Factors that influence financial performance of private solid waste management companies in Nairobi county
Abstract
Company’s performance can be evaluated in three dimensions. The first dimension is company’s
productivity, or processing inputs into outputs efficiently. The second is profitability dimension,
or the level of which company’s earnings are bigger than its cost. The third dimension is market
premium, or the level at which company’s market value exceeds its book value. Return on assets
(ROA) determines an organisation’s efficiency in ability to make use of its assets and return on
equity (ROE) reveals the return investors expect to earn for their investments and return on sales
(ROS) reveals how much a company earns in reaction to its sales. The advantages of financial
measures are the simplicity of calculation and also that their definitions are widely agreed. This
was done by answering the question: what are the factors influencing financial performance of
Private Solid Waste Management companies in Nairobi County?
A descriptive research design was used to analyze the factors that influence financial
performance of Private Solid Waste Management companies in Nairobi County. The population
of interest in this study constituted all the 56 private Solid Waste Management operators
registered in Nairobi County for the period of three years from 2011 to 2013. Secondary
financial data sources was used for the study, where annual financial reports of each firm was
used over the three year period where profitability was extracted and used as a measure of
financial performance.
The findings showed that leverage is statistically significant at 5% level of significance in
explaining the variation in financial performance of private waste management company in
Nairobi County. A unit increase in leverage ratio will lead to a unit decrease in financial
performance of solid waste management company in Kenya. Liquidity ratio is statistically
significant in influencing the variation in the profitability of the solid waste management
companies. A unit increase in liquidity ratio will lead to high units increase in financial
performance of solid waste management companies in Nairobi County. Regression coefficient of
the size of the company is positively and significantly related to the financial performance of
solid waste management companies. A unit increase in the company size will lead to positive
units increase in the financial performance of the waste management company.
The study concludes that financial performance of private solid waste companies in Nairobi
County is influenced by leverage, liquidity, age and size of these companies. The study
recommends that since the ratio of debt-equity has implications on the shareholder’s dividends
and risk hence affecting the cost of capital and leverage position of the company, solid waste
management companies should reduce debt financing of the companies since companies that are
highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt;
they may also be unable to find lenders in the future. Solid waste management companies should
also increase their liquid asset base so as to increase the ability of the business to meet financial
obligations on time. Solid waste management companies should use an investment fund as liquid
assets to finance its activities. Higher liquidity allows an investment fund to deal with
unexpected contingencies and to cope with its obligations during periods of low earnings. Larger
and mature solid waste management companies are also known to have better and predictable
financial performance