The Effect of Liquidity on the Financial Performance of Non-financial Companies Listed at the Nairobi Securities Exchange

Abstract

The financial performance of any business can be assessed using the well-known concept of liquidity. The significance of liquidity to company performance might lead to the conclusion that it determines the profitability level of company. Although a number of studies have been done, the nature of liquidity impact on profitability is still not entirely recognized. Hence, the main purpose of this study was to determine the effect of liquidity on financial performance of non-financial listed companies at the Nairobi Securities Exchange (NSE).The objective of the study was to establish the effect of liquidity on the financial performance of non-financial companies listed at the NSE. Secondary data was collected from NSE and multiple regression analysis used in the data analysis. The study revealed that liquidity positively affect the financial performance of non-financial companies listed at the NSE. The study established that current ratio positively affects the financial performance of non-financial companies listed at the NSE. The study also revealed that an increase in operating cashflow ratio positively affects the financial performance of non-financial companies listed at the NSE. The study found that an increase in debt to equity positively affects the financial performance of non-financial companies listed at the NSE. The study recommends that there is need for non-financial companies listed at the NSE to increase their current assets so as to increase their liquidity as it was found that an increase in current ratio positively affect the financial performance. The study further recommends that there is need for non-financial companies listed at the NSE to increase their operating cashflow, through reduction of their credit repayment period in order to positively influence their financial performance.