Capital Budgeting Techniques and Profitability of Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange

Abstract

Purpose: The manufacturing sector has been a big focus in the country’s development agenda, yet it has stagnated at 10% contribution to the GDP over the years.  The study aim was to establish the capital budgeting techniques and Profitability levels among manufacturing and allied firms listed at the Nairobi Securities Exchange.

Methodology: Both the descriptive and longitudinal research designs were employed. The population was made up of 7 manufacturing and Allied firms listed at the NSE. Structured questionnaires were used to collect primary data which was administered to staff in charge of risk, investment, or finance. Additionally, secondary data which constitutes the published financial statements was downloaded from the firm’s website. The secondary data covered a period of 5 years from 2016-2020. Descriptive statistics was used to analyze quantitative data by way of tables, figures, charts, and percentages.

Findings: The study found that capital budgeting techniques are embraced by the manufacturing and Allied organizations with Payback Period and Internal Rate of Return being highly preferred. The study also found that capital budgeting techniques do not significantly influence profitability of manufacturing and allied firms listed at the NSE in Kenya.

Study Implication: The study recommends that staff should be trained and involved in the capital budgeting process of the organization. Management should also allocate full-time staff to capital investment analysis in order to harness all the expertise at its disposal for better decision making.