The effects of investment decisions on profitability of companies quoted at the NSE

Abstract

This study sought to investigate the impact of investment decisions on performance of companies quoted at the Nairobi Securities Exchange. It sought to specifically assess the impact of investment decisions on profitability of companies quoted at the Nairobi Security Exchange; as well as to ascertain the nature and strength of the relationship between investment decisions and profitability of companies quoted at the NSE. The study adopted a descriptive survey design that is appropriate to researches seeking to describe the characteristics of firms quoted at the NSE, estimate the proportion of firms with distinct characteristics, and make predictions. The population this study consisted of all forty (40) companies listed at the Nairobi Securities Exchange as at 31st December 2012. From the population that is the companies quoted at the Nairobi Securities Exchange, the researcher analyzed the data extracted from annual reports and accounts for the period (2007-2012) quoted companies as at 31st December 2012. The researcher used secondary data to carry out the study. Secondary data was beneficial to the study because the researcher obtained the relevant data from annual reports and accounts for the defined period for the quoted companies at the Nairobi Securities Exchange. Simple regression analysis was then performed to establish the relationship between investments and performance. The study found out that there was a positive relationship between the invested amounts and performance (profitability) of the listed companies. This is to mean that with increased decisions on investments the companies would perform better. The study recommends that there is need for the companies to evaluate the various investments options available so as to ensure that the project chosen will give maximum value; decision makers in the companies should also weigh up risk involved in the projects chosen so as to provide the most suitable rewards for stakeholders including shareholders and customers.