Effects of Capital Budgeting on the Growth of Manufacturing Firms Listed at Nairobi Securities Exchange.
Itivi, N. M.
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Capital budgeting (or investment appraisal) is the planning process used to determine a firm's expenditures on assets whose cash flows are expected to extend beyond one year such as new machinery, cost of addition, new products/services or expansion. Most of the manufacturing firms have continued to use heavy investments in terms of launching of new products, acquiring new manufacturing plant and machinery, expanding warehouses and computerizing operation .. When considering capital investments, manufacturing businesses need to look at the proposed retum on investment for the long-term and the viability of sustaining the expenses in the short term. Proper capital budgeting analysis is critical to a firm's successful performance because capital investment decisions can improve cash flows and lead to higher stock prices. In addition, it can have a significant impact on the firm's financial performance and poor decisions can lead to financial distress and even to bankruptcy. The general objective of this study was to find out the effects of capital budgeting on the growth manufacturing firms listed at the Nairobi Securities Exchange. Specifically, the study focused on issues of whether or not capital budgeting evaluation, risk analysis and capital rationing practices adopted promote or hinder growth in listed manufacturing firms in Kenya. The study adopted a descriptive research design and a census survey was used where statistical data was collected quantitatively and qualitatively. The target population was finance officers involved in investment decisions in .manufacturing firms listed at the NSE which are only eight according to NSE. Purposive sampling was used to select four finance officers involved in investment decisions from each firm making the sample thirty two. Data from these respondents was collected using questionnaires. Data was. then.be analyzed by use of simple descriptive statistic model using the statistical package for social sciences (SPSS). Data was then presented graphically and in tabular layout and analysis was presented in form of notes. The data collected using interview guides which was qualitative ill nature, was analyzed using conceptual content analysis. A finding of this study was that capital budgeting process affects the growth of listed manufacturing firms.