Capital Structure Relation to the Performance of an Organization: Private Sugar Manufacturing Companies

Abstract

The sugar industry contributes extensively to the economy of Kenya. Despite this, in the recent past, the sector has faced a myriad of problems which led to a decline in financial performance. The paper determined the relationship between debt to equity ratio, debt to asset ratio, long-term debt ratio and the financial performance of private sugar manufacturing organizations. It also determined the correlation linking capital structure and the financial performance of private sugar sector. A cross-section survey was adopted as research design. Census of all the six private sugar firms in Kenya that had been in operation since the year 2010 to 2017. It relied on secondary data which was collected through secondary data collection schedule from published accounts of the participating firms. The paper adopted multiple regression models. The content pass through content validity index, supervisors and research experts. Audited published accounts from authentic source were used to increase reliability. The research findings showed that debt equity ratio had significant effect on financial performance, debt asset ratio has no significant effect on financial performance, long term debt equity ratio has a significant effect on financial performance and moderating factor of firm size has no effect on financial performance. In conclusion capital structure has no effect on financial performance of private manufacturing sugar companies. The study recommends that the debt equity ratio, long term debt ratio be considered, Firms should consider borrowing if they are able to repay.