Investment Appraisal Techniques and Financial Performance of Small and Medium Enterprises in Nairobi City County, Kenya
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Date
2018-05
Authors
Wambua, Patrick .M.
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Small and Medium Enterprises play a major role in the social economic development of
any country, however these enterprises face investment decision problems which inhibit
their financial performance. Poor investment decisions have been blamed for high rate of
failure and closure. Thus, the purpose of the study was to determine the effects of
investment appraisal techniques and financial performance among small and medium
enterprises in Nairobi County, Kenya. The objectives of the study were to: determine the
effect of Accounting Rate of Return, payback period, Net Present Value and Internal Rate
of Return on financial performance among small and medium enterprises in Nairobi
County, Kenya. The information that provided by this research will benefit policymakers,
community members and academicians. The study adopted cash flow theory of
investment, Theory of Investment Decisions, Agency Theory and Q Theory of Investment.
It adopted a descriptive survey research design with a target population of 71,195 licensed
Medium Enterprises with Nairobi County. The sample size was 384 Small and Medium
Enterprises. The researcher adopted cluster random sampling technique and collected data
using questionnaires. The instruments were validated by the supervisors. Reliability of the
instruments was determined through a pilot study where a Cronbach alpha coefficient of
0.7 was considered appropriate. Quantitative data was analyzed using descriptive statistics
and inferential statistics and presented in tables. The study revealed that Accounting Rate
of Return (t =6.702, P<.05), payback period (t =16.489, P<.05), Net Present Value (t
=3.295, P<.05) and Internal Rate of Return (t =2.133, P<.05) significantly affect financial
performance among SME’s in Nairobi County, Kenya. Besides, these results imply that
payback period is most (t =16.489, P<.05) important predictor for financial performance.
The study recommends that the government and other service providers such as Small
Industries Development Organization to focus more on the issue of investment decisions
for small and medium enterprises. In particular, they should train small and medium
enterprises on the investment evaluation techniques, their advantages and disadvantages in
relation to their financial goals.
Description
A Research Project Submitted to the School of Business, in Partial Fulfillment for the Award of Degree in Master of Business Administration (Finance Option) of Kenyatta University