The Impact of Profitability, Financial Decision-Making, Cost Efficiency, and Corporate Financial Health on Employee Financial Literacy Levels in Smes

Abstract

This study evaluates the influence of employee financial literacy (EFL) on the financial performance of small and medium-sized enterprises (SMEs), focusing on four key indicators: profitability(P), financial decision-making (FDM), cost efficiency (CE), and corporate financial health (CFH) on employee financial literacy levels in SMEs. Through stratified random sampling, 100 employees of SMEs from various sectors were selected to ensure representability. A structured questionnaire was administered quantitatively and analyzed using SPSS for correlation and regression analysis. Results indicate a clear positive relationship between employee financial literacy and SME profitability. Analysis of correlations revealed a robust positive correlation between financial literacy and cost efficiency and that higher financial literacy levels decrease operational inefficiencies. With solid financial knowledge, the employees could optimize budgets, make rational decisions, and allocate better resources, improving organizational and competitive stability. Additionally, corporate financial health improved as financial literacy increased. Greater financial literacy corresponded to better debt management and liquidity ratios. These findings emphasize the need for targeted financial literacy training for SME employees and make a case for subsidized financial literacy programs to improve SME resilience. The results from this study allow for the formulation of actionable insights into the linkage between employee financial literacy and SME performance and develop strategies to promote sustainable economic growth.