Financial Forecasting and Profitability of the Top 100 SMEs in Kenya
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Date
2025-12
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Publisher
Stratford Peer Reviewed Journals and Book Publishing
Abstract
Small and Medium Enterprises constitute critical economic drivers in developing economies, yet their
profitability remains volatile despite contributing approximately 24% to Kenya's GDP and employing over
93% of the active labor force. This study examined the effect of financial forecasting on the profitability of
the Top 100 SMEs in Kenya. An explanatory research design under positivist philosophy was adopted,
employing a census approach that selected 40 consistently listed firms from the Top 100 SMEs ranking.
Data were collected through questionnaires for primary information and audited financial statements for
secondary data, then analyzed using SPSS with linear regression analysis. The results showed that financial
forecasting had a statistically significant positive effect on profitability (β = 2.10, p = 0.027), meaning a
one-unit improvement in forecasting increased profitability by 2.10 units. With R = 0.36 and R² = 0.13, the
model indicated a moderate relationship where forecasting explained 13% of profitability variation, leading
to the rejection of the null hypothesis at the 0.05 level. The study concludes that financial forecasting serves
as a statistically significant determinant of profitability among Kenya's Top 100 SMEs, with effective
forecasting enabling enterprises to predict cash flow fluctuations, manage liquidity prudently, and identify
profit-enhancing opportunities. The study recommends that the Kenya MSME Authority should develop
standardized financial forecasting training programs targeting SME managers to enhance predictive
accuracy and implementation, the Kenya Association of Manufacturers should establish forecasting
benchmarking frameworks enabling SMEs to compare practices against industry standards, financial
institutions should integrate forecasting capability assessments into credit evaluation processes while
providing technical support to borrowers and policymakers should mandate periodic forecast reviews and
documentation for SMEs seeking government support programs to institutionalize strategic financial
planning practices that demonstrably improve profitability outcomes.
Description
Research Article
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Citation
Mwanzi, J. M., Jagongo, A., & Makori, D. (2025). Financial Forecasting and Profitability of the Top 100 SMEs in Kenya. Journal of Finance and Accounting, 9(6), 27-45. https://doi.org/10.53819/81018102t5402