Investements in Longterm Assets and Financial Performance of Listed Cement Producing Firms in Kenya

Abstract

Firms in the cement industries are engaged in processes that convert limestone to cement. This requires investments in capital goods like plant and equipment to carry out activities to deliver finished goods. On the other hand firms can opt to purchase semi-processed raw materials called clinker and get cement out of it. In the past decade cement firms in Kenya have invested large sums of money in expansion projects that target clinker plants and other product lines. This has seen the cement industry awash with various brands and products for construction activities. This study sought out to establish if investments in these capital goods pay off in terms of their financial performance. The study considered investment in fixed assets as measured by the book value of long-term assets form the statement of financial position. The financial performance was measured by Return on Assets. The study focused on listed cement companies for the period 1993 to 2016. Secondary data was gathered from audited annual reports that were filed with the Capital Markets Authority. Panel data analysis using regression was adopted for the study. The result revealed a unit increase in fixed assets leads to a 17% growth in financial performance measured by ROA. Other control variables were introduced namely age, Firm Size and debt ratio. It was noted that age had no impact on financial performance while firm size was strongly positively correlated. On the other hand the debt ratio was inversely related to financial performance. This should inform cement industries to opt for alternative financing than debt while investing in capital goods