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.
Koori, Jeremiah
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Current Aspects in Finance (IJCAF)
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 Article in the International Journal of Current Aspects in Finance (IJCAF)
Keywords
Investment Appraisal Techniques, Financial Performance, Small and Medium Enterprises, Nairobi City County
Citation
Wambua, P. M., & Koori, J. (2018). Investment Appraisal Techniques and Financial Performance of Small and Medium Enterprises in Nairobi City County, Kenya.