Determinants of Financial Performance of Wheat Flour Producing Companies in Hawassa City, South Ethiopia

Abstract

In Ethiopia the contribution of manufacturing companies to economic growth is so minimal as compared to agriculture and services sectors. They are experiencing low return which is an indicator of poor financial performance. However, to remain competitive in the globalized economy, having good financial performance is highly imperative. Therefore, this research aimed at examining the effect of firm-specific and macroeconomic determinants of financial performance of wheat flour producing companies' in Hawassa city. Panel data from eight flour manufacturing companies were collected over the period of 2008 to 2012. Financial performance was measured by using profitability ratios; return of asset (ROA) and return of equity (ROE). Though the average ROA and ROE for flour companies were accounted for 6.5 % and 23 %, their financial performance was affected by several factors. A multiple linear regression model was employed to identify the factors that affect the performance of wheat flour producing companies. The estimation result shows that firm-specific variables namely capital adequacy (CAR), asset utilization (ASU), age (AGE), expense management (EXM) and leverage (LEV) have significantly affected companies' financial performance. Therefore, financial performance of flour producing companies is mainly driven by management decisions. Thus, attention should be given to firm specific variables to have a sound financial performance.

Keywords: financial performance, firm specific variables, macroeconomic variables, flour manufacturing companies