Analysis of Financial Performance and Financial Risk in Agricultural Companies Listed on the Nairobi Security Exchange

A Project Report by Iyakaremye Athanase, Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA).The purpose of the study was to analyze the financial performance, financial risk, and position of the agricultural companies listed on the Nairobi Securities Exchanges. The study has answered the following questions: What is the trend of financial performance in agricultural companies listed on the Nairobi Security Exchange? What is the effect of financial risk on financial performance faced by agricultural companies listed on the Nairobi Security Exchange? What is the relationship between financial performance and financial risk of agricultural companies listed on the Nairobi Security Exchange? The descriptive research design was used in this research to describe several variables of interest. The target population was seven agricultural companies listed on the Nairobi Security Exchange. The sample used in this study was five agricultural companies listed on the Nairobi Security Exchange. The researcher considered the secondary data method. During this study, Microsoft Excel was used for tables and figures presentation to analyze the quantitative data. STATA package was used for multivariate regression analysis of quantitative data in order to determine the effect of financial risk on financial performance while SPSS package was also used to determine the relationship between financial performance and financial risk of agricultural companies listed on the Nairobi Securities Exchange. The study has established that financial performance and financial risk ratios were driving forces for agricultural companies’ financial health determination. Return on assets, return on equity, and return on sales were key indicators of firms’ financial performance while debt to equity, debt ratio, and most importantly Z prime were efficient and effective indicators of these firms’ financial risk. The study also presented that ratios were efficient predictors for financial performance and financial risk of agricultural companies. The predictive model comprising ratios was found to be statistically significant to indicate power of ratios on agricultural financial performance-risk using the statistics in analysis such as level of significance. This study found that z prime was the strongest predictor of financial risk highly affecting the firms’ financial performance, also debt to equity ratio, and debt ratio were found to play a big effect on financial performance at some extent. The study clarified the relationship between of financial performance ratios and some financial risk ratios. The study concluded that there is a strongly positive relationship between financial performances ratios of Agricultural companies listed on the Nairobi Security Exchange. The listed agricultural companies have presented how increase of the current ratio and z prime can be taken care off in order to minimize risk and bankruptcy avoidance. It has been found in multivariate regression that the financial risk ratios affect financial performance ratios of agricultural firms. The z prime highly affected financial performance and the others financial risk ratios namely debt to equity ratio and debt ratio had an impact on financial performance of agricultural firms under study. The following financial risk ratios: z prime, debt to equity ratio, and debt ratio have also shown the statistically significant relationship with financial performance. However, the results presented that financial risk ratios have had an impact on financial performance of agricultural companies listed on the Nairobi Security Exchange except current ratio. Finally the study result has shown that there is a relationship between financial performance ratios and financial risk ratios. The main recommendation from this study is that the agricultural companies listed on the Nairobi Security Exchange should focus on instantaneous financial performance trade off to keep the continuation of their business. Firms’ managers should increase the current ratio and z prime because they are determinant of company’s financial health. They should wisely stick on debt to equity ratio and debt ratio for risk minimization and bankruptcy avoidance. Firms’ managers should balance the relationship between financial performance ratios and financial risk ratios. Especially, the following financial risk ratios: z prime, debt to equity ratio, and debt ratio that have a significant impact on financial performance. Then empirical evidence from firm’s income statements will help agricultural company to stick on success minimizing internal financial risk and bankruptcy avoidance. The agricultural companies listed on the Nairobi Security Exchange should be able to balance financial performance ratios and to control the financial risk ratios for profit maximization and risk minimization in order to access more funds and attracting investors in order to generate more revenue