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1Tom
Mokweri Nyamache & 2Moses Arisa Moturi
1 School of Business and Economics Turkana University College
2School of Business and Economics Mount Kenya University
The better management of assets, the larger the markets are subject to human error and emotion. New
amount of sales. Activity ratios are employed to research discloses the mischaracterization of
evaluate the efficiency with which the firm manages investment safety and measures of financial products
and utilizes the assets. A proper balance between and markets so complex that their effects, especially
sales and assets generally reflects that assets are under conditions of uncertainty, are impossible to
managed well; several activity ratios can be predict. The study of finance is subsumed under
calculated to judge the collectiveness of assets economics as financial economics, but the scope,
utilization, (Pandey, 2001). speed, power relations and practices of the financial
According to Hull (2011), the choice of performance system can uplift or cripple whole economies and the
measures is one of the most critical challenges facing well-being of households, businesses and governing
business organizations. In fact, performance bodies within them—sometimes in a single day.
measurement systems play a key role in developing Financial Mathematics Theory
strategic plans, evaluating the achievement of firms’ Financial mathematics is a field of applied
objectives and rewarding managers. mathematics, concerned with financial markets. The
subject has a close relationship with the discipline of
Theoretical Framework financial economics, which is concerned with much
Financial economics is the branch of the underlying theory that is involved in financial
of economics studying the interrelation of mathematics. Generally, mathematical finance will
financial variables, such as prices, interest rates and derive, and extend,
shares, as opposed to those concerning the real the mathematical or numerical models suggested by
economy. Financial economics concentrates on financial economics. In terms of practice,
influences of real economic variables on financial mathematical finance also overlaps heavily with the
ones, in contrast to pure finance. It centres on field of computational finance (also known
managing risk in the context of the financial markets, as financial engineering). Arguably, these are largely
and the resultant economic and financial models. It synonymous, although the latter focuses on
essentially explores how rational investors would application, while the former focuses on modeling
apply risk and return to the problem of and derivation. The field is largely focused on the
an investment policy. Here, the twin assumptions modelling of derivatives, although other important
of rationality and market efficiency lead to modern subfields include insurance mathematics and
portfolio theory, the Capital asset pricing model quantitative portfolio problems.
(CAPM), and to the Black–Scholes theory for option
valuation; it further studies phenomena and models Experimental Finance Theory
where these assumptions do not hold, or are Experimental finance aims to establish different
extended. "Financial economics", at least formally, market settings and environments to observe
also considers investment under "certainty" (Fisher experimentally and provide a lens through which
separation theorem, "theory of investment science can analyze agents' behavior and the resulting
value", Modigliani-Miller theorem) and hence also characteristics of trading flows, information diffusion
contributes to corporate finance theory. Financial and aggregation, price setting mechanisms, and
econometrics is the branch of financial economics returns processes. Researchers in experimental
that uses econometric techniques to parameterize the finance can study to what extent existing financial
relationships suggested. Although closely related, the economics theory makes valid predictions and
disciplines of economics and finance are distinctive. therefore prove them, and attempt to discover new
The economy” is a social institution that organizes a principles on which such theory can be extended and
society’s production, distribution, and consumption be applied to future financial decisions. Research
of goods and services,” all of which must be may proceed by conducting trading simulations or by
financed. establishing and studying the behavior, and the way
Economists make a number of abstract assumptions that these people act or react, of people in artificial
for purposes of their analyses and predictions. They competitive market-like settings.
generally regard financial markets that function for
the financial system as an efficient mechanism
(Efficient-market hypothesis). Instead, financial
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Government policy
Purchasing power
Natural catastrophes
Technological change
Financial planning
Performance of SSEs
Budgeting
Growth in Profits
Authorization of expenditure
Growth in Sales
Accountability of funds
Growth in total Assets
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groups that would have been prohibitively expensive influence their behaviour regarding their business
to study. operations. This was in relationship to gender, age,
level of education, position in business management
Results and Discussions and also the length business has been in operation.
Gathering this data helped to determine what
Background Information of Respondents segments or subgroups existed in the overall target
The purpose of this section was to gather the population. This also assisted to create a clear and
background information of respondents with the aim broad picture of the characteristics of a typical
of establishing the nature of the respondents and what member of each of the segments.
Gender
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Age of Respondents
Age of Respondents 1
Source: Researcher 2016
The figure above, it could be observed that respondents in the age bracket of 30-40 years were the majority
comprising of 32.4% while respondents in the age bracket of Below 20 years were the minority comprising of 12%.
It can be inferred that a majority of the managers and business owners fell within 20-40 year age bracket. Clearly,
most SSEs in Kisii town are owned and mainly run by people in their 20s and 30s.
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From figure 3 above, it is clear that a majority of the qualifications or upwards shows that most of the
respondents had a certificate as their highest level of SSEs in Kisii town owners and or managers were
education 29.0%, followed by diploma holders lowly qualified and lacked the expertise in business
(26.9%), degree holders (17.2%), postgraduate management which were necessary for the better
(15.1%), while those without any level of formal performance of their businesses. Generally it can be
education comprised of 11.8%. This shows that the inferred that SSEs in Kisii town are dominated by
majority of the respondents had not attained a people with relatively low levels of education
university qualification. The lack of graduate level
Position in the Business
Position in Business 1
Source: Researcher 2016
From figure 4 above, owner/manager were the majority (33.33%), followed by managers (30.11%), then owners
(29.03%) and lastly others who comprised of 7.53%
5 Length of Operation
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Length of Operation 1
Source: Researcher 2016
On whether budgets are always prepared in the showed that budget preparation practice among SSEs
business, 9.7% of the respondents strongly agreed, in Kisii town is inadequate (80.7%) and this may
8.6% agreed, 1.1% not sure, 36.6% disagreed and negatively influence the business performance.
44.1% strongly disagreed. Generally, the results
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On whether the budgeting process is participatory, showed that budget preparation of SSEs in Kisii town
7.5% of the respondents strongly agreed, 14% is not participatory and this may negatively influence
agreed, 2.2% were not sure, 40.9% disagreed, and on the implementation of the budgets leading to poor
35.5% strongly disagreed. Generally, the results business performance
Accountability of Finance by Employees
On whether employees are accountable to finance entrusted to them, 49.5% strongly agree, 36.6% agree, 1.1% are
not sure, 7.5% disagree and 5.4% strongly disagree. Generally majority of respondents agreed that employees
present accountabilities of funds entrusted with them which will reduce overall expenditure and hence improve on
profitability.
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International Journal of Finance, Accounting and Economics
(IJFAE) ISSN: 2617-135X Vol. 1 (3) 18-29, October, 2018
www.oircjournals.org
Authorization of expenditure
Table 5 Authorization of Expenditure
Frequency Percent Valid Cumulative
Percent Percent
Strongly Agree 8 8.6 8.6 8.6
Agree 8 8.6 8.6 17.2
Not sure 3 3.2 3.2 20.4
Disagree 36 38.7 38.7 59.1
Strongly Disagree 38 40.9 40.9 100.0
Total 93 100.0 100.0
Source: Researcher 2016
On whether all expenditure is authorized before it is authorized before it is incurred. This may increase
incurred, 8.6% of the respondents strongly agreed, total expenses which may subsequently have a
8.6% agreed, 3.2% are not sure, 38.7% disagreed and negative impact on profitability of SSEs in Kisii
40.9% strongly disagreed. Generally majority of town.
respondents disagreed that all expenditure is
Recording of Expenditure
Table 6 Recording of Expenditure
Frequency Percent Valid Cumulative
Percent Percent
Strongly Agree 5 5.4 5.4 5.4
Agree 12 12.9 12.9 18.3
Not sure 1 1.1 1.1 19.4
Disagree 39 41.9 41.9 61.3
Strongly Disagree 36 38.7 38.7 100.0
Total 93 100.0 100.0
Source: Researcher 2016
On whether all expenditure is recorded in the books that employees are accountable to the funds entrusted
of accounts, 5.4% of the respondents strongly agreed, to them.
12.9% agreed, 1.1% not sure, 41.9% disagreed, and
38.7% strongly disagreed. Generally, the results Conclusions
showed that the expenditure incurred among the In order to determine the extent to which small scale
SSEs in Kisii town is not effectively recorded in the enterprises practice financial planning it was found
books of accounts and this may negatively affect the out that, currently the business environment is
measurement of financial performance. Therefore, it complex and dynamic, requiring a greater emphasis
is hard to determine the true financial performance of on financial planning if businesses want to be
the enterprises competitive and therefore lead to business survival.
The findings also conclude that budget preparation
Summary, Conclusions and Recommendations process should be all inclusive so that all employees
Summary will be supportive during the implementation in order
Findings of the study on the extent to which financial to improve financial performance of the business.
planning is practiced by SSEs revealed that budgeting
is inadequate and non-participatory; finance collected Recommendations.
and expenditures incurred are not effectively From the above conclusion, since financial planning
recorded in the books of accounts. It was also has a significant influence on the performance of
revealed that not all expenditures of SSEs are SSEs, it is therefore recommended that, the Central
authorized before they are incurred. It was also noted government through the Ministry of Trade
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Commerce and Industry in collaboration with the necessary financial planning skills to help them in
County government of Kisii provides training financial decisions that will positively influence their
programs, through seminars and workshops, in business continuity and performance. Also there is
financial planning for Small Scale Enterprises to need for the owners and or managers of the small
improve the extent of use of financial planning in scale enterprises to embrace proper and effective
their businesses. Symposiums, conferences, and open financial planning practices in order to be successful
forums can also be used. This will help to equip small in their financial performance.
scale business owners and or managers with
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