Financial Performance of Cooperatives in Enderta Woreda, Tigray Region, Ethiopia

Abstract

A cooperative society is an economic entity organized by people who having common interest, through pooling reasonable capital they have, so that they would be able to share the results with their fellow members and where members’ democratic participation is highly expressed. The development movement of cooperatives in Ethiopia shows different ups and downs. This was mainly due to different socio – economic policies followed by the Country under different Governments. Finance is the driving power that rotates the wheels of business. Financial management has a profound impact on business efficiency of an enterprise. In a cooperative enterprise a sound financial planning and proper management is the most vital requirement for success of a business enterprise. The general objective of this study is to measure the financial performance of cooperatives in the Enderta Woreda and to recommend appropriate and reliable monitoring in management practice. The numbers of cooperatives in the Enderta Woreda that obtain legal personality were totally 56 Primary Cooperatives and 1 Multipurpose Cooperative Union and their status had increased from time to time. In analyzing the financial performance of the cooperatives in the Woreda, ratio analysis and focus group discussion were used. On the basis of the results of the ratio analysis, the researcher has found that the financial performance of the cooperatives was not highly encouraging. The liquidity ratio in the three years period was fluctuating and most of the time was below the norm. The gross profit margin of the cooperatives showed positive amount at fluctuating rate. The focus group discussion showed that the perception of the cooperative members on their role was positive .From the discussion and analysis, the main reasons for the poor financial performance of the cooperatives in the Woreda were inefficient management skill, significant part of the total capital employed was in the form of borrowed capital, non-availability of adequate quantity and quality of raw materials at reasonable prices and at the right time, competition from outside the cooperative sector, lack of manpower with relevant expertise and professional qualification, lack of clear accounting system for all the cooperatives, and that financial statements of all the cooperatives were not prepared at the end of the fiscal year. Based on these findings the following recommendations are forwarded: • The cooperatives shall issue additional shares to increase self- financing. • The cooperatives shall launch market surveys and adjust production to correspond market needs by diversifying their products. • A new recruitment policy shall be formulated by the government. • The cooperatives shall develop a policy of profitability. Finally, since cooperatives play an important role in furthering the process of economic development in developing countries like Ethiopia, researchers shall make further research undertakings.