Current Ratio and Financial Performance of Agricultural Firms Listed at the Nairobi Securites Exchange, Kenya

Moses Ambasa Odendo

California Miramar University San Diego, California, USA.

Malgit Amos Akims *

Kenyatta University, Nairobi, Kenya.

Samuel Moragia Nyachae

California Miramar University San Diego, California, USA.

Levi Mbugua

Technical University of Kenya, Kenya.

*Author to whom correspondence should be addressed.


Abstract

The significant importance of the Agricultural sub-sector is depicted through its contribution to the economic and social developments of Kenya. The study originates from the Doctoral dissertation of the first author in which the co-authors served as supervisors. A census approach was adopted where secondary data from audited annual financial reports of all the six Agricultural firms listed at the Nairobi Securities exchange, Kenya was used, covering the period 2015 to 2022. Descriptive analysis and panel regression analysis were applied. The findings from the panel regression analysis indicated that current ratio has significant effect on financial performance of the Agricultural firms listed at the Nairobi Securities Exchange, Kenya. The study recommends that agricultural firms listed at the Nairobi Securities Exchange need to increase their current assets holdings for purposes of increasing their liquidity levels. This is due to current ratio positive effect on the financial performance of agricultural firms listed at the Nairobi Securities Exchange, Kenya. However, just as very low current ratio is discouraged for firms, it should notably not to be too high as this will serve as an indication that managers are not efficiently utilizing assets. Managers need to properly assess the short term obligations of their firms so as to ensure a corresponding current ratio is attained. Further researches can be undertaken on current ratio and financial performance relationships in the context of firms in other sectors that are listed at the Nairobi Securities Exchange, Kenya.

Keywords: Current ratio, financial performance, liquidity preference theory and stewardship theory


How to Cite

Odendo , M. A., Akims , M. A., Nyachae , S. M., & Mbugua , L. (2024). Current Ratio and Financial Performance of Agricultural Firms Listed at the Nairobi Securites Exchange, Kenya. Journal of Economics, Management and Trade, 30(2), 13–20. https://doi.org/10.9734/jemt/2024/v30i21190

Downloads

Download data is not yet available.

References

Omar IM. Effects of selected firm characteristics on financial performance of firms listed in the agricultural sector at the nairobi securities exchange master of science in finance, Research project, University of Nairobi (UON); 2013.

McCaw M. What are the objectives of liquidity management?; 2018.

Njoroge IM. The effect of liquidity on firms’ financial performance of construction and allied companies listed at NSE. Master of Science in Finance Project, UON; 2015.

Maroa GJ, Kioko, WC. Determinants of profitability of agricultural firms listed at the nairobi securities exchange, kenya. international journal of economics, commerce, and management, United Kingdom; 2016. Available:http://ijecm.co.uk

Mishkin SF, Eakins GS. Financial Markets and Institutions (Slides) 7th Edition. Pearson Prentice Hall Publishers; 2012.

Akenga G. Effects of liquidity on FFP of firms listed at the NSE, Kenya. International Journal of Science and Research (IJSR); 2015. ISSN 2319-7064 (Online).

Davis JH, Schoorman FD, Donaldson L. Toward a stewardship theory of management. Academy of Management Review.1997;22:20–47.

Onyeka V, Nnenna N, Nnado I, Okechukwu U. Influence of current ratio and leverage on cash position and profitability of quoted nigerian manufacturing firms. Research Journal of Finance and Accounting. 2018;10(5).

Hermanto LY, Ponjatau TW, Windyastui M. Effects Of Current Ratio And Debt-To-Equity Ratio On Return On Asset And Return On Equity 'International Journal of Business and Management Invention (IJBMI). 2018;7(12):31-39.

Kajola OS, Alao A, Sanyaolu AW, Ojurongbe OJ. effect of liquidity and leverage on financial performance of nigerian listed consumer goods firms, contemporary economy journal, Constantin Brancoveanu University. 2019;4(3):91-102

Olugboyega K, Adeniyi A, Sanyaolu AW, Olalekan JO. Effect of liquidity and leverage on financial performance of Nigerian Listed firms. Central and Eastern European online Library; 2019.

Ohaju NH. Effect of financial ratios on shareholders wealth in nigerian manufacturing firms. Master of science in finance project. National College of Ireland; 2020.

Harahapa IM, Septiani I, Endri E. Effect of financial performance on firms’ value of cable companies in Indonesia. Accounting Journal. 2020;6(1).

Liu L, Xu J, Shang Y. Determining Factors of Financial Performance of Agricultural listed companies in China. Custose@gronegócio on line - v. 2021;16(4). ISSN: 1808-2882. Available:www.custoseagronegocioonline

Siswohadi DW. Analysis of the effect of the liquidity ratio on financial performance in. multi bintang Indonesia Tbk. International Journal of Global Accounting, Management, Education, and Entrepreneurship. 2021;1(2).

Khoiriah N. The Effect of Current Ratio, Debt to Equity Ratio and Total Asset Turnover on Return on Equity (Manufacturing Industry Companies in the Consumer Goods Sector Food and Beverage Sub-sector Listed on the Indonesia Stock Exchange for the Period 2013-2020). Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences:Budapest International Research and Critics Institute. 2022;5(2):10282–10292.

Mugambi PM, Muturi W, Njeru A. Effect of liquidity on financial performance of star rated hotels in Nairobi County, Kenya. International Academic Journal of Economics and Finance. 2023;3(8):305-322.

Best J, Khna J. Research in Education. Prentice Hall of India Private Limited.New Delhi; 2004.

Smith SM, Albaum GS. Basic marketing research, Qualtrics Labs, Inc. (On-line Edition. 2012;425.

Ariesa YPT, Utami J, Mahariridha I, Sihaan CN, Nainggolan BN. The effect of current ratio, firm size, return on equity, and earning per share on the stock prices of manufacturing companies listed in indonesian securities exchange in the 2014-2018. Budapest international research and critics institute-journal (BIRCI-Journal). Humanities and Social Sciences; 2019. ISSN2615-3076 Online.

Chibesa K. Liquidity and financial performance of selected companies in the agricultural sector, listed on the lusaka stock exchange. Unpublished MBA Thesis. Cavendish University Zambia; 2019.