Effect Of Credit Management On The Profitability OFNSE Listed Cement Companies In Kenya

Abstract

The cement manufacturing firms in Kenya has continued to face diverse profitability challenges. In 2017 financial year, Bamburi profitability drop by $39 million to $19.7 million due to lower sales in the Kenyan market. Its revenues dropped by six per cent to $359 million compared with $383 million in 2016. On the other hand, the ARM cement lost $28.9 million, $28 million, and $35 million in 2015, 2016, and 2017 financial years respectively. Proper credit management is an essential for organization’s money related steadfastness and upgrades productivity; however, luck of adequate or poor credit management has a great impact on the profitability of the firms. Some researchers have attempted to address the problem and these researches were done outside Kenya. The current study to address that gap by researching on the effect of credit administration in relations to productivity of assembling organizations' study analysis of cement industries in Kenya. The study specifically sought to determine the impact of credit policy, liquidity management and debtors’ turnover on the profitability of manufacturing firms, a case of cement industries in Kenya.This study was utilize the descriptive survey research design. The target population was six cement manufacturing firms in Kenya. The sample comprised of three firms which are Bamburi Cement Limited, ARM Cement Limited, and East Africa Portland Cement Company. The secondary data was collected from the published annual reports of the three cement manufacturing firms from the NSE website. The period of study was eleven years, that is, from 31st December 2006 to 1st January 2018. The secondary data which was extracted from these financial statements included cash & cash equivalents in the context of liquidity management, trade receivables in the context of credit policy, trade payables in the context of debt turnover, and Profit Before Tax (PBT) for profitability. Descriptive and inferential statistics were used in data analysis. For descriptive statistics, minimum, maximum, mean and standard deviation were used. For inferential statistics, ANOVA, correlation and regression analysis were done. The study established that there was statistically significant relationship between profitability of a firm and liquidity management (r=0.510, p<0.05) and debtors’ turn over (r=0.655, p<0.05). The study also found out that there was no statistically significant relationship between profitability of a firm and credit policy (r=0.310, p>0.05). The study concluded that 45.9% (R2=0.459) of the variability of profit before tax was explained by liquidity management, credit policy and debtors, turn over. The investigation is useful to those making policy in their push to patch up the area by setting best practice which was enhance credit management and gainfulness of manufacturing firms. The outcomes of this investigation is useful to encourage researchers, as it would frame writing for additionally look into. Academician may utilize this examination as a reason for exchanges on layaway administration and benefit of manufacturing firm. It will furnish the further scientists with experimental examinations that they was use in their investigations.