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Characterising the financial situation of Canadian manufacturing SMEs: a confirmatory approach

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  • Louis Raymond
  • Josee St-Pierre

Abstract

The objective of the present empirical study is to show, through a confirmatory factor analytic approach, that it is possible to obtain a complete, yet parsimonious, financial characterisation of a manufacturing SME through a limited number of essential indicators. An a priori classification scheme composed of 19 financial ratios and five perceptual indicators, regrouped under five dimensions (growth, profitability, liquidity, gearing, efficiency), was tested and validated with data obtained from 209 Canadian firms. The validity of this classification was confirmed, as well as its capacity to diagnose the financial situation of SMEs. On this basis, three groups of firms emerged, namely competitive SMEs, turnaround SMEs, and vulnerable SMEs, whose financial situations differ markedly.

Suggested Citation

  • Louis Raymond & Josee St-Pierre, 2007. "Characterising the financial situation of Canadian manufacturing SMEs: a confirmatory approach," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 4(1), pages 31-56.
    • Handle: RePEc:ids:ijaape:v:4:y:2007:i:1:p:31-56
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