The Relationship Between Net Operating Income and the Value of Firms Quoted at the Nairobi Stock Exchange

Abstract

Although many business people make decisions on profitability and relate them to the value of firms quite well at a decision making level, this relationship is not clear to many of them. In Kenya, Financial managers struggle to understand the relationship but no study has been done to affirm the decisions. There is therefore a staring gap and this is the reason for which this study has been done to find out if there is any relationship between the Net Operating Income, and the value of firms quoted at the Nairobi Stock Exchange. To achieve this objective, regression analysis was used to establish the relationship. FANOVA test showed that the relationship is statistically significant for all the firms under study. The study failed to reject the hypothesis that there is no significant relationship between the Net Operating Income and the value of the firm. That means that the Net Operating Income has a significant effect in the value of the firms quoted at the Nairobi Stock Exchange. The y-intercept showed a significant value of y meaning that there are other factors that significantly affect the value of the firm, other than the profit.