Effect of Profitability Ratio on Bankruptcy Prediction of Dairy Cooperative Societies in Meru County, Kenya
Abstract
Many sectors of the economy across the globe are concerned with the avoidance of bankruptcy in order to operate as going concerns. The purpose of this study was to analyse the influence of financial analysis on bankruptcy prediction for dairy cooperative societies in Meru County, Kenya. The objective of the study was to determine the influence of profitability ratio on the bankruptcy prediction of dairy cooperative societies in Meru County, Kenya. The hypothesis was derived from the objective of the study. The research was anchored on value maximisation theory. Descriptive and correlational research designs were used. The target population of the study was 13 dairy cooperative societies in Meru County that were in operation and had audited financial statements for the period of study (2017-2021). A census survey of all 13 dairy cooperative societies was conducted. A checklist was used to collect the secondary data, which was analysed using descriptive statistics and a bivariate model. The significance of the predictor variable on bankruptcy prediction was tested using the t-statistic, and the overall significance of the model was tested using the f-statistic at a 5% level of significance. The research findings were presented in the form of tables and graphs. The study established a statistically significant positive relationship between profitability ratio and bankruptcy prediction (coefficients=12.415, p=0.017<0.05) at a 5% level of significance. The management of dairy cooperative societies is encouraged to closely monitor the financial indicators of profitability. The findings of this study would be important to policymakers, such as the management of dairy cooperative societies and farmers who are key stakeholders in dairy cooperative societies. Scholars and researchers would find this study being of great interest since the gap for further research has been provided
Downloads
References
Ali, M. (2020). Impact of Leverage on Financial Performance (Evidence from Pakistan Food and Fertilizer Sector). Journal of Critical Reviews, 7(13) 447-456.
Altman, E. I., & Hotchkiss, E. (2019). Corporate financial distress and bankruptcy: Predict and avoid bankruptcy, analyse and invest in distressed debt. John Wiley & Sons.
Aziidah, N. (2017). The Effect of Financial Leverage on the Financial Performance of Kenyan Energy and Petroleum Firms Listed on the NSE. Unpublished MBA Thesis: United States International University
Efuntade, A. O., & Akinola, A. O. (2020). Firm characteristics and financial performance in quoted manufacturing companies in Nigeria. Blue Pen journals, 7(18), 25-32.
Enekwe, C. I., Agu, C. I., & Eziedo, K. N. (2014). The effect of financial leverage on financial performance: Evidence of quoted pharmaceutical companies in Nigeria. IOSR Journal of Economics and Finance, 5(3), 17-25.
Geng, R., Bose, I., & Chen, X. (2015). Prediction of financial distress: An empirical study of listed Chinese companies using data mining. European Journal of Operational Research, 241(1), 236–247
Gregory, E. (2020). Methodological challenges for the qualitative researcher: The use of a conceptual framework within a qualitative case study. London Review of Education, 18(1), 126-141.
Jahur, M. S., & Quadir, S.M. (2012). Financial distress of small and medium enterprise (SMES) of Bangladesh: Determinants and Remedial measures. Journal of Business Administration, 102-115.
Kangogo, J. (2019). Challenges facing dairy sector in Uasin Gishu County. Retrieved from http;//www.standardmedia.co.ke/amp/hustle/article/20013160.
Kariuki, H. N. (2013). The effect of financial distress on financial performance of commercial banks in Kenya. Unpublished MBA Research Project, University of Nairobi.
Kariuki, H. N. (2013). The effect of financial distress on financial performance of commercial banks in Kenya. Unpublished MBA Research Project, University of Nairobi.
Kungu, G. (2015). Determinants of the performance of firms listed at the Nairobi Securities Exchange. Research Journal of Finance and Accounting, 6(12), 157-164.
Naz, F., Ijaz, F., & Naqvi, F. (2016). Financial performance of firms: evidence from Pakistan cement industry. Journal of Teaching and Education, 5(01), 81-94.
Odero-Waitituh, J. A. (2017). Smallholder dairy production in Kenya; a review. Livestock Research for Rural Development, 29(7). http://www.lrrd.org/lrrd29/7/atiw29139.html
Range, F.M, (2019). Modelling the use of Z-score Ratios to Predict Bankruptcy Likelihood of Sugar Companies in Kenya. Unpublished PhD BA Thesis. Jomo Kenyatta University of Agriculture and Technology.
Range, M., Njeru, A., & Waititu, G. (2018). Using Altman’s Z Score (Book Value of Equity/Total Liabilities) Ratio Model in Assessing Likelihood of Bankruptcy for Sugar Companies in Kenya. Human Resource Management Academic Research Society, 8(6), 578.
Roni, H., Djazuli, A., & Djumahir, D. (2018). The effect of working capital management on profitability of state-owned enterprise in processing industry sector. Jurnal Aplikasi Manajemen, 16(2), 293-299.
Salehi, M., & Abedini, B. (2019). Financial distress prediction in emerging market: empirical evidences from Iran. Business Intelligence Journal, 2(2), 398-409.
Samira, M. (2012). Bankruptcy prediction of firms listed at the Nairobi Securities Exchange (Doctoral dissertation) University of Nairobi.
Senan, N. A. M., Ahmad, A., Anagreh, S., Tabash, M. I., & Al-Homaidi, E. A. (2021). An empirical analysis of financial leverage and financial performance: Empirical evidence from Indian listed firms. Al Ain University
Sporta, F. O. (2018). Effect of Financial Distress Factors on Performance of Commercial Banks in Kenya. Unpublished Doctoral dissertation, Nairobi: Jomo Kenyatta University of Agriculture and Technology.
Taliani, I. J. (2012). Predicting financial distress in commercial banks in Kenya. Unpublished MBA project. University of Nairobi
Wambugu, S., Kirimi, L., & Opiyo, J. (2011). Productivity trends and performance of dairy farming in Kenya (No. 680-2016-46762).
Yazdanfar, D. (2013). Profitability determinants among micro firms: evidence from Swedish data. International Journal of Managerial Finance, 9(2), 151-160.
Copyright (c) 2023 Sammy Mutiria Murige, Justo Masinde Simiyu, Henry Kimathi, PhD
This work is licensed under a Creative Commons Attribution 4.0 International License.
