dc.description.abstract | This study sought to establish the relationship between financial leverage and
profitability of firms listed at the Nairobi Securities Exchange. To achieve this
objective a descriptive research design was used. The study considered firms that
have been listed on the NSE for the past five years and utilized secondary data
obtained from the period 2010-2015. Data was collected from 47 listed firms which
represented a response rate of 73 percent. This was considered sufficient for making
generalization on the whole population. The study covered a period of five years from
2010-to-2014. Data was analyzed using descriptive statistics, correlation analysis and
regression analysis. The results indicated that liquidity and financial leverage depicted
a negative relationship with profitability. Size of the firm was found to have a positive
relationship with profitability of listed firms at the Nairobi Securities Exchange. The
limitation of this study is that it used only four variables only, namely; financial
leverage, firm size, profitability and liquidity. Profitability is affected by many factors
other than the ones discussed in this study and therefore it is important to consider
other factors that have bearing on profitability and establish whether the findings will
hold or not after which conclusive results can be drawn. The study recommends that
listed firms should look for alternative ways of financing their projects other than
using financial leverage. From the results obtained it is evident that financial leverage
does not contribute to profitability of the firm. This is because when a firm borrows
more from its creditors then the firm has to pay more amount of cost of debt to the
creditor which is the interest rate. This leads to less net income for the firm and hence
lower profitability. | en_US |