The use of linear discriminant function in profitability analysis of the SMIS

In this paper, an attempt is made to use the Linear Discriminant Function to study and identify those Small and Medium Industries (SMIs) which are operating profitably and those which are not. Some of the pertinent variables used are level of technology of the production process (as measured by capital-labour ratio or capital intensity, (K/L), labour productivity ratio (V/L) and capital productivity (K/V) as measured by fixed capital per value added. A comparison is also made between their sub-sectors. It is hoped that such approach can provide useful quantitative information to government agencies, decision makers from financial institutions and industrialists to identify the weaknesses and problems faced by the SMIs.