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Procedia Engineering 178 (2017) 182 – 191

16thConference on Reliability and Statistics in Transportation and Communication,

RelStat’2016, 19-22 October, 2016, Riga, Latvia

Analysis of Small and Medium Sized Enterprises’ Business

Performance Evaluation Practice at Transportation and Storage
Services Sector in Latvia
Inta Kotanea, Irina Kuzmina-Merlinob*
a
Rezekne Academy of Technologies, Atbrivosanas aleja 115, Rezekne, LV-4601, Latvia
“RISEBA” University of Business, Arts and Technology, 3Meža Street, Riga, LV-1048, Latvia
b
Transport and Telecommunication Institute, 1 Lomonosova str., Riga, LV-1019, Latvia

Abstract

In the circumstances of globalisation, the assessment of the companies’ business performance becomes crucially important for
small and medium-sized enterprises (SMEs). Despite a wide variety of the methods for evaluation of the companies’ financial
performance offered by the theory of economics, the issue on what is the optimal method to be chosen and to be applied by the
company to manage efficiently the enterprise is still up-to-date. During the research performed by the authors, it was established
that the SMEs business performance assessment in Latvia can be carried out mainly using just financial indicators. The research
reveals inadequacy of traditional performance measurement approach based on the analysis of just financial indicators of the
economic activities and explains its insolvency by using as an example the analysis of financial conditions of some bancrupted
companies during the recent years of their existance. The current research is based on the analysis of scientific publications,
results of the authors’ previous studies, and the results of the expert survey.
© 2017
© 2017TheTheAuthors.
Authors. Published
Published by Elsevier
by Elsevier Ltd. Ltd.
This is an open access article under the CC BY-NC-ND license
Peer-review under responsibility of the scientific committee of the 16th International Conference on Reliability and Statistics in
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review
Transportationunder responsibility
and of the scientific committee of the International Conference on Reliability and Statistics in
Communication.
Transportation and Communication
Keywords: performance, measurement, SME, transportation company

* Corresponding author.
E-mail address: Kuzmina.I@tsi.lv

1877-7058 © 2017 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the International Conference on Reliability and Statistics in Transportation and Communication
doi:10.1016/j.proeng.2017.01.093
 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191 183

1. Introduction

The term “performance” is used in the foreign scientific and academic literature to describe results of companies’
business activities. By the opinion of Kotane (2015) business performance dimensions include indicators
characterising both the companies’ financial and non-financial performance. Evaluation of the SMEs business
performance measurement practices (Jamil and Mohamed, 2011; Phihlela and Odunaike, 2012; Bianchi et al., 2015)
leads to the conclusion that an evolution towards a merger of financial and non-financial performance perspectives
can be observed. However, despite the foreign practice, the evaluation of SMEs’ business performance in Latvia can
be conducted using only financial indicators. The financial indicators used for business performance evaluation in
studies of the researchers (Carpinetti et al., 2008; Shi and Yu, 2013) point towards their diversity.
The research results on the SMEs performance (Sousa et al., 2006; Alver and Branten, 2011; Saunila and Ukko,
2011) confirm that there are problems in practical application of the indicators, since there is no a consistent
approach to identification, measurement, and assessment of financial and non-financial performance indicators.
Despite the fact that the number of publications on the given topic in the scientific literature increase, there is no
united opinion among the researchers on the business performance measurement and assessment methods.
The authors of the paper believe that, aimed at recognition and assessment of the significance and role of the
financial indicators and intended for successful solution of the companies’ financial management problems, the
issue of development of a single financial indicators’ system in the context of business performance evaluation
arises. The research is based on the analysis of the academic literature and scientific publications, study of the
financial indicators used in the Latvia’s institutions for evaluation of financial analysis of the enterprises, and the
results of the experts’ survey. The following general study methods are used in the research: analysis and synthesis
of information, logical construction, monographic, expert survey method, data grouping, and graphical presentation
methods.
The aim of the research is to examine the current practice of SMEs business performance evaluation in
transportation and storage services sector in Latvia. The following tasks are defined to achieve the aim of the
research:
1. To review theoretical aspects of the performance measurement and management in the SMEs;
2. To explore the current framework and practical tools that are used in Latvia in respect of evaluation of
financial position of SMEs;
3. To identify most important financial indicators that could be used to measure the SMEs’ business performance
in transportation and storage sector.
In the result, the study of business performance measurement and management of the SMEs of transportation and
storage services sector is carried out, and a set of financial indicators used to assess business performance of the
transportation and storage services sector’s SMEs is identified.

2. SMEs business performance: literature review

2.1. Performance measurement

The term “performance” is used in the foreign research and academic literature to describe results of companies’
business activities. The concept of performance has several meanings and all-encompassing nature and its extreme
popularity as an expression in regular speech. Performance is a fact of life. In work or in play, indeed in any activity
where we input even momentary attention, performance can be felt or, at least, deduced if necessary (Folanet
al.,2007). Lebas (1995) considers that the performance is never objective it is only a way of defining where one
wants to go. “Performance” is not an objective reality out there somewhere waiting to be measured and evaluated.
“Performance” is socially constructed reality. In accordance with Hudson (2001), presented sets of guidelines
detailing the characteristics of performance measures, which have often been reiterated, developed and added to in
more recent studies (e.g. Lynch and Cross, 1991; Neely et al., 1997; etc.).
One of the company’s priorities is the achievement of the specific aim (Folanet al., 2007), furthermore, the
company is assessed according to its future goals, referring to the targets the company intends to achieve. He defines
184 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191

the performance as an ability of an object to produce results in a dimension determined a priori, in relation to a
target. Thus it is necessary to have, first, an object whose performance is to be considered; second, a dimension in
which one is interested; and, third, and a set target for the result.
To describe the concept of performance, the related words are used, linking them with the noun “performance”:
performance management, performance measurement and performance assessment. Performance management is the
management of the system put in place by an entity (with a pre-determined socially constructed reality) that has
chosen a relevant viewpoint of itself (its objective) towards which it means to progress, using a set of recognisable
characteristics as its measurement apparatus (performance measurement) to monitor this progress (Folan et al.,
2006). This definition makes the requisite distinction between performance management and performance
measurement. The performance management process is the process by which the company manages its performance
in line with its corporate and functional strategies and objectives (Bititci et al., 1997) and performance measurement
and performance management follow one another in an iterative process; management both precedes and follows
measurement, and in doing so creates the context for its existence (Lebas, 1995).
Analysis of the literature conducted by the authors has revealed the main trends in development of the academic
thought on nature and significance of performance measurement:

• Aims of the performance measurement change – from the ones focused on the inside of the company towards the
necessity to achieve communication of strategic direction;
• Measurement methods change – from financial indicators to balanced performance measurement, including both
financial and non-financial indicators;
• Understanding of role of performance measurement changes – from traditional approaches to sustainable
improvement of the performance through focused business process improvement.

Despite different views of the researchers on the nature of performance measurement, it can be stated that the
foreign academic thought has gradually moved away from the traditional understanding of the performance
measurement using only financial performance indicators of the enterprise. Time, Cost, Quality, Flexibility have
become main dimensions of the performance; Customer Satisfaction, Stakeholders, including Employees, Investors,
and Suppliers are also considered to be critical measurement areas (Kaplan, 1983; Meyer, 1994; Neely et al., 1995).

2.2. Small and medium sized enterprisesof transport and storage sector

In the research literature, the SMEs can be described as catalysts of the future economy; hence, it is necessary to
accelerate the growth of the SMEs and to improve their competitiveness (Forsman, 2008). In accordance with the
size and possibilities, the SMEs have some specific features. The lack of resources can be emphasised as one of the
main problems and a typical characteristic of the SMEs’, taking into account that the concept “resources” is
reviewed not only from the point of view of the staff, including management, but also from the perspective of
financial stability and security.
In Latvia, the definition of SME, or business category, is determined by the Regulations of the Cabinet of
Ministers in accordance with of the EU Regulation No.651/2014 of June 17 (EU Commission Regulation, 2014).In
Latvia, the SMEs form a significant share of a total number of enterprises, playing a significant role in creating
gross domestic product and providing employment. In the European Union, the SMEs in transportation and storage
services sector comprised 5.09% (the EU average) of the total number of enterprises in 2014, respectively – 6.84%
in Latvia; employed in average 6.17%, in Latvia – 9.44% of all private sector employees; produced an average of
6.22%, in Latvia – 11.47% of added value (SBA Fact Sheet: Latvia,2015). In Latvia, the SMEs in transportation and
storage services sector comprised the biggest share of all SMEs, employed more staff, and generated higher added
value in comparison with the EU average in 2014.
The data by the Central Statistical Bureau (CSB) indicate that, in 2015, compared with 2014, the total volume of
the freight traffic in the most important transport sectors has decreased by 2%. The most significant drop is observed
in the domestic road freight traffic – it has decreased by about 2.4 million tons, or 4.7%, compared to 2014 (CSB,
2016). Evaluation of the SMEs of the transport and storage sector in Latvia leads to the conclusion that the micro
enterprises comprise the largest share in the sector with an increasing tendency in 2013 - 2014 (Table 1).
 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191 185

Table 1. Transport and storage sector companies in Latvia by size in 2011–2014 (Compiled by the authors, based CSB, 2016).

2011 2012 2013 2014

Categories by size of
enterprise Number % Number % Number % Number %

Micro enterprises 4 920 82.58 5 197 82.06 5 448 83.47 5 880 84.59

Small enterprises 849 14.25 923 14.57 896 13.73 886 12.75

Medium enterprises 147 2.47 169 2.67 150 2.30 154 2.22

Large enterprises 42 0.70 44 0.69 33 0.51 31 0.45

Total: 5 958 100.00 6 333 100.00 6527 100.00 6951 100.00

The statistical data indicate the importance of the SMEs in the transport economy of Latvia and accentuate the
significance of correct business performance measurement both for the companies and the industry in general.

2.3. Small and medium sized enterprises and framework for performance measurement

The first performance measurement model for large companies was developed in 1980 (Economic Added Value
model), though, the first researches on the performance measurement in SMEs emerged only in the second half of
the 1990s. At the beginning of the 2000s, there are 2 directions in the researches on the SME’s performance
measurement: (1) adaptation of the performance measurement models originally developed for the large companies
and (2) development of the specific models designed for SMEs (Taticchi et al., 2008).
The performance measurement issues in the SMEs are explored by the researchers of Portugal (Barreiros, 2013),
Malaisia (Jamil and Mohamed, 2011), South Africa (Phihlela and Odunaike, 2012), Italy (Taticchi et al., 2008; Bianchi
et al., 2015) and others. The Australian researchers (Watts and McNair-Connolly, 2012) offer to include three
dimensions in the performance pyramid of a small business: sustainability, productivity/flexibility, and
liquidity.SME performance measures should include financial and non-financial measures (Bianchi et al., 2015),
comprising three dimensions: competitiveness, financial, and social.
The researchers’ opinions on the SME performance measurement differ. There is a view that the majority of
SMEs poorly apply performance measurement systems due to the lack of capital and labour resources, stiff
competition, and the lack of awareness about the advantages of performance measurement (Garengo et al., 2005).
SMEs pay more attention particularly to the financial indicators (Massalla, 1994; Monkhouse, 1995) relying mainly
on the accounting information and financial measurements (Carpinetti et al., 2008).
In the studies by Wang (2008, 2009, 2014), enterprises in transport sector use financial structure ratios to
evaluate company’s business performance, emphasising the role of long-term assets, liquidity ratios, turnover, and
profitability indicators.
In the result of evaluation of the framework and practical approaches to the SMEs’ performance measurement
and management as presented by the foreign researchers (Garengo et al., 2005; Jamil and Mohamed, 2011; Phihlela
and Odunaike, 2012; Taticchi et al., 2008; Bianchi et al., 2015), the authors have concluded that an evolution
towards merger of financial and non-financial perspectives can be observed. However, despite the foreign practice,
only financial indicators mainly can be used assessing the SMEs’ business performance in Latvia.
The analysis of the scientific and academic literature, as well as of the statistical data has allowed the authors to
formulate the following research questions:
RQ 1: What are approaches and tools for evaluating the financial conditions and results of operations of the small
and medium-sized enterprises in Latvia?
RQ 2: To what extent the assessment results of the SMEs performance management using the existing
approaches and tools are objective and useful for the users?
RQ 3: What should be done to improve the process of measuring and evaluating the SMEs’ performance in
Latvia?
186 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191

3. Research Methodology

The research methodology was developed in accordance with the research questions. The research was based on
the analysis of scientific and academic publications; the results of the authors’ previous researches; in the article, the
information from the following sources – Central Statistical Bureau of the Republic of Latvia (LR CSB), ‘Lursoft’
Ltdand CrediWeb – was used,as well as the results of the experts’ survey.
In Latvia, the information about companies’ finances can be found in the databases and portals of three
institutions: the LR Central Statistical Bureau, CSB, the ‘Lursoft’ Ltd database, and the CrediWeb portal. The
databases are diverse: the LR CSB provides summarised information about companies in general and by the type of
activity (Statistics Database, 2016); ‘Lursoft’ Ltd provides an opportunity to evaluate the efficiency of potential
cooperation partners, competitors, as well as of the own company (Analytical services, 2016); The CrediWeb portal
offers online access to the company database in Latvia, providing its clients with the latest information and changes
that are being updated at the moment of their registration (CrediWeb, 2016).The analysis of the information has
revealed the basic approaches and methods for the measurement and evaluation of the performance indicators,
which are used in the practice by the companies in Latvia.
The current research continues and complements the previous studies. To answer the research question about the
objectivity of the methods applied for measurement of the SMEs’ performance, the financial statements (2005-2011)
of seven SMEs that had been liquidated by 2012 were used, as well as the solvency assessment of these companies
was carried out using five solvency assessment methods (Kotane, 2013).
The answer to the third research question is provided by the authors and is based on the results of theoretical
research described in this article, and the opinion survey of the entrepreneurs and experts – professionals working in
the field. Based on the theoretical investigation of the use of financial and non-financial indicators in the business
performance evaluation carried out by the authors, the survey of 208 Latvian entrepreneurs was conducted in 2012
to investigate practically the role of financial and non-financial indicators and their assessment in the business
performance evaluation.
In February 2016, the expert survey without focus on a particular economic sector was conducted; in July 2016, the
expert survey of transport and storage industry sector was carried out. Selection of the experts was determined by their
level of education and academic and/or professional experience in companies.

4. Research results

4.1. Latvian performance measurement practice: institutional approaches

Financial performance measurement is a commonly recognized process in the company’s management, because
the financial measurements provide important information for investors, financial analysts, auditors, and
management and they are easier to understand. Latvian companies in transport sector usually use financial structure
ratios to evaluate company’s business performance, emphasising the role of long-term assets, liquidity ratios,
turnover, and profitability indicators. The financial indicators used by the LR Central Statistical Bureau (Statistics
Database, 2016), Commercial Register Database (Lursoft, 2016), and CreditWEB products and services portal
(CrediWeb, 2016) for the company’s financial analysis.
The authors have highlighted the financial ratios that are jointly used for companies’ financial analysis: liquidity
ratios (current ratio, quick ratio, cash ratio); capital structure ratios (debt ratio, debt-to-equity ratio, equity ratio);
activity ratios (accounts receivable turnover, payables turnover; inventory turnover); and most important
profitability ratios (ROA, ROE, return on sales, gross profitability).
Summarizing the results of analysis, it can be concluded that the same three financial ratios for the company’s
financial analysis are used by all the three above mentioned institutions: current ratio, total debt/ equity ratio, and
ROA.Other financial ratios, except for the total assets turnover ratio, the cash ratio, and short-term debt in the
balance ratio, are used by at least two of the aforementioned institutions.
Answering the first research question, the authors have come to the conclusion that all the above-mentioned
indicators are calculated on the basis of financial reporting data. Thus, it can be stated that the Central Statistical
 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191 187

Bureau and two well-known Latvian companies engaged in credit management of indebted companies, draw their
conclusions about the financial state of the entities controlled on the basis of a specific set of financial ratios.

4.2. Latvian performance measurement practice: business reality

To what extent objective and useful the results of SMEs performance evaluation carried out using the existing
approaches and methods are for the users of financial information? Can the results of the analysis of the financial
position of the company be trusted, relying only on the analysis of financial ratios?
To answer the second research question, the authors have examined the financial statements of three Latvian
transport companies for “the last three years of their life” before their liquidation. The main selection criteria of
liquidated enterprises were: size, type of activity, liquidation year 2015.
The main object of the study – detection of bankruptcy probability carried out on the base of widely applied
models for evaluation of solvency and estimate of bankruptcy probability using financial ratios. Solvency
assessment of the transport and storage companies was carried out using three solvency assessment methods (See:
Table 2), and the estimates were made on the basis of data by ‘Lursoft’ Ltd (2016).

Table 2. Solvency assessment methods.

Method/
The author(s) The name of the method/model
model

Method 1 Abrjutina, 2000 Complex assessment of company’s financial and economic position
Method 2 Mackevichius, 2010 Assessment of the company’s financial indicators in relevance the bankruptcy
Method 3 (1) Altman (Šneidere, 2009) indications

Method 3 (2) Shorin, Voronova (Šneidere, 2009) Company’s bankruptcy prediction

Bankruptcy prediction model adapted for conditions of Latvia

The authors have introduced additional evaluation criteria for the Method 2, where 5 financial indicators are
used: the greater relevance of indicators – more likely the company corresponds with the bankruptcy signs. The
number of corresponding financial indicators and their assessment: ≤ 2 financial indicators – no threat of
bankruptcy/ small probability of bankruptcy; 3-4 financial indicators –probability of bankruptcy exists, and 5
financial indicators – high probability of bankruptcy. Application of Abrjutina’s method has indicated that
Company 1 and Company 2have insufficient equity to finance the company’s assets (Table 3).

Table 3. Method 1: Complex assessment of the companies’ financial and economic position in 2012–2014.

2012 2013 2014

R, R”= - 113569 < 0 R, R”= - 73965< R, R”= - 3411< 0

Company 1
Area of instability, risk zone

R= -21918< 0 R= -10313< 0 R = -3428< 0

Company 2 R”= -17950< 0 R”= -10067< 0 R”= - 3182< 0

Area of instability, risk zone

R, R’= 23847>0 R, R’= 16849>0 R, R’= 4859>0

Company 3
Area of stability, absolute stability zone

The companies, according to the analysis carried out applying the methodology, fall into the area of instability, in
addition, an insufficient equity to cover the company’s fixed assets and intangible assets have to be considered as a
risk zone. Evaluation of the companies’ financial indicators in 2012–2014 and their assessment using Method 2
(See: Table 4) lead to the conclusion that, among 5 indicators predicting possibility of the company’s bankruptcy,
188 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191

the number of indicators ranges from 1 to 4 (marked in table “+”). The Company 1 (C1) had the highest probability
of bankruptcy at the end of 2014.

Table 4. Method 2: Assessment of the companies’ financial indicators in relevance with the bankruptcy indications in 2012–2014.

2012 2013 2014

Financial indicator and its range
C1 C2 C3 C1 C2 C3 C1 C2 C3

Current ratio< 1,0 + + +

Quick ratio<0,5 +

Debt ratio>1 + + + +

Return on sales (ROS) < 0 + + + + +

Return on equity (ROE) < 0 +* + +* + +* +* +

Designations: * Negative equity

The companies’ solvency was evaluated applying two models of company’s insolvency and the Method 3 (See:
Table 5). The results after applying the models, despite the fact that in the case of the

Table 5. Method 3: Bankruptcy probability of the companies in 2012–014.

E.Altman’s bankruptcy prediction model (1) V.Shorin’s, I.Voronova’s model (2)

2012 2013 2014 2012 2013 2014

Company 1 Probability of Low probability

Low probability of bankruptcy High probability of bankruptcy
bankruptcy of bankruptcy

Company 2 High probability High probability

Low probability of bankruptcy Low probability of bankruptcy
of bankruptcy of bankruptcy

Company 3 Low probability of bankruptcy High probability of bankruptcy

The obtained results can be evaluated in two aspects: (1) Equal/ similar/ different companies’ solvency
assessment in 2012 - 2014 applying Methods 1 - 3; and (2) The companies’ solvency assessment in 2012 - 2014
applying Methods 1-3 and actual position in 2015 – liquidation. Analysis of the companies’ solvency assessments in
2012 - 2014 resulting from the application of Methods 1 - 3 leads to the conclusion that the company’s assessments, in
some cases, were different, even contradictory, moreover, according to these estimates, the companies did not have to
be liquidated by 2015.
Compilation of different methods for solvency assessment and their comparative analysis reveals ambiguity of
the obtained results. Summarizing the results of the research, we can see that different solvency assessment methods
used for period 2012 - 2014, in some cases, show different solvency conditions of the companies and partially
inaccurately describe the actual position in 2015 – liquidation. It can be concluded that it is impossible to accurately
predict the financial stability of the companies based solely on the companies’ financial indicators. Supplementing
the financial indicators with non-financial indicators would increase objectivity of assessment.

4.3. Latvian performance measurement practice: experts' opinion

In July 2016, the transport and storage industry expert survey was carried out, studying opinions of 5 experts
working in the transport and storage sector, in order to assess importance of the financial indicators used in financial
analysis of the transport and storage sector’s SMEs to assess business performance and to rank them according the
scale from 1 (the most important indicator, or priority No.1, in the SMEs’ performance evaluation) up to 14 (the least
important indicator, or priority No.14). The choice of the transport and storage industry experts was determined by
their professional work experience in the companies, which exceeds 10 years for all the experts, and education in the
 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191 189

field of transport. The expert opinions were measured by the degree of consensus of the views. In case of the direct
parameter evaluation, the degree of consensus of the experts is assessed applying the coefficient of concordance –
Kendall’s W (Kendall, 1955) using Formula 1:

n ⎧ m 2
⎪ 1 ⎫
12∑ ⎨ ∑ rij − m( n + 1 )⎬
i =1 ⎪
⎩ j =1 2 ⎭
W = , (1)
m (n −n)
2 3

where W–coefficient of concordance; n –number of objects to be ranked; m–number of experts; rij–rank given to
object i by expert number j.
The value of the coefficient of concordance can vary in the range 0 ≤ W ≤ 1; additionally, W = 0 if there is no
correlation between the ranks, and W = 1 if all the experts have ranked objects equally. It is regarded that an
adequate value of the coefficient of concordance is W ≥ 0.50 when it is considered that the expert consensus is
adequately high (Kendall, 1955).
The estimated coefficient of concordance W = 0.60, indicating that the experts have been generally uniform in their
opinions and unanimously have approved that the following financial indicators are the most significant for the
assessment of the SMEs’ business performance in the transport and storage sector (Table 6).
Table 6. Results of experts’ evaluation (estimates by the authors, based on data obtained in July, 2016).
Sum of evaluation Li
Experts

February, 2016
Financial ratios A B C D E di=Li –Lvid di2

Rangs R,
Rank R
Evaluation

Current ratio 6 9 8 7 8 38 0,5 0,25 8 12

Cash ratio 3 12 3 10 11 39 1,5 0,25 8 12
Quick ratio 14 11 14 14 12 65 27,5 756,25 14 10,5
Assets turnover, times 11 10 9 13 9 52 14,4 210,25 11,5 10,5
Accounts receivable turnover 2 2 5 2 6 17 -20,5 420,25 2 4
Accounts payable turnover, days 8 5 7 5 7 32 -5,5 39,25 5 6
Inventory turnover, days 4 13 2 9 5 33 -4,5 20,25 6 7
Debt-to-equity ratio 12 14 13 8 14 61 23,5 552,25 13 14
Debt ratio/ Equity ratio 10 6 12 12 10 52 14,5 210,25 11,5 9
Short-term debt ratio in balance 13 7 4 4 13 41 3,5 12,25 10 8
Gross profitability 1 3 1 3 1 9 -28,5 812,25 1 3
Return on assets (ROA) 7 4 10 11 4 36 -1,5 2,25 7 5
Return on equity (ROE) 5 6 11 6 3 31 -6,5 42,25 4 2
Return on sales (ROS) 9 1 6 1 2 19 -18,5 342,25 3 1

n = 14 m=5 ∑Li= 0 S = 3413,5 - -

The authors have compared the results of the transport and storage industry experts’ survey conducted in July
2016 and the results of the expert survey conducted in February 2016 (Kotane, 2016). (See: the last column in
Table 8 – Rank R, February 2016). The analysis indicates that the experts both in February and in July 2016 have
190 Inta Kotane and Irina Kuzmina-Merlino / Procedia Engineering 178 (2017) 182 – 191

recognized the same indicators as the most important in the assessment of the SMEs’ business performance (the first
7 ranks), the difference is only in the extent of significance of the financial indicators. Comparison of the financial
indicators used for the financial analysis of the companies that have been described in the part 4.1, and the financial
indicators ranked by the experts (Table 6) leads to the conclusion that two institutions in Latvia use the financial
indicators that are considered as the most important by the experts.

5. Conclusions

The following conclusions could be drawn based on the research results.

1. To assess the financial position and performance of the SMEs, most often, the valuation approaches and
methods based on the application of financial reporting data are used in Latvia. The LR CSB, and two well-
known Latvian companies operating in credit management of the indebted companies, draws conclusions
about the financial position of the controlled entities on the basis of a specific set of financial ratios. For
example, The LRCSB, „Lursoft” Ltd and CrediWeb portal use the same financial indicators for the company’s
financial analyses: total liquidity, financial dependence/independence ratio, and return on assets.
2. The examples analysed in the paper indicate that an assessment of the SMEs’ business performance cannot
rely only on data of the financial statements, since the information contained in the financial statements has a
historical character. It can be concluded that it is not possible to accurately predict the financial stability of the
companies if it estimated solely on the company’s financial indicators.
3. To improve the process of measuring and evaluating the SMEs’ performance it is necessary to develop a
single system of financial indicators to be used for performance measurement in the transport and storage
sector. The following indicators are most significant for managing SME: gross profitability; accounts
receivable turnover, in days; return on sales (ROS); return on equity (ROE); payables turnover, in days;
inventory turnover, in days, and return on assets. The evolution towards merger of financial and non-financial
performance perspectives can be observed also.
4. The further study has to be related with research of significance of the financial indicators used for the
companies’ financial analysis, based on the aim of the SMEs’ performance evaluation (financial analysis to
attract funding, interests of the company’s owners, etc.).

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