Analysis of the effect of Financial Leverage on Loan Repayment among Small and Medium Sized Enterprises in Kenya
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Date
2020-06
Authors
Ouma, Oketch Samson Oduor
Musau, Salome
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Science and Research
Abstract
This study sought to analyze the effect of financial leverage on loan repayment among Small and Medium Sized enterprises
in Kenya. The study was guided by the following specific objectives; to determine the effect of SMEs debt to equity ratio, interest
coverage, capital allocation and debt ratio on loan repayment among small and medium sized enterprises Kakamega County, Kenya.
The study was anchored on the pecking order theory. The study used a census survey. The study collected primary data using
structured questionnaires. The collected data was analyzed using both descriptive and inferential statistics. The study concluded that
financial leverage significantly and positively influenced loan repayment among the medium sized enterprises. The study further
concluded that to a significant extent the firms had optimum loan compared to total equity to enable loan repayment, are able to repay
their loans with the current total debt and total equity ratio and manage their ratio. The study concluded that to a significant extent
interest coverage influenced loan repayment among the enterprises since it was affordable allowing them to improve their earnings,
borrow more and promptly repay the loans. It was concluded that the firms to a significant extent embrace diligent capital allocation to
profitable assets, long-term debts and having an investment policy which increased their returns, net profit margin and ability to service
debts. Further it was concluded that the firms have maintained a positive ratio between current assets and current liabilities which has
improved their debt repayment and reduced the liabilities. It was recommended that the firms need to maintain a positive debt to equity
ratio which will enhance their solvency and there is need to allocate more of their capital in acquisition of assets and also reduce their
current liabilities all aimed at improve their liquidity and ability to repay debts
Description
A Research Article in the International Journal of Science and Research (IJSR)
Keywords
Debt to equity ratio, Interest coverage, Capital allocation, Debt ratio, Small and medium sized enterprises, Kenya
Citation
Oketch ,S.& Musau, S.,(2020), Analysis of the effect of Financial Leverage on Loan Repayment among Small and Medium Sized Enterprises in Kenya, International Journal of Science and Research (IJSR), https://www.ijsr.net/search_index_results_paperid.php?id=SR20616114848, Volume 9 Issue 6, June 2020, 978 - 983