The Extent to Which Financial Factors Affect Profitability of Manufacturing Firms Listed in the Nairobi Stock Exchange
Amariati, Stanley Nandwa
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Macroeconomic uncertainty, volatility and risk on manufacturing firms have adversely affected the profitability in developing countries and Kenya as well has not been spared. Various financial factors are said to influence profitability of manufacturing firms; fluctuation of exchange rate, interest rates and inflation affect the cost of production and the cost of raw material hence leading to low profits. This study sought to determine the financial factors that affect the profitability of manufacturing companies listed in the NSE in Kenya. The study specifically sought to determine the extent to which interest rate affects, tax regime/policy, exchange rates, inflation rates and cost of production affect the profitability in manufacturing companies listed in the NSE in Kenya. This study was a descriptive research survey and it covered a period of the past 36 months. The target population was finance and procurement staff of 9 listed manufacturing firms at the NSE. Since the population was small and variable, no sampling was conducted. From a population of 9 manufacturing firms, a sample size of 9 respondents was chosen. Both primary and secondary data was used in this research. The primary data was collected using a questionnaire which had both open and closed ended questions. Secondary data was also collected from Management accounts of the companies and other parameters were collected from Kenya National Bureau of Statistics and Central Bank of Kenya records. The collected data was analyzed through descriptive and inferential statistics. Descriptive analysis included measures of association while regression analysis was used to examine the relationship between the independent and dependent variables. The analyzed data was presented in form of tables and charts for easy understanding and interpretation. The study found out that Kenyan manufacturing firms are characterized with volatile business environment, high product market competition, inappropriate government policies, uncertainty and volatility of key macro economic factors which reduces profit margins and make future planning for firms very difficult or impossible. The study concludes that financial factors; exchange rates, tax regime, interest rates and inflation rates affects the profitability of manufacturing firms in Kenya. The study recommends that the government has to come up with strategies and policies to protect the manufacturing companies and give subsidies and incentives.The government should also improve on its measures to curb counterfeits products that have brought an unfair competition to the local manufacturing firms.