The relationship between financial management practices and financial performance in the dairy industry in Kenya

Abstract

The objective of this study is to establish the relationship between financial management practices and financial performance of dairy industry in Kenya. For the purpose of the study, financial management practices‟ are defined and demarcated as the practices performed by the accounting officer, chief financial officer and other managers in the areas of budgeting, supply chain management, movable asset management and control, No study that the researcher is aware of has been done to determine the extent to which the organizations in the dairy sector have embraced financial management practices and how these modern practices have improved their performance. This study therefore sought to determine the relationship between financial management practices and the financial performance of the organizations in the dairy sector in Kenya The research design employed in the study was a cross-sectional research design where the researcher studied financial performance of dairy processors for the year 2014/2015 financial year and sought to determine the relationship between financial management practices and financial performance of these organizations in that period. In this study four aspects of financial management practices were studied namely; financial reporting analysis, fixed asset management, capital structure management and working capital management. Performance was measured by the return on assets (ROA) and regression analysis used to determine the resulting relationship. The regression analysis found that without the four financial management practices, the dairy processors financial performance would be dismal. It was further established that quality of financial performance would rise by 0.304 with every unit positive increase in financial report analysis provided that other factors (noncurrent assets management, capital structure management and working capital management) are constant. This statistic is significant at 95% confidence level (p = 0.000).Noncurrent assets management would however lead to decrease in quality of financial performance by factor of 0.602 with P value of 0.000 should other factors be held constant, lastly from the findings, it is also evident that working capital management enables the dairy processors to be able to readily operationalize its activities and has the highest influence on quality of the firms‟ financial performance