Analysis of Effects of Short Term Debt Planning on Financial Efficiency. A Survey of Automobile Firms in Kitale Town

Abstract

The purpose of this study was to evaluate the effect of appropriate inventory on financial efficiency of automobile firms in Kitale town. There are all sorts of issues one need to consider such as taxation, legislation, protecting the firm’swealth and assets, associated costs and the inherent risks of investment. When undertaking a financial plan it is important to understand how these issues will impact and what firms’management should expect over time. The study provides information and findings in relation to effects of using short term debts and how those effects affect the financial efficiency of automobile firms. It clearly depicts the benefits of the proper short term debt planning and its impact on financial efficiency of a firm, associated costs and risks of short term debts. If interest rates rise, one will have the security of knowing the interest rate on the fixed portion of the loan and the regular repayments will not change until the end of the fixed period and what effect this will have on the firm’s financial efficiency. In recent years, study on capital structure concerns the firms that adopt conservative financial policies. The study construct a two-period model that examines the relationship between the current amount of short term debts and the expectation of the future competition in the product market which require firms to maintain an appropriate level of stock, increase their investment, and maintain a positive image in terms of borrowing funds. This model shows that, the severer the expectation of the future competition, the smaller the current amount of short term debt, but no other study has gone further to find out how firms should plan short term debts to achieve a high financial efficiency. Capital structure theories which include M&M theory, trade off theory and the pecking order theory together with the short term debt theory (matching principle) guided and informed my study. Primary data was collected by the use of questionnaires on a drop and pick later basis. The data was further analyzed and presented by use of tables and graphs. Data was analyzed using regression analysis. The finding will be of significance for investors and policy marker which will serve as a guiding for better investment and financing decision. Results from the analysis of variance showed that the overall model was significant, the null hypothesis was rejected for variable and the conclusion was that appropriate inventory had asignificant influence on financial efficiency. The variable appropriate inventory  had a positive correlation which means an increase in the variables will result into an increase in financial efficiency. The results Recommendations were that appropriate inventory should be put in place as per the set guidelines. The study will be of significance toAutomobile and other firms to enable them manage short term debts through the procurement, care and disposition of materials, researchers and scholars will benefit from the study as they will use the findings as a source of information.

Keywords: Appropriate Inventory, Short Term Debt  Planning, Financial Efficiency