The effect of liquidity on the financial performance of construction and allied companies listed at the Nairobi securities exchange

Abstract

The financial performance of any business can be assessed using the concept of liquidity. Liquidity and financial performance are very important issues in the growth and survival of business and the ability to handle the trade-off between the two a source of concern for financial managers. Hence, the main purpose of this study was to determine the effect of liquidity on financial performance of construction and allied companies listed at the Nairobi Securities Exchange (NSE). The objective of the study was to establish the effect of liquidity on the financial performance of construction and allied companies listed at the NSE. The study covered a period of past 10 years from 2005 to 2014. Secondary data was collected from NSE and multiple regression analysis used in the data analysis. The study revealed that liquidity positively affects the financial performance of construction and allied companies listed at the NSE. The study established that current ratio positively affects the financial performance of construction and allied companies listed at the NSE. The study also revealed that an increase in operating cash flow ratio positively affects the financial performance of construction and allied companies listed at the NSE. The study found that an increase in debt to equity negatively affects the financial performance of construction and allied companies listed at the NSE. The study found that an increase in total assets negatively affects the financial performance of construction and allied companies listed at the NSE. The study found that an increase in total sales positively affects the financial performance of construction and allied companies listed at the NSE. The study recommends that there is need for construction and allied 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 affects the financial performance. The study further recommends that there is need for construction and allied companies listed at the NSE to increase their operating cash flow, through reduction of their credit repayment period in order to positively influence their financial performance and reduce the underutilized assets and increase sales to positively influence their financial performance.