Current Ratio and Financial Performance of Agricultural Firms Listed at the Nairobi Securites Exchange, Kenya

Abstract

The significant importance of the Agricultural sub-sector is depicted through its contribution to the economic and social developments of Kenya. The study originates from the Doctoral dissertation of the first author in which the co-authors served as supervisors. A census approach was adopted where secondary data from audited annual financial reports of all the six Agricultural firms listed at the Nairobi Securities exchange, Kenya was used, covering the period 2015 to 2022. Descriptive analysis and panel regression analysis were applied. The findings from the panel regression analysis indicated that current ratio has significant effect on financial performance of the Agricultural firms listed at the Nairobi Securities Exchange, Kenya. The study recommends that agricultural firms listed at the Nairobi Securities Exchange need to increase their current assets holdings for purposes of increasing their liquidity levels. This is due to current ratio positive effect on the financial performance of agricultural firms listed at the Nairobi Securities Exchange, Kenya. However, just as very low current ratio is discouraged for firms, it should notably not to be too high as this will serve as an indication that managers are not efficiently utilizing assets. Managers need to properly assess the short term obligations of their firms so as to ensure a corresponding current ratio is attained. Further researches can be undertaken on current ratio and financial performance relationships in the context of firms in other sectors that are listed at the Nairobi Securities Exchange, Kenya.