Effects of Financial Management Practices On Profitability of the Tea Firms in Kenya: A Case of Ktda Factories in Kisii County
Author: Immaculate Mong’ina Obara, Professor Willy Muturi, Kenya
Abstract: The purpose of the study was to examine the effects of financial management practices on profitability of tea firms in Kisii County, Kenya. The specific objectives were; to establish the effects of cash management on profitability of tea firms, to evaluate the effects of inventory management on profitability of tea firms. The study adopted Agency Theory and Free Cash Flow Theory and was done in Kisii County. The study adopted descriptive research design. The target population was 48 employees comprised of tea firms. Census method was used to select 48 employees as the sample of the study. Questionnaire was used to collect primary data. Secondary data was collected through financial records for the last five years of operations. The collected data was edited, coded and analyzed by use of descriptive statistics such mean and standard deviations. The study used inferential statistics such as correlation analysis and regression models to establish the relationship between variables. The analyzed data was presented by use of tables and figures. The study found that the majority of employees working in tea factories were well educated with at least form four qualifications. Liquidity is essential for cash management of the company. Increasing cash collection increases cash levels in the tea factory. The study concluded that inventory management practices affected profitability of tea firms in Kisii county. However, the study concluded that required stock levels are used to improve production process which increases sales. Stock held increases customer’s loyalty in the factory is only little. The study recommended that proper debtor records should be embraced by tea firms with variation in outstanding debt annually. Debtor collection period should be measured by reporting periodical returns. Further, using internal rate of return tea firms should embrace in proper financing. Profitability index should ensure risk investment is avoided. Firm should downsize labor costs to increase profits. Further the firm should use cost reduction strategy to increase revenue. Another study can be conducted to examine the effect of financial management practices on financial performance in other firms