Financial distress and profit ability of iron and steel manufacturing firms in Kampala industrial and business park (KIBP)

Abstract

This study examined the effect of financial distress on profitability of iron and steel manufacturing firms in Kampala Industrial and Business Park. The study was guided by specific objectives which were to; establish the effect of: Accounts Payables period, Accounts Receivables, Inventory conversion period on profitability of steel iron and steel manufacturing firms in KIBP. The study adopted a case study design with both qualitative and quantitative approaches. The population consisted five iron and steel manufacturing firms and 20 financial managers. The sample of managers size was determined using Yamane (1967) formula. An interview guide and financial statements of four iron and steel firms for the period 2014-2018 were used data collection. Both trend analysis and regression models were used to regress financial distress constructs with profitability. The study results indicated that accounts payables period (adjusted R2 = .015), Accounts Receivables period (adjusted R2 =.019) and Inventory period (adjusted R2 = .023) as financial distress measures affected profitability of iron and steel manufacturing firms. The study concluded that, foreign exchange of Ugx.3.44trillion is lost on sourcing inputs yet consumption was low as 15kg of steel per annum to enhance profitability. Because of lengthy ARP, even if more 20 more industries at a cost of $3 .6b ( 13 .5trillion) join iron and steel industry by end of 2018, employment, local intent, tax revenue of 500millions per annum remains a dream. Squat profits resulting from continued financial distress renders realization of middle income status of U gx.290,000per month and Ugx.3.9m per year, reducing poverty from 21.4% to 14% by 2020 is unrealistic, loan capital of Ugx.545b from Exim bank-china to boosting manufacturing is a reveries. The study advocates for finance managers of steel companies to establish long-term relationship with creditors and suppliers in bid to shorten APP and ICP. Board of directors and management of steel firms should manage their payables prudently to remain profitable and competitive. The study suggests that further research should be conducted to substantiate qualitative factors such as how changes in management, market trends affect profitability of manufacturing firms in KIBP.