The Effect of Investing and Financing Decisions on Financial Performance of the Sugar Factories in Kenya

Abstract

The study was driven by the fact that, sugar cane is one of the most important crops in the in Kenya, yet the current sugar factories cannot produce enough for the country’s domestic requirements as they are inefficient. The sugar factories, over time, have over relied on a single product line as source of revenue. The sugar industry in Kenya has been undergoing changes in order to become competitive and diversify into other revenue streams. The objective of this study was to establish the effect of investing and financing decisions on the financial performance of sugar factories in Kenya. These research adopted a non probability sampling method, in which four factories were chosen from a population of eleven factories in existence as at 31st December 2013 in Kenya. These was a descriptive study that examined the effect of investing decision as measured by ln of total assets and financing decision as measured by Debt to equity ratio on financial performance measure of Return on Assets (ROA).Secondary data on statement of comprehensive income and statement of financial position for a period of five financial years was analyzed using regression analysis derived by applying Minitab statistical analysis tool. The study found out that investing decision positively affected financial performance, whereas there was a negative effect of financing decision on financial performance of sugar factories in Kenya. The findings from these study will both advance theory and help in policy formulation by the Government of Kenya. These study is useful as the Government of Kenya can utilize the findings in the formulation of key policy actions, reforms, programs and projects in line with its priorities and help achieve the vision 2030 economic pillars. Sugar factories in Kenya should increase investment in capital assets with aim of diversifying in other product lines, in order to increase sources of revenue streams and remain competitive while achieving higher financial performance in the long-run