer (CEO) and chair positions (CEO duality). He also examined other factors that can affect firms’ timeliness in the remediation of material weaknesses, such as the severity of material weaknesses, firms’ profitability, the complexity of firms’ operations, and so on. He found out that the proportion of audit committee members with financial expertise is positively associated with firms’ timeliness in the remediation of material weaknesses. Second, firms with larger audit committees are more likely to remediate material weaknesses in a timely manner.

Financial performance describes a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. It is also a general measure of a firms overall financial health over a given period of time and thus can be used to compare firms across the same industries or sectors in aggregation. The importance of financial stability according to Anderson (2011) ranges from enabling an organization to have sufficient resource for quality service delivery, maximizing the potential of service delivery , enhancing the ability to pay staff, vendors and creditors on time and maintenance of good credit risk . This makes financial performance an important area of concern that has attracted the attention of researchers, organizational managers, government and the public at large.

In an attempt to address the critical issues affecting financial performance, various authors have had documentation on factors affecting financial performance. A study carried out by Skandalis (2008) examined the effect of export activity, location, size and index for management competence on firms financial performance. Another study by Skandalis, ( 2010) examined the effects of foreign direct investment and openness in developing countries on firms financial performance. The study focused on the extent to which firms in developing countries engage or merge foreign investors in their company operations and how this affected organizations financial performance. Ashok (2009) examined the effects of farm’s operator and household characteristics along with farm type and regional location of the farm and their effect on financial performance of new and beginning farmer and ranchers. Studies related to factors affecting financial performance by public organizations were undertaken by (Aiken, 2008). Aiken looked at the performance factors motivation, privatization of public organizations, in which he established that public organizations lacked efficiency in development of management systems that could facilitate effective service delivery.

2.4 Other factors affecting performance of an organization.

Level of Capacity Building, The growing competition, poaching of staff and lack of training and increasing demand for higher pay levels make human resources one of the most intractable problems in the sector. Capacity building in the form of a skilled and professional human capital base and adequate access to funding is essential for the building of a sustainable and efficient microfinance sector  Vento (2004).

Level of infrastructural development, Inadequate and expensive Infrastructure base, Inadequate and expensive infrastructure such as communication, information technology, roads and electricity results in high operational cost within the microfinance sector. The current limited supply of these resources limits operations and drives up cost. In respect of infrastructure development, there is the need to establish a solid base and provide adequate logistics such as telecommunications and information technology to support the operations of microfinance institutions to make them more efficient Murray and Boros (2002).

The level of funding, The key challenges confronting the microfinance institutions in developing countries such as Ghana include Inadequate funding for capacity building, inadequate and expensive infrastructure base, Inadequate credit delivery and management, the inability to target the vulnerable and the marginalized, information gathering and dissemination, regulation and supervision, consumer protection and research, monitoring and evaluation. Norell, (2001).

Ways of gathering information, Armendariz et al, (2010) stated that the information asymmetry problems could potentially be eliminated if lenders had cheap ways to gather and evaluate information on their clients and to enforce contracts. However, lenders typically face relatively high transactions costs when working in poor communities since handling many small transactions is far more expensive than servicing one large transaction for a richer borrower. Another potential solution would be available if borrowers had marketable assets to offer as collateral. In this sense, any problem on the loan was covered by the borrower’s asset. Thus, the lender could lend without risk. But the starting point for microfinance is that new ways of delivering loans are needed precisely because borrowers are too poor to have much in the way of marketable assets. However, Behrman and Srinivasan (1995) stated that one way for the government to improve enforcement conditions for credit markets is to improve the possibilities for usable sources of collateral like implementation of land registration.

Credit management systems, Inadequate Credit delivery and management,the mechanism for credit delivery within the microfinance sector is inadequate and the microfinance institutions do not have the expertise to categorize their client into the various poverty categories so as to meet their specific needs. (NBE, 2010).

Regulation and Supervision Microfinance institutions in the formal sector operates within a rigid regulatory and supervisory environment which presents some challenges for innovation, outreach and overall performance of the institutions. There is also an absence of specific BoG regulatory guidelines for the apex bodies in the semi-formal and informal sectors for the supervision of their members, (Najoragan, 2000).

Level of information gathering and Dissemination, Lack of adequate and reliable information remains a challenge to the microfinance industry. These problems adversely affect the ability to properly target the right clients in order to meet the specific needs of such clients. There is also a paucity of information on microfinance institutions and their operations. (MFRC, 2002)

The different ways of generation of information from lenders, Karlan and Zinman (2006) stated that better understandings of information asymmetries are critical for both lenders and policymakers. For instance, adverse selection problems should motivate policymakers and lenders to consider subsidies, loan guarantees, information coordination, and enhanced screening strategies. On the other hand, moral hazard problems should also motivate policymakers and lenders to consider legal reforms in the areas of liability and enhanced dynamic contracting schemes.

Inventory management and control, Kincaid (2008) emphasised that proper inventory control procedures could enhance a bigger profit in the business. In the slower moving economy, streaming business operations and focusing on what the majority of the business cash is tied up in could mean the difference between much needed profits or unwanted losses.  Barrera (2013) stated that it’s easy to turn cash into inventory but it’s not easy to turn inventory into cash. Barrera found that when inventory is sold and floor space is freed up, the business profitability really changes. The slow moving inventory should not increase to more than 5% of all inventory stocked in the business, Cohen (2003) concurred with Kincaid (2008) by emphasising the importance of applying inventory control systems in business. Cohen (2003:1) indicated that it is vitally important to keep track of that one has in the business and also be aware of what the customers want. There is no point stocking the shelves with what the owner feels is right. Instead, the owner should determine what the market wants and what will sell. Having a stock take in the business will indicate who the fast sellers are and which items lay on the shelf for lengthy periods of time.

Budgeting , A budget that forecasts the cash receipts and cash payments of the business and determines the closing balance of cash and cash equivalents held by the business at the end of each period (Bartlett, Beech, Hart, Jager, Lange, Erasmus, Hefer, Madiba, Middelberg, Plant, Streng, Thayser, Rooyen 2014:850), According to Pandey (2004), as cited by Akinyomi (2014:32), cash management is defined as a practice of the ability of controlling the cash inflows and outflows in a business. It also entails the ability to establish the cash balances that are held in a business at all times. Uwuigbe, Uwalomwa and Egbide (2011:49) indicated that cash management entails taking the needed precautionary measures to ensure that adequate cash levels are maintained in the business so that the operational requirements could be met. According to Aliet (2012),cash management is the management of cash to maximise the cash held in the business that is not invested in buying inventory or fixed assets. It essentially is the management of cash to avoid the risk of the business becoming insolvent.

A large number of businesses fail due to the absence of cash rather than the absence of profits (Patel 2010).Patel (2010) also indicated that cash management practices are vitally important for the business because it would assist in profitability, future planning and sustainability.  Foster (2012) indicated that, since the year 2008, business failures have risen by 30% in the past three years. Businesses with less than five employees were hit the hardest. 57% of those small businesses failed in a year. Businesses that had employed six to nineteen employees faced a 40% increase in bankruptcy.

Accounting practices, Accounting is a fundamental aspect of successfully running a business (Daily News, 2009:2). A great misconception is that small businesses do not need to have knowledge of accounting. However, if a business wants to reach its full potential, the basic accounting principles need to be practised. Accounting assists businesses with a tool to use to access the business performance and have financial control over the business. Basic accounting practices will enable the business to accurately reflect the businesses incomes and expenses and identify where the money is at all times(Daily News 2009:2).

High level of risk in lending, Dejene (2003) argues in his study on the economic importance of the informal institutions in Ethiopia that the poor are often marginalized in the formal credit markets. This can be explained partly in terms of: 1) a lack of collateral, which makes lending to the poor a risky venture; 2) transaction cost of lending to and borrowing by the poor is often high; and 3) utility loss from repayment is higher for the poor as compared to the rich. So the poor don’t have access to the formal financial sources. Lack of access to institutional credit is one of the crucial factors impeding the poor from involving in operating small business and in particular and economic development in general.

Speculation in the financial market is one of the principle challenges of loan, management as , another publication (kalyan-city.blogspot.com) identifies speculation: i.e. investing in high risk assets to earn high income and also fraudulent practices such advancing loans to ineligible persons or advances without security or reference as some of the causes of failures in loan management. It also cites internal reasons such as labor agitation/shortage and market failure as some of the causes of the incidence of NPLs. External factors such as recession in the economy and natural calamities/disasters were also cited by the same publication as some of the factors accounting for loan default. (Barth et al., 2004).

Budgets are financial blue print that qualifies a firms plan for the future. It’s a detailed plan that outlines the acquisition and use of financial and other resources over a given period of time.

According to Flamholtz (2013) a budget in an organization acts as a mechanism for effective planning and controlling. Schick (2009) concurs by stating that the main purpose of a budget in any organization is for planning and controlling in order to achieve organizational goals and objectives. A budget is a standard against which the actual performance of an organization can be compared and measured. A budget stipulates which programmes and activities should be pursued.

Lucey, (2012) defines a budget as a quantitative statement, for a period of time which may include planned revenues, assets, liabilities and cash flows, Budgeting in non-governmental organizations is used as a planning tool. Organizations use a budget as a guiding tool of its activities.

According to Goldstein (2005), a budget is used by institutions in setting priorities by allocating scarce resources to those activities that are most important to the organization. The annual budget is commonly referred to as the master budget and has three principle parts namely the operating budget, cash budget and the capital budget.

Premchand (2012), states that a budget is a company policy and determine the manner in which resources are managed. The financial task in budget implementation includes spending the specified money, maximizing savings and avoiding over expenditures at the end of the financial year. Frucot and Shearon (2012) argues that implementation of the budget require an advance program of action evolved within the parameters of the end of the budget and means available. According to Horngren (2013), effective budget implementation is usually assessed by addressing various variances between the actual performance and budgeted performance.

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the methodology which consists of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.1 Research design

The study will use a case study design; using this technique both Qualitative and quantitative techniques will be used. the researcher will use the above methods because many aspects will be covered in the study concerning the impact of debt financing on the performance of an organization at Sebbaggala and sons electrical center given the complex nature of the Sebbaggala business, qualitative research method will be used because it collects information within a short time while quantitative will be through interview to cross check what has been given.

3.2 Study population

The study will target Administrators, finance officers and procurement officers of Ssebagala & Sons Electro Centre Ltd.

This will involve a total of 35 employees in Ssebagala & Sons Electro Centre Ltd.

3.3 Sampling size

Mugenda and Mugenda (2003), argue that it is impossible to study the whole targeted population and therefore the researcher shall take a sample of the population. A sample is a subset of the population that comprises members selected from the population.

The study will use solvin’s formula

It is computed as n = N / (1+Ne2).

Whereas:

n = no. of samples

N = total population

e = error margin / margin of error, e=0.05

Sebbaggalla & sons electro centre has got about 35 employees using solvin’s formula,

n=       35/(1+35(0.05)²

n =      35/1.0875

n  = 32

The sample will target 32 respondents that will be selected in a way that 17 respondents’ will be from finance department, 5 will be key administrators and 10 respondents who are from procurement department. While carrying out research, purposive sampling will be applied to the above different categories of respondents.

Table: Sample size of the respondents

3.4 Sampling Technique

The study will use purposive sampling, according to Barbie, (2001) Purposive sampling is one that is selected based on the knowledge of a population and a purpose of the study.

The study will use purposive sampling on all the respondents this is because purposive sampling helps the researcher to get specific information on the impact of debt financing on the performance of an organization also because it will help the researcher get people who are well experienced and have enough knowledge about the problem under the study.

3.5 Sources of data collection

Source of data will be from both primary and secondary sources.

• Primary data

Primary data will be obtained from the questionnaires administered on the target respondents who will include administrators, procurement staff and finance officers, to gain opinions and practices on the impact of credit on the performance of an organization.

• Secondary sources

Secondary data is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This will comprise of literature related the impact of credit on the performance of an organization.

Secondary data shall be obtained from, published articles, journals, News Papers, Text Books, publications relating to the impact of debt financing on the performance of an organization. Secondary data will be sourced because it yields more accurate information than obtained through primary data, and it is also cheaper.

3.6 Data Collection Instruments

The major instruments for data collection will be questionnaires and interview guide. Surveys will be just one part of a complete data collection and evaluation strategy. The major method of data collection for the study will be the survey, which will be done using selected instruments like questionnaires. The questionnaire will provide respondents with ample time to comprehend the questions raised and hence, they will be able to answer factually.

3.6.1 Questionnaires

The researcher will use self administered questionnaires to collect data. The researcher will administer the questionnaires to respondents in different respondents including, fiancé officers, and procurement staff, which will be designed basing on study objectives and questions. Respondents will read and write the questionnaires themselves. The questionnaires will be close ended and will be considered convenient because they will be administered to the literate and its anonymous nature will fetch unhindered responses.

3.6.2 Interviews

Qualitative data will be collected from the informants using interviews. The interview guide will be structured.

The researcher will hold interviews with administrators to help in getting information that may otherwise be difficult in getting using interviews. The interviews will take approximately 30 minutes.

3.7Data collection procedures

Upon receiving a letter of introduction from the departments of economics and statistics of Kyambogo University the area of study will be visited for the purpose of familiarization.

The researcher will seek permission from administrators and once allowed to proceed with research, questionnaires will be issued and interviews will be carried out with the selected respondents.

3.8 Quality control of data instruments

The instrument will be taken to the supervisor to check its correctness there after pilot study will be carried out to find out if it measures what it is meant to for.

3.8.1 Validity and Reliability

The data a collection tools shall be pre-tested on a smaller number of respondents from each category of the population to ensure that the questions are accurate clear and in line with each objective of the study.

3.8.1 Validity

It is the degree to which results obtained from the analysis of the data actually represents the phenomenon understudy, (Mugenda & Mugenda, 2003).  To ensure validity of instrument close guidance of the supervisor will be adopted. This will help to identify ambiguous questions in the interval and be able to re-align them to the objectives.

3.8.2 Reliability

Reliability tests and analysis shall be carried out.

3.9Data processing and analysis

The raw data will be coded, edited, and arranged ready for analyzing only completed raw data will be analyzed using statistical package for social scientists and the findings will be presented using Graphs, tables and pie-charts.

3.10 Limitations of the study

The researcher may face the following challenges in the course of the study;

The researcher may not get enough time to interview all the respondents, but this will be solved by budgeting for the time appropriately.

The researcher may also face challenges in language as other respondents may feel comfortable expressing themselves in local languages.

Other researchers may ask for money from the researcher, this will not affect the study as the respondents will be persuaded that the research is meant for academic purpose

APPENDIX I: QUESTIONNAIRE

TOPIC: THE IMPACT OF CREDIT ON THE PERFORMANCE OF AN ORGANIZATION

ACASE STUDY OF SSEBAGALA & SONS ELECTRO CENTRE LTD

Dear respondent

I am ATIMANGO BRENDA a student of Kyambogo University, am carrying out a study on the above stated topic. You are one of the respondents randomly selected to participate in the study. The information given shall be treated with utmost confidentiality and shall only be used strictly for academic purpose.

GENERAL DATA

SECTION A:            

• Gender: Male              female

• Age a) 18 -29 b) 30 – 39 c)  40 and above

3. Educational level

Master’s degree           Bachelor’s degree                   diploma                       others

4. For how long have you been working with ssebbaggalla & sons electro centre?

1. a) 2 years and below c) 6-10 years

1. b) 3-5 years d) 10 years and above

SECTION B: Benefits of credit to the performance of ssebagala & sons electro centre ltd

Key: SA=strongly agree, A=agree, N=neutral, D=disagree, SD=strongly disagree

Tick in the box where appropriate.

Please mention other benefits of credit to the performance of Ssebagala & sons electro centre ltd.

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

SECTION C: Challenges of credit to the performance of ssebagala & sons electro centre ltd

Key: SA=strongly agree, A=agree, N=neutral, D=disagree, SD=strongly disagree

Please mention other challenges of credit to ssebagala & sons electro centre ltd.

.…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

SECTION D: Other factors affecting the performance of ssebagala & sons electro centre ltd’s

Key: SA= strongly agree, A=agree, N=neutral, D=disagree, SD=strongly disagree

Please mention other factors affecting Ssebagala & sons electro centre’s performance.

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

INTERVIEW GUIDE

I am ATIMANGO BRENDA a student of Kyambogo University, am carrying out a study on the above stated topic. You are one of the respondents randomly selected to participate in the study. The information given shall be treated with utmost confidentiality and shall only be used strictly for academic purpose.

How often does ssebaggalla & sons get credit?

What are some of the benefits of credit to the performance of ssebbaggalla & sons?

In what ways does credit affect the performance of ssebbaggalla & sons?

What are the challenges of credit to the performance of ssebbaggalla & sons electro centre?