An Evaluation Of The Effect Of Cash Flow Management Activities On Financial Performance Of Manufacturing Firms Listed At Nairobi Securities Exchange

Abstract

Cash flow management is very critical in many firms, placing temporary cash surplus has low yielding from increasing financial cost, even though firms undertake strict cash flow forecast, there are variables that can affect financial performance negatively or positively posses a greater risk. This study evaluated the effect of cash flows management activities on financial performance of manufacturing firms listed at Nairobi Securities Exchange. The study was guided by the following specific objectives; to find out the effect of operating cash flows on the financial performance of manufacturing firms; to establish the effect of investing cash flows on the financial performance of manufacturing firms and to determine the effect of financing cash flows on the financial performance of manufacturing firms. The researcher used a descriptive research design to describe cash flow management activities of manufacturing firms listed at Nairobi Securities Exchange which is based in Nairobi, Kenya. The target population comprised of 7listed manufacturing firms in the NSE Report for the period 2007 to 2016. The study employed census sampling to all 7 manufacturing firms in the study. The study employed secondary data from published financial statements of the listed manufacturing firms for the period of study. The data was analyzed by descriptive statistics such as, mean and standard deviation. Correlation analysis and multiple linear regression analysis were used to establish the relationship between cash flows management activities and financial performance of listed manufacturing firms at the NSE. Hypothesis testing was performed using t-test and F-test. The t test was used to test the statistical significance of the independent variables while ANOVA F statistic was used to confirm the goodness of fit using level of significance in the regression model. Analysis of Variance ANOVA F statistics was also used to test hypothesis. The analyzed data was presented by use of tables. The study found that Unga limited applied profit from operations to consider operating cash flows. Further, BOC limited also applied Purchase of PPE to consider investing cash flows to a great extent as indicated by a mean value and standard deviations. Using correlation results, the study found that there existed positive correlation between operating cash flows, investing cash flows, and financial performance on return on equity, while financing cash flows showed negative correlations on return on asset. The study concluded that cash flow management activities are statistically and significantly related in predicting return on asset of listed manufacturing firms. The study concluded that use of cash flow management activities led to significant effect in financial performance. Further the study concluded that the use of cash flow management activities to a great extent led to a significant increase in financial performance of listed manufacturing firms at Nairobi Securities Exchange. The study concluded that decrease in financing cash flows would not significantly lead to increase in financial performance. The study recommended that manufacturing firms should focus more on financing cash flows in order to maintain financial performance of manufacturing firms listed in the Nairobi Securities Exchange.