International Journal of Business & Law Research 3(1):34-43, Jan-Mar 2015 (ISSN: 2360-8986)



© SEAHI PUBLICATIONS, 2015 www.seahipaj.org

IMPACT OF FINANCIAL HEALTH ON CONTINUITY OF A FIRM: THE CASE OF MUMIAS SUGAR COMPANY


Francis Ikapel OMETE1*; Francis Mukatia ASAKANIA2 & Eunice Andeyo AMWAYI3
1Department of Business Management, University of Eldoret, P.O.Box 1125-30100, Eldoret, Kenya
2Department of Business Management, Garissa University College, P.O. Box 1801, Garissa Kenya
3Department of Commerce and Economics Studies, Jomo Kenyatta University of Agriculture and Technology, P.O.Box 62000-00100, Nairobi, Kenya
E-mail - ometefrancis@yahoo.com

ABSTRACT
The financial health of any company is critical for the achievement of the going concern objective. This can be easily evaluated through its profitability, liquidity, solvency and activity ratios. Ratio analysis is one of the most easiest and competent tool to evaluate the financial soundness of a company. Secondary data collected from Nairobi Securities Exchange was used. The data collected was evaluated using ratio analysis. Altman’s Z score model was used to predict the chances of bankruptcy. The results of the study showed that Mumias Sugar Company has a strong short term liquidity position. The company also has an impressive profit earning position. However, the company is suffering from underutilization of its fixed assets as shown by the ratio of EBIT to total assets. Further, the company has over relied on debt to finance its fixed assets as shown by the high values of book value of equity to book value of debt. We therefore recommend that the working capital ratio be improved from the current 0.26, operational inefficiencies be eliminated, fixed assets be utilized to full capacity and the fluctuation in the firms’ sales revenues be stabilized. Clearly, we realize the firm could be suffering more from management challenges than market challenges. The management of the company needs to be restructured so as to improve its performance. Further, the Nairobi Securities Exchange should incorporate in its reports the Z score values for all the listed firms periodically so as to assist the investors in making informed decisions.
Key Words: Ratio analysis, Z score, bankruptcy, financial performance.