Relationship Between Financial Viability and Profitability of Petroleum Companies in Kenya
Abstract
Financial viability is important in evaluating organizations overall performance. Assessment of
financial viability is an integrated process involving a review of a provider’s audited financial
statements, financial performance reports, business plan and other information that supports
financial analysis (Henkel, 1992). The aim of this study was to establish the relationship between
financial viability and profitability of petroleum companies in Kenya. To achieve the objectives
of this study the research has adopted a survey design. This is because it seeks to capture
information from the entire population of the major petroleum companies in Kenya. The
questionnaire is used in the data collection.
The collected information is analyzed in descriptive statistics by the help of Statistical package
for social sciences (SPSS). The study reveals that financial viability in the petroleum companies
is supported by increased liquidity of company’s assets; increased efficiency within the
company; reduced financial risks; increased solvency; reliable managerial ownership and
technological embracement. However financial viability is influenced by issues such as
government legal & regulatory requirements and financial issues within the management of the
companies. The common constraints in maintaining the profitability in the petroleum companies
include the high costs of crude oil which was caused by depreciating Kenyan shilling; corruption
within government agencies; and unreliable refinery (KPRL).
The findings of the study show that there is a strong relationship between the financial viability
and the financial performance of the petroleum companies. Factors that support financial
viability are strongly related to the profitability and thus high performance of the company. The
constraints that hinder financial viability lower profitability of the company which largely
depends on how the company manages the impacts of such constraints. The study concludes that
there is a strong relationship between financial viability and profitability in the petroleum
companies. The study recommends further studies on the effect of divestment on profitability
and solvency of oil companies and applying hedging instruments against FOREX instability.
Publisher
Universityof Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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