The Effect of Cost Effeciency on Financial Performance of Companies Listed on Nairobi Securities Exchange

Abstract

This study sought to investigate the effect of cost efficiency and financial performance of companies listed in the Nairobi Securities Exchange in Kenya, The 60 companies listed in the Nairobi Securities Exchange formed the population of the study. The sample consisted of 47 companies listed in the NSE who had published financial data is available continuously over the sample period of the study 2008 to 2013. The sample included firms in the following sectors, Agriculture, Automobile and accessories, Banking, Commercial & Services, Construction & Allied, energy and Petroleum, Insurance and Investment firms. The research adopted a descriptive survey design. The population of interest for this study was all the listed companies at NSE in Kenya. Thus it was a census survey. The study utilized secondary sources of data. In order to situate the study theoretically and generate the conceptual framework with which to work on the secondary sources was obtained from financial statements and NSE Handbooks of the companies for a 6 year-period (2008-2013) and publications were also used. The findings established that assets management measures demonstrate how efficient management uses a firm‟s assets to generate sales over a certain period of time. Asset management ratios show how efficiently and intensively assets are used to create Revenue efficiently and intensively. Efficiency has become an essential emphasis in today‟s highly competitive business environment. Efficiency measurement determines how companies provide an optimal combination of financial services with a set of inputs. From the findings, there was a fall in efficiency ratio from 2008 to 2013 in companies indicating that they were making considerably more than they were spending thus depicting a sound fiscal footing. The findings revealed a significant positive relationship between Return on Asset and Efficiency. In conclusion taking into consideration of the results provided, certain inputs are vital which impact on the level of cost efficiency of these companies. This implies steps towards efficiency of these companies include great consideration of their capital structure.