Inventory Conversion Period and Financial Performance of Selected Firms Listed at Nairobi Securities Exchange
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Date
2020
Authors
Kangogo, Cherutich Clara
Irungu, Anthony Mugetha
Journal Title
Journal ISSN
Volume Title
Publisher
Stratford Peer Reviewed Journals and Book Publishing
Abstract
Managers strive to achieve strategic objectives of firms, which include maximum returns on
equity and assets. However, unanticipated macro and micro environmental factors may cause a
firm to fall into financial distress which may negatively influence its financial performance.
Manufacturing, Construction and Allied sectors play an important role in the implementation
of vision 2030 and contribute immensely to the country’s economic growth. Declining returns
and repeated losses reported by firms under these sectors have resulted in a slow growth by
individual sectors as well as overall national economic growth. Poor performance has been
attributed to cycles of financial distress problems affecting firms under manufacturing and
construction sectors in the recent past. Identified knowledge gaps prompted the study to mainly
determine the effect of financial distress on financial performance of selected firms listed at
NSE. Independent variable which form the basis for specific research objective and research
hypothesis is inventory conversion period while dependent variable is financial performance.
The study which may be of value to financiers, policymakers, investors and researchers was
supported by economic order quantity model. Panel research design was employed by the study
and census adopted due to the small population size. Secondary panel data collected from
published financial statements of the entire 4 financially distressed firms listed under
manufacturing, construction and allied sectors covering 10 years (2009-2018) were utilized.
Descriptive and inferential statistics was used to analyze panel data with the aid of statistical
software (STATA, V.14). Panel regression analysis approach was used to test the hypothesis at
95% confidence level and diagnostic tests was performed before conclusion was drawn. Findings were presented in table format and supported by narrations. Research ethics were
observed while conducting the study. The study revealed that inventory conversion period has
an inverse and significant effect on the financial performance (return on assets and return on
equity) in the selected firms listed at Nairobi Securities Exchange. The study recommends that
low inventory conversion periods should be maintained by firms in order to improve
profitability which can be done by improving efficiency in the production processes.
Description
Article
Keywords
Inventory, Conversion period, financial performance, Return on Asset, Return on Equity, Listed firms, NSE
Citation
Kangogo, C. C., & Irungu, A. M. (2020). Inventory Conversion Period and Financial Performance of Selected Firms Listed at Nairobi Securities Exchange. Journal of Finance and Accounting, 4(5), 55–76