Inventory Management Practices and Financial Performance of Small and Medium Scale Enterprises in Laikipia County, Kenya
Loading...
Date
2018
Authors
Wanjira, Jeremiah Nyaga
Njagiru, John Mungai
Journal Title
Journal ISSN
Volume Title
Publisher
International Academic Journals
Abstract
Despite the instrumental role that they
play in the economy, most SMEs fail
within their first tears of operation. Poor
working inventory management practices
is identified underlined as among the
principal causes of SMEs failure. This is
particularly so for the lack a formal
inventory management system, as they, in
most cases rely on subjective inventory
management decisions. Most researchers
and theorists postulate that the manner by
which inventory is managed considerably
impacts on profitability and risk of firms.
The study focused on the effect of
inventory management practices on
financial performance SMEs in Laikipia
County, Kenya. The period considered
was between financial years 2013/2014
and 2015/2016. The study specifically
assessed the effect of inventory
management on financial performance.
Performance was indicated through
profitability indicators i.e. return on
investment (ROI) and profitability in
relation to turnover (Net Profit Margin).
The study relied on a target population of
765 SMEs with operations in Laikipia
County as gathered from the National
Chamber of Commerce and Industry
(2017). A combination of proportionate
random sampling technique and
purposive sampling was employed to
attain at a sample size of 100 business
owners from 100 SMEs selected. The
study used primary and secondary data.
Primary data was collected using
questionnaires managed by the drop and
pick method. The instruments were tested
for validity and reliability using
pretesting, seeking expert opinion and
using Cronbach’s Alpha Reliability test.
Secondary data was gathered from the
SMEs books of accounts, management
reports and other available resources. The
researcher made use of the Statistical
Package for Social Scientists (SPSS) for
analysis. The study used both descriptive
and inferential statistics generated using
bivariate and multivariate analysis to test
the hypothesis. The results indicated that
SMEs’ financial performance as indicated
by the profitability metrics namely return
on assets and net profit margins was
considerably low. As explained by R
Square, the Coefficient of Determination,
75.50% of the variation in the Financial
Performance (the dependent variable) is
explained by variability in inventory
management. To that effect, only 24.50%
of variation in the financial performance
was explained by other predictors not
included in the model. Regression
analysis results demonstrated that
inventory management had positive
effects on performance. The Pearson
Correlation Analysis results indicated
positive and statistically significant
association between inventory
management and financial performance.
The study recommended pursuit of
measures to improve the model of
inventory management implemented by
small scale firms.
Description
A research article published in International Academic Journal of Economics and Finance
Keywords
inventory management practices, financial performance, small and medium scale enterprises, Laikipia County, Kenya
Citation
nventory management practices and financial performance of small and medium scale enterprises in Laikipia County, Kenya. International Academic Journal of Economics and Finance, 3(2), 117-132