Influence of Current Asset Structure on Financial Performance of Construction and Allied Firm Listed at the Nairobi Securities Exchange

Abstract

The purpose of this research paper was determining the influence of current asset structure towards profitability of listed firms under category of construction and allied firms. The study measured current asset structure in terms of cash and cash equivalents, inventories, and trade and other receivables. The main goal current asset management is to ensure a steady flow of revenue. Maximum utilization and management of current assets by controlling aspects like accounts receivables, cash, as well as inventory, is strategically related to high profitability through improvement of business liquidity. Nonetheless, poor financing decisions have led to most firms’ failure, which has posed a big dilemma to researchers, business managers, and investors. Such declines have been experienced by companies on Nairobi security exchange making them perform poorly. In addition, a number of them have ended up being either delisted or suspended from stock market. This study was informed by stakeholders’ theory and trade-off theory. This study employed use of longitudinal study approach. The study’s population comprised of the five companies which were listed on Nairobi Security Exchange under construction and allied category as at December 2021. Study collected secondary data extracted from available records of the firms under study. The study was based on a period of ten years ranging from 2012 to 2021. The research applied descriptive and regression methods in analyzing data. The study revealed that current asset influenced financial performance through firms’ cash and cash equivalents. It was further established that firm size tends to have a strong control effect towards the linkage of current asset and profitability. Constructs of inventories and trade and other receivables were found to have insignificant effect towards financial performance of construction. The management of construction and allied listed firms should devise ways of intensifying short-term investment securities in terms of cash in order to ensure high credit quality.