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.