Figure 1. The Relationship of Financial Indicators as Observed Among Cooperatives (A: Total receivables and gross income; B: total asset and net surplus; C: Total asset and Total equity/capital; D: Paid up shares from members and number of members; and E: paid up shares from members and retained earnings)
Figure 1 presents that there were few observed cooperatives with high level of gross income and high level of receivables. Majority of the cooperative have low level of gross income and low level of receivables. This means that majority of the cooperatives tend to adopt a restrictive policy in terms of granting credit to their members which also leads to lower patronage of the members. As a result, the cooperatives operation is minimized that often results to low generation of income. This supports some literatures such as the findings of Ikechukwu and Nwakaego (2015) and Mbula et al. (2016) that receivables have a positive effect on firm’s financial performance and profitability which means that when firms grant credit and implements good credit management strategy, the firms generate profit. In this case, most of the cooperatives have low level of gross income because they only grant low level of receivables. This may indicate that the cooperatives tend to limit selling their goods on credit or they restrict granting loans to their members resulting to lower patronage from members and as a result they would have low gross income. This could have happened because the management could have been less innovative and they have strong risk aversion (Lyani Sindani et al., 2016) which hinders them from granting credit or loans to the cooperative members. Further, the result could also mean that the cooperatives were not efficient in the management of their cost of goods sold or cost of services which reduced their gross profit. This could have been also a result of weak implementation of credit risk management strategies that increased the cost of delinquent debt resulting to higher cost of services and lower gross income (Lyani Sindani et al., 2016). Also, the revenue or sales of the cooperatives could not yield reasonable margin or profitability where the cooperatives were not able to determine appropriate mark-ups or target sales to cover the cost of goods sold or cost of services.
As stewards, the board of directors and the management tend to restrict granting of credit or loans in which the principal (i.e members) could not maximize the benefit of availing the services from their cooperatives and the gross profit which can cover other expenses and which could increase the net surplus/ income of the cooperative becomes minimal. The stewards (i.e board of directors and management) may tend to discourage their members to patronize their cooperative because they tend to be restrictive in selling their goods in credit or in granting loans to their members. The result does not affirm what Attom (2016) had pointed out that the board of directors and the management can sell on credit or grant loans while ensuring liquidity because it can improve sales. Also, it does not affirm what Olando et al. (2013) had pointed out that loan disbursement can positively influence growth of cooperatives. In this sense, the cooperative stewards were not able to meet the cooperatives financial objective such as increasing the gross income by encouraging the members to avail of the credit services of the cooperatives.
On the cooperatives’ net surplus/income and total asset, the result presents that there were only few cooperatives with high level of net surplus/income and total asset and most of the cooperatives have low level of net surplus/income and total asset. The result manifest that most of the cooperatives were not able to manage their resources effectively resulting to lower level of profitability that were generated from the utilization of the cooperatives assets. This relationship could be explained by the study of Nadeem, et al. (2015) and Burja (2011) stating that the financial performance of firms could be expressed through return generated from the management of available resources. Further, it can be observed that most cooperatives have low level of total assets that can be utilized to generate greater net surplus/ income. The result affirms the findings of Andarsari et al. (2016) that the size of cooperatives have significant positive effect on profitability. The result also indicates that the cooperatives were not able to use financial strategies such as using debt or capital to increase the cooperatives’ assets which may enable them generate higher net surplus/income. The result does not conform to what Salawu (2009) had pointed out that firms can utilize debt or equity to increase their assets to generate greater profitability since it was found that there is positive correlation between profitability with short-term debt and equity. In this case, the stewards were not able to utilize effectively the cooperatives’ assets to generate profitability. They maintained low level of assets which only yielded minimal profit/surplus. They were not able to procure more assets by implementing financial strategies such as using debt or equity to generate funds for procuring more assets.
In terms of total asset and total capital/equity, there were only few observed cooperatives with high level of total asset and total capital/equity and it can be observed that most of the cooperatives have low level of total asset and total capital/ equity indicating that most of the cooperatives have slow growth. The result may indicate that the cooperatives are not maximizing the use of the invested equity/capital of the members to procure more assets for the member-shareholders’ benefit. The cooperatives may not have an optimal capital structure (utilizing debt and equity) for the total asset to increase (Basit & Hassan, 2017) and to improve their performance (Nadeem, et al., 2015). Further, the result manifests the proportion of assets being utilized to serve the member-shareholders is limited. As stewards, the board of directors and the management did not implement financial strategies to increase the cooperatives’ assets for them to provide greater services to the members. For instance, they did not identify appropriate capital structure in order to accumulate greater funds for the cooperatives’ assets to increase and for them to provide greater services to the members. Moreover, the members are not being encouraged to pay more capital for the cooperative to pool greater amount of funds for procurement of more assets that are needed by the members. Ideally, if members could reap greater benefits from their cooperative, it corresponds that they would contribute more equity to manifest their support to their stewards. However, the result reveals that the members do not fully support their stewards and they are not willing to entrust their resources thus they tend to limit their capital contribution. The result may not adhere to the findings of Asratie (2014) that the members’ perception on the economic benefits and asset creation must be maximized and enhanced since it also determines the contribution amount of the members.
In terms of paid-up shares from members and the number of members, it can be observed that there were few cooperatives whose members are paying high level of paid-up shares and most of the cooperatives have low level of paid-up shares in spite that they have increasing number of members. This means that the members are not willing to pay higher amount of equity/capital and they tend only to contribute limited amount because they are not confident to the management of their respective cooperatives. Most of the members would take seriously the payment of their subscribed share if they can observe increased benefits from their cooperatives such as greater dividends, higher profitability, growth in assets, and growth in equity. The board of directors and the management can attract members when the members feel financial security and growth. Further, when the members are involved in their cooperative, they become dedicated and they would participate (contribute capital) in the cooperative. Thus, the cooperative must encourage members’ cooperation as owners and customers wherein the members support the cooperatives’ management through capitalization and to benefit from the services offered by the cooperative (Soemodipoero, 2017). As stewards, the board of directors and the management are not fully committed to pursue the overall interest of the members which resulted to weak commitment of the members to pay their paid-up shares. The members may not fully support how the cooperatives are being run by their stewards thus they limit their investment to their cooperative. This could result to the cooperatives’ difficulty in accumulating funds to support its procurement of assets and in sustaining business operation. This could hinder the cooperatives growth and longevity since members’ participation is essential in an autonomous organization such as cooperatives.
In terms of retained earnings and total equity/capital, the result reveals that there were few cooperatives with high retained earnings and high level of total equity/capital and most of the cooperatives have low level of retained earnings and low level of total equity/capital. The result may indicate that the cooperatives cannot maintain high retained earnings because they lack effectiveness in their operation which affirms the findings of Chalomklang (2010) that low retained indicate lacking effectiveness in operation which causes loss or decrease in the capital. The low retained earnings could also hinder the growth of cooperatives since they were not able to generate additional source of financing that are internally generated. The cooperatives may loss opportunity to achieve growth because portions of the earnings of the cooperatives are not being utilized for reinvestment. The result does not adhere to what Thirumalaisamy (2013) have found that internally generated funds in the form of retained earnings have enormously contributed to financing growth of firms and it benefits existing shareholders from the earnings generated from the reinvested profit of the firm. Also, it negates what Andarsari et al. (2016) have stressed that retained earnings are the main reserve to be used when the company will make an investment for business development. As stewards, the board of directors and the management were not able to utilize a portion of the earnings of the cooperatives for reinvestment to accrue greater wealth for the members. Also, they were not able to create value to the shareholders in the form of book value because all of the profits were distributed as dividend or they were not able to generate profit to be reinvested. The result negates what Robb (2012) have pointed out that the management must create value for the shareholders so that when they move out from their cooperative, they could receive greater value.