| dc.description.abstract | As we might all be aware, quite a number of
companies have gone bankrupt, others are in receivership,
while others are experiencing financial difficulties.
There are several explanations that might be advanced, for
instance, mismanagement of" funds or inappropriate investment
decisions which result in excessive borrowing. Alternatively
it may be that the company is not making sufficient return
on its investments to enable it meet its financial obligations
as they fall due or it is not making the best use of borrowed
funds.
This study was therefore undertaken in order to find
out if one of the possible causes of the problem could be
attributed to the extent of indebtedness. The study Was
Limited to public companies because of the ready availability of the data.it was restricted from the period 1972-1981. Because this period was seen to be the representative of the recent
changes in company finance in Kenya. The total number of
companies researched on were sixty three. Data such as
current assets, total assets, short t~rm liabilities, long
term loans, share capital, reserves and profit/loss was
collected for each of the companies for ten years. With
these data in had, various statistics namely;current
ratio, debt/equity ratio,debt/asset ratio, long term debt/
fixed assets percentage, percentage Change in total debt
and percentage of long term debt/total funds were computed.
This analysis was facilitated by the use of a computer.
The results o,f the study reveal that public companies
in Kenya are highly geared as evidenced by the debt/equity
and debt/asset ratios. The current ratio shows that
these companies are also just barely managing to meet
their short term obligations as they fall due. The
percentage of long term debt/total funds has been rapidly
increasing, though the percentage of long term debt used
to finance fixed assets has been generally constant
The debt levels of the public companies showed tremendous
increases in 1977 and then decreased in the following
years. The explanation for this was of course the "coffee
boom" of 1977 when a lot of money was in circulation and
companies borrowed heavily in that year. The debt levels,
however, show signs of increasing in the 1980's and so
we can expect that the public companies will continue to
use more debt capital in their capital structures and place
less reliance on equity capital. | en |
