EFFECTS OF DEBT FINANCING ON FINANCIAL PERFORMANCE OF TUSKYS

SUPERMARKETS IN NAIROBI CITY KENYA

MERCY CHERONO SANG

KBA/010/21

A RESEARCH PROJECT SUBMITTED TO KIRIRI WOMENS UNIVERSITY OF

SCIENCE AND TECNOLOGY IN PARTIAL FULFILLMENT FOR THE AWARD OF
BACHELORS DEGREE IN BUSINESS ADMINISTRATION ACCOUNTING OPTION

AUGUST 2023
 DECLARATION
Declaration by the student
I declare that this is my original work and has never been submitted to Kiriri women's
University of science and technology or any other institution before for examination.

NAME: MERCY CHERONO SANG

REG NO: KBA/010/21
SIGN:……………………………….
DATE:……………............................

Declaration by the supervisor

This project has been submitted to kiriri women’s university with my approval as the supervisor

SUPERVISOR'S NAME: DR. EDWARD WASIKE

SIGN:………………,……………
DATE:……………………………

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 DEDICATION
I dedicate this work to my parents and my entire family for their unwavering financial, mental,
and emotional support, encouragement, and commitment to the project's accomplishment. They
have also served as a source of inspiration for me in my many undertakings.

Second, I dedicate my study to KWUST and the business department for providing me with the
chance to participate in research.

Third, I dedicate my research to my supervisor, Dr. Edward Wasike, who led me through the
process of doing this research.

Finally, I dedicate my report to my friends and students, with whom I worked diligently and
effortlessly to ensure the accomplishment of this project.

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 ACKNOWLEDGEMENT
First and foremost, I thank the Almighty God for his unceasing grace during the study process. I
also like to thank my supervisor, Dr. Edward Wasike, for assisting me throughout the study
process. In addition, I want to thank my parents and sister for their contributions to the project's
success.

Many thanks to my pals who kept me going during the process, and may God bless you all.

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 TABLE OF CONTENTS
DECLARATION...........................................................................................................................ii

DEDICATION..............................................................................................................................iii

ACKNOWLEDGEMENT...........................................................................................................iv

LIST OF TABLES........................................................................................................................ix

ACRONYMS..................................................................................................................................x

OPERATIONAL DEFINATION OF TERMS..........................................................................xi

ABSTRACT.................................................................................................................................xii

CHAPTER ONE............................................................................................................................1

1.0 Introduction............................................................................................................................1

1.1 Background of the study........................................................................................................1

1.2 Statement of the Problem.......................................................................................................2

1.3 Objectives Of The Study........................................................................................................3

1.3.1 General objectives...........................................................................................................3

1.3.2 Specific Objectives..........................................................................................................3

1.4 Research Questions................................................................................................................3

1.5 Justification of the Study........................................................................................................3

1.6 Scope of the Study.................................................................................................................4

1.7 Limitation of the Study..........................................................................................................4

CHAPTER TWO...........................................................................................................................5

2.1 Introduction............................................................................................................................5

2.2 Theoretical Review................................................................................................................5

2.2.1 Trade-Off Theory............................................................................................................5

2.2.3 Pecking Order Theory.....................................................................................................6

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 2.2.3 Market Timing Theory....................................................................................................8

2.2.4 Portfolio Theory..............................................................................................................8

2.3 Conceptual Framework........................................................................................................10

2.4 Empirical Preview................................................................................................................12

2.4.1 Debt Financing..............................................................................................................12

2.4.2 Financial Performance...................................................................................................14

2.4.3 Relationship between debt financing and Financial Performance................................15

2.4.4 Interest Rates.................................................................................................................16

2.4.5 Loan Repayment Period................................................................................................17

2.4.6 Collateral.......................................................................................................................18

2.5 Critique of the Literature......................................................................................................18

2.6 Research Gaps......................................................................................................................19

2.7 Summary of the Literature...................................................................................................19

CHAPTER THREE.....................................................................................................................20

RESEARCH METHODOLOGY...............................................................................................20

3. I Introduction..........................................................................................................................20

3.2 Research Design...................................................................................................................20

3.3 Target Population.................................................................................................................20

3.4 Sampling Size and Sampling Technique.............................................................................21

3.4.1 Sample Size...................................................................................................................21

3.4.2 Sampling Technique......................................................................................................21

3.5 Research Instruments...........................................................................................................22

3.6 Data Collection....................................................................................................................22

3.7 Data Analysis and Presentation............................................................................................22

3.8 Ethical Consideration...........................................................................................................22

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CHAPTER FOUR.......................................................................................................................23

RESULTS, DATA ANALYSIS AND PRESENTATION........................................................23

4.1 Introduction..........................................................................................................................23

4.2 Demographic Findings.........................................................................................................23

4.2.1 Level of education.........................................................................................................23

4.2.2 Age of the respondents..................................................................................................23

4.3 Descriptive Findings............................................................................................................24

4.3.1 Interest Rates.................................................................................................................24

4.3.2 Loan repayment period..................................................................................................26

4.3.3 Collateral.......................................................................................................................28

CHAPTER FIVE.........................................................................................................................30

SUMMARY, CONCLUSION AND RECOMMENDATION..................................................30

5.1 Introduction..........................................................................................................................30

5.2 Summary of the findings......................................................................................................30

5.2.1 Interest rates..................................................................................................................30

5.2.2 Loan repayment period..................................................................................................30

5.2.3 Collateral.......................................................................................................................30

5.3 Conclusion...........................................................................................................................31

5.4 Recommendation.................................................................................................................31

5. 5 Suggestions from further studies.........................................................................................31

REFERENCES............................................................................................................................32

APPENDICES..............................................................................................................................34

Appendix 1: Introduction letter..................................................................................................34

Appendix II :Questionnaire........................................................................................................35

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 LIST OF FIGURES
Figure 2. 1 Conceptual framework..................................................................................................9

Figure 4. 1Familiarity concept of interest rates.............................................................................20

Figure 4. 2 Factors to consider when selecting loan repayment period.........................................22
Figure 4. 3 kind of collateral offered for loan...............................................................................23

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 LIST OF TABLES
Table 3. 1: Target population.........................................................................................................15
Table 3. 2 sample size....................................................................................................................16

Table 4. 1 level of education..........................................................................................................18

Table 4. 2Age bracket....................................................................................................................18
Table 4. 3 Familiarity concept of interest rates.............................................................................19
Table 4. 4 level of agreement on interest rates..............................................................................20
Table 4. 5 ideal loan repayment period.........................................................................................21
Table 4. 6 level of agreement on loan policy.................................................................................22
Table 4. 7 kind of collateral offered for loan.................................................................................23
Table 4. 8 level of agreement on collateral....................................................................................24

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 ACRONYMS/ABREVIATIONS
ROI- Return On Investment
ROA- Return On Assets
MPT- Modern Portfolio Theory
ROE- Return On Equity
ROS- Return On Sales
SMEs- Small Market Enterprises
IFC- International Finance Corporation
AFDB- African Development Bank

x
 OPERATIONAL DEFINATION OF TERMS
Debt financing: practice of borrowing money from lenders, organizations or individuals in

Exchange for payment with interest over a specific period.

Financial performance: refers to measure of a company success in generating profits and

Increasing shareholders value

Interest rates: rates at which a borrower have to repay the amount they have borrowed.

Short-term loans: loans borrowed for a period of less than one year and they are typically

Designated to meet immediate financial needs, often unsecured meaning

you don’t need collateral

Long-term loans: loans borrowed for a period of more than one year. They are designated to

provide borrowers with access to a large sum of money and usually

require collateral

Collateral: an asset that the borrower pledges as security for the loan. If the borrower

default on the loan the lender has the right to take ownership of the
collateral to recover the amount owed

xi
 ABSTRACT
The purpose of the study was to determine the effects of debt financing on financial performance
of Tuskys supermarket in Nairobi city Kenya. The problem of the study was heavy accumulation
of debts, which according to Annual Reports and Financial Statements (2017-2018) they had
accumulated debts amounting to 6.2 billion shillings. This led to poor financial performance of
Tuskys supermarket and eventually closure of some of its branches in Kenya. The objectives of
the study were to determine how interest rates, loan repayment period and collateral would affect
the financial performance of Tuskys supermarket. This study was important to all the
stakeholders in the organization e.g. financial managers, shareholders, lending institutions and
many others. This study was important to financial managers in order to generate more revenue
and maximize capital, to shareholders it help to come up with financial decisions and to generate
capital structure. To lending institutions, it helped to know the ROI. This study focused on four
theories, trade off theory, pecking order theory, market timing theory and portfolio theory. The
sampling design used was random sampling method with a target population of 73 and a sample
size of 62.the data collected were primary data inform of questionnaire and findings were
analyzed by use of Excel sheets and presentation by tables, bar graphs and pie charts in chapter
four. The study concluded that if the managers ensure that there is proper management of
resources, then there would be an improved financial performance and return on investment. The
shareholders to come up with better financial decisions in order to generate more capital
structure inform of equity to avoid funding through debts. Never the less, interest rates on loan
should be repaid back on time to avoid the risk of default, bankruptcy and financial distress. In
addition, loan repayment on time help to avoid loss of asset on collateral and it enables the
supermarket to obtain loan when they are in need. The study thus recommended that the
management of supermarkets should ensure they hold maximum level of debt to ensure they do
not affect other functions of the supermarket. It also recommended that the supermarket should
be liquid enough to ensure they meet financial obligations as they fall due to attract investors for
improved financial performance.

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 CHAPTER ONE
1.0 Introduction
This chapter sought to talk about the background of the study, statement of the problem,
Objectives of the study, research questions, and justification of the study, scope of the study and
limitations of the study

1.1 Background of the study

Worldwide, an examination Concentrate by College of Wisconsin Place for Cooperatives (2012)
in the US shows that up to half of a sound center's capital necessities supported through outer
getting. (By and large, depend more vigorously on value funding than obligation supporting,
however further, upgrades in benefit are related with expanded utilization of obligation. Keri
(2015) further contends that satisfactory monetary assets are major to work and develop any
helpful business to an effective endeavor. He noticed that additional capital that comes from
outside loan specialists utilized suitably can support up the benefit of the agreeable.

Africa is additionally connected with a few going against discoveries with regards to obligation
supporting of assembling firms notwithstanding the territorial exchanging coalitions like East
African People group, laying out reason for common monetary turn of events and making
positive justification for carrying on with work (Karuma et al., 2018). For example, past
examinations on long haul obligation in Africa have offered blended discoveries on the impacts
of long haul obligation on monetary execution. Ubaid (2009) in his exploration on the creating
market economy of Egypt laid out that drawn out obligation adversely affects ROA. He similarly
did an assessment study to choose the effect of choice of capital plan on the display of firms in
Egypt. The show were assessed using ROE, ROA, and net in general income. Capital
development were scaled by transient commitment to asset extent, long stretch commitment to
asset extent and hard and fast commitment to amount to assets. The review showed that capital
design no affects a company's presentation.

In Kenya, Langat, et al., (2014) conveyed a focus on the effect of commitment financing on the
efficiency of Kenya Tea Improvement Authority taking care of handling plants and sorted out
that association execution, which was assessed by using ROA, was unequivocally associated
with long stretch commitment and complete commitment at 5%, while passing commitment

1
showed a negative relationship at 5%. The negative association between transitory commitment
and the efficiency of plants that cycle tea inferred that giving the cash through commitments that
are available second doesn't quick benefit. To put it plainly, the degree to which most firms
procure their wellspring of funds is through outer supporting called monetary obligation (Olang,
2017)

Jib ran et al (2012) found that obligation likewise offers business ventures a duty safeguard;
subsequently, firms are roused to get more to receive greatest expense rewards that mean higher
benefits. However, strange commitment levels might compel a firm into liquidation in this
manner; bosses should rush to address chance components, for instance, high commitment
esteem extent that proposes that an organization's gamble is high. As per Olang (2017) a more
serious level of monetary obligation prompts a higher installment of interests, which thusly
influences adversely the company's benchmark of income

1.2 Statement of the Problem

As indicated by Yearly Reports and Fiscal summaries (2017-2018), Tuskys grocery stores has
gathered weighty obligations of shillings 6.2 billion which has prompted poor monetary
execution. First and foremost, Tuskys had in excess of 60 branches working however as of now
under 5 stores are in activity. Muturi, Omwenga and Owino (2017) show that driving stores in
Kenya have been performing ineffectively and ultimately prompting conclusion of business or
decrease in the quantity of branches. At present, Nakumatt and Uchumi are not functional.
Different general stores like Naivas and Quickmart have gotten value supporting to back their
developments to guarantee their endurance, it is hence critical to comprehend the impact of
obligation funding on monetary execution of Tuskys store. Such examinations completed in
Kenya have thought about influence proportions as autonomous factors however have not
considered liquidity proportions, for example, obligation inclusion proportions, which have
demonstrated to show obligation levels.

Subsequently, the issue of this study was impacts of obligation supporting on monetary
execution of Tuskys grocery stores in Nairobi city Kenya particularly concerning how loan costs,
advance reimbursement period and guarantee sets to impact monetary execution.

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3
1.3 Objectives of the Study

1.3.1 General objectives

To determine the effects of debt financing on financial performance of Tuskys supermarkets in
Nairobi city Kenya

1.3.2 Specific Objectives

i. To determine the effect of interest rates on financial performance of Tuskys supermarket
in Nairobi city Kenya.
ii. To determine the effect of loan repayment period on financial performance of Tuskys
supermarket in Nairobi city Kenya.
iii. To determine the effects of collateral on financial performance of Tuskys supermarket in
Nairobi city Kenya.

1.4 Research Questions

i. How does interest rates affect the financial performance of Tuskys supermarket in
Nairobi city Kenya?
ii. What is the relationship between loan repayment period and financial performance of
Tuskys supermarket in Nairobi city Kenya?
iii. How does collateral affect the financial performance of Tuskys supermarket in Nairobi
city Kenya?

1.5 Justification of the Study

According to the study's conclusions, debt financing is significant to the researcher, financial
managers, shareholders, stakeholders, and lending institutions, such as commercial banks.
Financial managers were able to develop not just a capital structure but also a meaningful
deployment in order to optimize the organization's returns while also ensuring that the
supermarkets were not exposed to the danger of financial disaster. Shareholders were the
supermarket's investors, and they were in charge of making beneficial financial decisions.
Because most sources of funding for different firms are identical, lending institutions such as
commercial banks have to consider the ROI after spending their financial resources. They take
into account the interest rates earned as well as the value of the collateral utilized as security.
This research aimed to assist all retail stakeholders.

4
1.6 Scope of the Study
The study's goal was to look at the impact of debt financing on the financial performance of
Tuskys supermarket in Nairobi, Kenya. The study concentrated on independent and dependent
factors. Interest rates, loan repayment method, and collateral were all independent factors.
Financial performance was one of the dependent factors. The research respondents were senior
management, which included managers, supervisors, and employees, since they were in a better
position to provide important information on the link between debt financing and Tuskys
supermarket's financial performance.

1.7 Limitation of the Study

The review confronted different difficulties where the scientist had the option to beat others
while others were past the analysts reach. A portion of the difficulties were that most polls were
left unanswered and a portion of the data given by the client was classified since a portion of the
causes were exclusively to just be shared by the store and the administration.

5
 CHAPTER TWO
2.1 Introduction
This chapter investigates the research on the consequences of debt on financial and financial
performance. It discusses the theories and factors that influence financial success. The review's
empirical literature from worldwide and local research, conceptual framework, and summary
were also examined.

2.2 Theoretical Review

The theories that were used to address the issue on how debt-financing affect the financial
performance of tuskys supermarket were trade off theory, pecking order theory, market timing
theory and portfolio theory.

2.2.1 Trade-Off Theory

The Trade-off theory of capital construction recommends that there is an ideal degree of
obligation for an organization that will expand its worth, considering the expenses and
advantages of both obligation and value funding. The hypothesis perceives that there are
expenses and advantages related with obligation supporting, and that the ideal degree of
obligation will rely upon different factors, for example, the organization's gamble profile, charge
rate, and learning experiences

Modigliani and Factory administrator (1963) introduced the assessment decrease of commitment.
According to Modigliani and Plant administrator (1963), the drawing in nature of commitment
reduces with the singular obligation on the interest pay. The trade off speculation communicates
that there is an advantage to supporting with commitment, the duty decreases of commitment and
there is a cost of subsidizing with commitment, the costs of financial hopelessness including
liquidation costs of commitment and non-section 11 costs (for instance staff leaving, suppliers
mentioning disadvantageous portion terms, bondholder/financial backer infighting, etc).

The fringe benefit of extra developments in the red rots as commitment increases, while the
irrelevant cost increases, so a firm that is improving its overall worth will focus in on this split
the difference while picking how much commitment and worth to use for financing. A firm
experiences financial difficulty when the firm can't adjust to the commitment holders'
responsibilities. In case the firm continues to slump in making portions to the commitment

6
holders, the firm could be cleared out. The primary part of Give and take speculation of capital
development, considered as the cost of commitment, is commonly the financial agony costs or
indebtedness costs of commitment. It is basic to observe that this integrates the quick and
underhanded liquidation costs. Anyway, investigates on compromise speculation close mixed
results.

Fama and French (2002) state that higher efficiency firms will by and large get less that is
clashing with the veritable trade off assumption that higher advantage firms should get more to
diminish charge liabilities. Graham (2000) surveying cost and benefit of commitment finds that
the enormous and more useful firms with low financial difficulty suspicion use the commitment
reasonably.

The pertinence of the compromise hypothesis to obligation funding on monetary execution is

that it gives a structure to gauging the expenses and advantages of obligation supporting and
deciding the ideal degree of obligation for a given organization. Via cautiously adjusting the
dangers and prizes of obligation funding, organizations can augment their worth and accomplish
better monetary execution

The relevance of the trade-off theory to debt financing on financial performance is that it
provides a framework for weighing the costs and benefits of debt financing and determining the
optimal level of debt for a given company. By carefully balancing the risks and rewards of debt
financing, companies can maximize their value and achieve better financial performance

2.2.3 Pecking Order Theory

Pecking order theory suggests that companies have a preference order for funding sources, with
internal funds being the first choice followed by debt financing, and equity financing being the
last option. According to this theory, companies prefer to avoid diluting equity or issuing new
equity, so they resort to debt to finance projects and operations.

Debt financing can have both positive and negative effects on a company's financial
performance. On the one hand, it can provide a lower cost of capital than equity financing and
can be used to invest in profitable projects that generate positive returns. On the other hand, too
much debt can lead to financial distress and higher interest costs, which negatively impact a
company's profitability and credit rating.

7
Therefore, the pecking order theory suggests that companies should maintain a balance between
debt and equity financing to optimize their financial performance. By choosing debt financing
over equity financing, companies can maintain their ownership and control, but they need to be
cautious about the amount of debt they take on and manage their debt levels to avoid financial
distress.

Pecking order theory is a financial theory first proposed by Donaldson in 1961 that suggests that
managers will prefer to finance their firm in a specific order of preference. This theory proposes
that the theory is based on the hierarchy of financing options available to a company, where the
company will first look to internal financing, then to debt financing, and lastly to equity
financing. This theory suggests that when a company needs new funds, it will first utilize its
internal funds. If that is not sufficient, it will then turn to debt financing before issuing new
equity shares. This is because the issuance of new equity shares can lead to the dilution of shares
and a reduction in the ownership percentage of existing shareholders. Debt financing, on the
other hand, does not affect ownership.

The theory was based on the idea of information asymmetry, where managers have more
information about their company's financial situation than external investors. This information
asymmetry can cause external investors to view equity financing as a signal that the company's
prospects are not as good as the managers are claiming them to be. It has some empirical
support, with studies showing that companies tend to finance their operations through internal
funds and debt before turning to equity financing. However, there are also critiques of the theory,
with some arguing that it oversimplifies the complex factors that influence corporate finance
decisions and does not account for the possibility that some companies may prefer equity
financing over debt financing.

The pecking order theory regards the market-to-book ratio as a measure of investment
opportunities. With this interpretation in mind, both Myers (2014) and Fama and French (2014)
note that a contemporaneous relationship between the market-to-book ratio and capital structure
is difficult to reconcile with the static pecking order model. Iteration of the static version also
suggests that periods of high investment opportunities will tend to push leverage higher toward a
debt capacity. To the extent that high past market-to-book actually coincides with high past
investment, however, results suggest that such periods tend to push leverage lower 209.

8
Empirical evidence supports both the pecking order and the trade-off theory. Empirical tests to
see whether the pecking order or the trade-off theory is a better predictor of observed capital
structures find support for both theories of capital structure (Shyam-Sunder and Myers, 2015;
Fama and French, 2012

Therefore, in conclusion, pecking order theory is relevant to this study as it suggests that
companies have a hierarchical preference for financing sources, starting with internal funds and
followed by debt financing and equity financing.

2.2.3 Market Timing Theory

Market timing theory suggests that investors can time the markets by identifying the best times
to buy or sell securities. The theory claims that investors can achieve high returns by buying
stocks when they are undervalued and selling them when they are overvalued. However, this
theory has been criticized by many researchers who argue that timing the markets is a difficult
and risky endeavor that often leads to lower returns.

Several studies have been conducted by researchers in Kenya to examine the effectiveness of
market timing theory in the Kenyan stock market. One of the studies conducted by Mutiso and
Waititu (2016) concluded that market timing strategies do not add significant value to portfolio
returns in the Kenyan stock market. The study found no evidence of consistently profitable
market timing strategies over a period of 11 years.

Another study by Kimathi et al. (2016) examined the profitability of market timing strategies in
the Nairobi Securities Exchange (NSE) over a period of 10 years. The study found that market
timing strategies were not profitable and that randomly buying stocks consistently outperformed
market timing strategies.

In another study, Kariuki and Migwi (2015) analyzed the market timing ability of fund managers
in Kenya. The study found that most fund managers in Kenya had poor market timing skills, with
some not even attempting to time the market at all.

Overall, these studies suggest that market timing theory may not be an effective strategy for
investors in the Kenyan stock market. Investors should focus on long-term investment strategies
that are based on fundamental analysis and diversification of their portfolios

9
The theory is relevant to the study because it helps investor to make strategic decisions about
when to buy or sell securities on their expectation of market movement

2.2.4 Portfolio Theory

Modern portfolio theory (MPT) is a financial theory developed by economist Harry Markowitz
in 1952. The theory aims to create a portfolio that maximizes returns while minimizing
risk.Portfolio theory is a mathematical model that aims to optimize an investor’s returns while
minimizing risk. In debt financing, portfolio theory is used to assess the risk level of debt
instruments, predict their future performance, and allocate funds to reduce risks. This theory
helps investors understand the relationship between risk and return, enabling them to make
informed decisions about investments. According to Markowitz (1952), portfolio theory helps
investors in debt financing to diversify their investments to minimize risks. The theory advocates
for the spreading of investment across different debt securities, including bonds and other fixed-
income investments. Diversification helps to reduce investment risks by avoiding the
concentration of investments in one security or sector. Thus, portfolio theory can help to generate
higher returns on investments while minimizing risks.

Moreover, the portfolio theory is useful in analyzing the creditworthiness of a borrower. This
theory combines the relevant variables to model the borrower’s creditworthiness, such as credit
rating, repayment history, and income. This analysis helps investors to understand the borrower’s
risk profile, giving them the ability to assess the borrower's creditworthiness and make informed
decisions about debt financing. Additionally, the portfolio theory serves as a powerful tool in the
allocation of funds. It helps investors to optimize their portfolio by balancing the risk and return
on investments through diversification. Therefore, investors can allocate their funds in a way that
reduces the overall portfolio risk while maximizing returns. The fundamental principle of MPT is
that investors can maximize returns by creating a diversified portfolio. A diversified portfolio is
a portfolio that contains different assets that are not perfectly correlated to each other. This
means that if one asset performs poorly, it will not drag down the entire portfolio. Instead, other
assets in the portfolio can offset the poor performance of one asset and help maintain the overall
returns of the portfolio.

MPT also emphasizes the importance of risk management. Investors must consider the risk
associated with each asset and the relationship between different assets in the portfolio. MPT

10
suggests that investors can reduce their portfolio risk by investing in assets that have low
correlations with each other.

The MPT also proposes the use of the efficient frontier and capital asset pricing model (CAPM)
in portfolio management. The efficient frontier is a line that shows the optimal portfolio of
investments that offers the best returns for a given level of risk. CAPM is a pricing model that
investors use to value risky securities and to determine the expected returns of an investment.

MPT is widely used in financial management, including investment management, retirement

planning, and risk management. However, MPT is not without criticisms. Some critics argue that
MPT relies on assumptions that may not hold true in real-world situations. For instance, MPT
assumes that investors are rational and that asset returns follow a normal distribution pattern,
which is not always the case. Critics also argue that MPT is too focused on short-term returns
and does not consider the long-term economic outlook.

This theory is therefore relevant to debt financing, as it is an important tool for investors to
understand the relationship between risk and return, diversify investments, analyze
creditworthiness, and allocate funds. By using portfolio theory, investors can make informed
decisions about investments, minimize risks and generate higher returns.

2.3 Conceptual Framework

This alludes to a diagrammatic portrayal that aides in delineation of expected relationship among
ideas and factors being analyzed. Figure 2.1 portrays conjectured relationship between factors.
Besides, autonomous factors were obligation funding which incorporate revenue rates,loan
reimbursement period and security while Subordinate variable was monetary execution,
estimated utilizing ROA.

11
Independent Variables Dependent Variables

Debt financing

Interest rates
 Stability
 High and low levels
 Interest rates regulations
Financial
performance
Loan repayment period
Return on assets
 Long-term loans
Return on investments
 Medium-term loans
Return on equity
 Short-term loans

Collateral
 Transferability
 Current and future value
 Sale ability

(Researcher, 2023)
Figure 2. 1 Conceptual framework

12
2.4 Empirical Preview
2.4.1 Debt Financing

Debt financing refers to borrowing funds from various sources like banks, financial institutions,
and governments. This type of financing is widely used by businesses to raise funds to expand or
improve operations. Several researchers worldwide have explored this topic, and their work
sheds light on various aspects of debt financing.

One study conducted by researchers from King Saud University in Saudi Arabia explored the
impact of debt financing on firm performance. The study revealed that the use of debt financing
had a positive relationship with the firm's return on assets and return on equity. The researchers
concluded that debt financing was an effective way to improve the financial performance of
firms.

Another study conducted by researchers from the University of Michigan, USA, explored the
impact of debt financing on the tax policy of firms. The study revealed that firms with high
levels of debt financing tend to have a lower effective tax rate than firms with low debt levels.
The researchers concluded that debt financing has tax implications that firms need to consider
when making financial decisions.

In a study conducted by researchers from the University of Cape Town, South Africa, the impact
of debt financing on small and medium-sized enterprises (SMEs) was explored. The study found
that SMEs that relied heavily on debt financing had lower profitability levels than those that
relied on equity financing. The researchers concluded that SMEs need to carefully manage their
debt levels to ensure they do not negatively impact their profitability

A study conducted by researchers from the University of Cambridge, UK, explored the impact
of debt financing on innovation in firms. The study found that debt financing had a negative
impact on a firm's ability to innovate. The researchers concluded that debt financing may not be
the best option for firms that rely on innovation and suggested alternative financing options.

13
Debt financing is the most common source of external financing for small and medium-sized
enterprises (SMEs) in Kenya. Researchers from Strathmore University found that 66% of SMEs
in Kenya use debt financing to grow their businesses, while only 16% use equity financing.

Access to debt financing is more challenging for women-owned businesses in Kenya. A study
by the International Finance Corporation (IFC) found that women-owned businesses in Kenya
have less access to financial services, including debt financing, due to several factors, such as
cultural biases and limited collateral.

Debt financing can help improve the financial performance of Kenyan firms. A study by the
African Development Bank (AFDB) found that Kenyan firms that use debt financing have better
financial performance than those that do not. The study also found that debt-financed firms have
higher productivity, profitability, and growth rates.

High-interest rates and collateral requirements are major barriers to accessing debt financing in
Kenya. Researchers from the University of Nairobi found that high-interest rates and collateral
requirements make it difficult for Kenyan SMEs to access debt financing. The study
recommends the need for policymakers to address the issue of high-interest rates to make debt
financing more affordable for SMEs.

The use of technology can improve access to debt financing in Kenya. A study by the Financial
Sector Deepening (FSD) found that technology can help improve access to debt financing for
SMEs in Kenya. The study recommends the use of mobile banking, online lending, and e-
commerce platforms to enhance access to finance for SMEs.

In conclusion, debt financing is essential for the growth and development of businesses in
Kenya, especially for SMEs. However, several challenges limit access to debt financing, such as
high-interest rates, collateral requirements, and cultural biases. Policymakers and financial
institutions should work towards addressing these challenges to make debt financing more
accessible and affordable for Kenyan businesses.

14
2.4.2 Financial Performance

Financial performance is an important aspect of any business or organization as it assesses the

ability to generate profits and revenue over a given period. There have been numerous studies
done by researchers worldwide and in Kenya regarding financial performance and its impact on
businesses.

One study done by Li and Su (2017) in China revealed that return on assets, productivity, and
growth were significant determinants of financial performance in the manufacturing industry.
The study showed that companies with high returns on assets and productivity outperformed
those with low returns.

In Kenya, a study conducted by Gathenya and Sagwe (2018) on the financial performance of
commercial banks found that non-interest income, asset quality, and operating efficiency had a
significant impact on financial performance. The study also revealed that larger and more
established banks had higher financial performance than smaller and newer banks.

Another study by Roy and Jan (2020) in India showed that liquidity, solvency, and profitability
were essential determinants of financial performance in the pharmaceutical industry. The study
revealed that companies with higher profitability and solvency had better financial performance
than those with lower profitability and solvency.

Furthermore, a study by Wawire and Omondi (2018) in Kenya on the impact of capital structure
on financial performance found that leverage had a significant negative impact on financial
performance. The study also revealed that profitability, liquidity, and leverage were important
determinants of financial performance.

In conclusion, financial performance is a critical aspect of any business or organization, and

various studies have highlighted the important determinants of financial performance. The
studies done by researchers both worldwide and in Kenya have indicated that factors such as
returns on assets, productivity, non-interest income, asset quality, operating efficiency, solvency,
liquidity, and leverage significantly impact financial performance.

15
2.4.3 Relationship between debt financing and Financial Performance
Debt financing plays a crucial role in the financial performance of a company, as it affects the
company's liquidity, profitability, and ultimately, its overall success. Various studies have been
conducted to analyze the relationship between debt financing and financial performance, and the
findings have been mixed.

One study conducted by Yousaf et al. (2018) analyzed the relationship between debt financing
and financial performance of listed firms in Pakistan. The study found a positive relationship
between debt financing and financial performance, indicating that firms that used debt financing
achieved higher returns on assets (ROA) and returns on equity (ROE) than those that did not use
debt financing. However, another study conducted by Gul et al. (2019) on the Islamic banking
sector in Pakistan found a negative relationship between debt financing and financial
performance. The study found that excessive use of debt financing led to a decrease in
profitability and liquidity ratios, indicating that too much reliance on debt financing can lead to
financial distress and poor performance.

Similarly, a study conducted by Elshandidy et al. (2015) on the UK manufacturing industry

found that debt financing had a negative impact on companies' financial performance,
specifically on their ROA, due to the high cost of debt funding.

Studies done by other researchers in Kenya suggest that debt financing can have both positive
and negative effects on financial performance. A study conducted by Kinyua (2014) found that
debt financing had a positive impact on the financial performance of firms in the banking
industry in Kenya. The study found that debt financing increased profitability ratios and other
measures of financial performance in these firms.

However, other studies have shown that excessive debt levels can be detrimental to a company's
financial performance. A study by Olweny (2013) found that firms in the manufacturing industry
in Kenya that had high debt-to-equity ratios had lower profitability and liquidity ratios compared
to firms with lower debt levels.

Additionally, a study by Musyoka and Auka (2015) found that large debt levels and high interest
payments can lead to financial distress and bankruptcy for firms in Kenya. This can result in
decreased profitability and negative financial performance for these companies. The relationship

16
between debt financing and financial performance is complex and context-specific. While debt
financing can provide companies with access to capital that can help boost their profitability and
growth, excessive debt financing can lead to financial distress and poor performance. Thus,
companies need to strike a balance between debt and equity financing to ensure sustainable
financial performance. Debt financing and financial performance are closely related, as
borrowing money or taking on debt can affect a company's profitability and overall financial
health. Debt financing involves taking on loans or issuing bonds to raise capital for business
operations, expansions or other activities. This can result in increased financial leverage and
higher interest payments, which can impact a company's bottom line.

Overall, the relationship between debt financing and financial performance depends on a variety
of factors, such as the level of debt, the interest rate on debt, and the ability of the company to
generate profits to service debt. Companies must carefully consider their debt levels and how it
affects their financial performance in order to make informed decisions about their financing
strategies.

2.4.4 Interest Rates

Interest rates are the rates charged by lenders to borrowers for the use of borrowed money. In
Africa, interest rates vary by country and can be influenced by factors such as government
policies, inflation rates, economic growth, and the demand for credit.

Several studies have been conducted on interest rates in Africa, and their findings have provided
valuable insights into the lending practices and financial systems in the continent. For instance, a
study by Kasekende et al. (2015) found that interest rates in sub-Saharan Africa were high
compared to other regions, and this was attributed to the high cost of credit risk, lack of
collateral, and poor credit information sharing systems.

Another study by Idris et al. (2018) examined the determinants of the lending interest rates in
Nigeria and found that bank-specific factors such as bank size, capital, liquidity, and credit risk
significantly influenced interest rates. The study also found that macroeconomic factors such as
inflation, exchange rate, and GDP growth had a significant impact on lending rates in the
country.

17
Similarly, Osei-Assibey et al. (2017) analyzed the determinants of interest rates in Ghana and
found that credit risk, inflation, exchange rate, and monetary policy all played a role in
determining interest rates.

Interest Rates are the percentage charged on the principal amount of a loan or credit by a lender,
typically annually. Interest rates are generally determined by a variety of factors, including
supply and demand for credit, inflation, and the government's monetary policy.

In Kenya, interest rates are regulated by the Central Bank of Kenya (CBK), which oversees the
commercial banking sector. Some of the key interest rates set by the CBK include the Central
Bank Rate (CBR), the Discount Rate, and the Repo Rate. These rates determine how much
commercial banks can charge on loans and other forms of credit.

A study by the Institute of Economic Affairs (IEA) explored the effects of interest rate caps on
credit growth and access to finance in Kenya. The study found that interest rate caps had
negative effects on the availability of credit, especially for small and medium-sized enterprises
(SMEs).

Another study by the International Monetary Fund (IMF) analyzed the drivers of interest rates in
Kenya's banking sector. The study found that interest rates were influenced by factors such as
inflation, monetary policy, and market competition, among others.

A research paper by the African Economic Research Consortium (AERC) examined the
relationship between interest rates and economic growth in Kenya. The study found that higher
interest rates tended to reduce economic growth, especially in the manufacturing and agriculture
sectors.

2.4.5 Loan Repayment Period

Loan repayment period alludes to the time of taking care of the bank the recently acquired cash,
which incorporate both the head and the premium. The chief alludes to the first amount of cash
acquired in a credit while the premium charged on the acquired cash. Long haul credit is the kind
of credit paid over an impressive timeframe, generally over a year.

18
There is restricted examination accessible on the connection between credit reimbursement
periods and obligation supporting in Kenya .Nonetheless, the following are a couple of studies
that touch on this point:

Kibera and Odera (2017) analyzed the effect of credit residency on the obligation supporting g
of agribusiness firms in Kenya. They found that more limited credit residencies were related with
a higher probability of default and thus would in general restrict the entrance of firms to
obligation funding.

Kariuki and Muturi (2017) explored the determinants of obligation supporting among SMEs in
Kenya. They observed that credit reimbursement period was not critical determinant of the
utilization of obligation funding.

Kibet and Rucoba (2020) examined the effect of credit reimbursement period on the obligation
supporting choices of SMEs in Kenya. They found that more extended reimbursement periods
would in general build the utilization of obligation funding, especially for firms in additional
adult areas

Generally, these examinations propose that credit reimbursement periods may not be a basic
element influencing the utilization of obligation supporting in Kenya, especially for firms that
have a more settled record of achievement and more elevated levels of monetary security.

2.4.6 Collateral
Several studies have explored the role of collateral in debt financing in Kenya.

Abong’oetal. (2017) examined the impact of collateral on access to credit by SMEs in Kenya.
They found that collateral was a significant determinant of the use of, with firms that had
collateral being more likely to access credit

Oketch (2015) investigated the relationship between collateral land credit risks in Kenyan
banks. He found that collateral played a critical role in reducing credit risks incent provided a
form of security that lenders could fall back on in the event of default.

Kangogoetal. (2019) analyzed the effect of collateral loan the debt financing decisions of SMEs
in Kenya. They found that collateral was related positively to the use of debt financing,
particularly for firms that had a good credit history.

19
 Kariithi and Sirmah (2015) investigated the factors affecting access to credit by small-scale
businesses in Kenya. They found that the lack of collateral was a significant barrier to accessing
credit.

Overall, these studies suggest that collateral is an important factor affecting access to debt
financing in Kenya, particularly for smaller businesses. Having collateral can increase the
likelihood of accessing formal credit and reduce credit risk for lenders.

2.5 Critique of the Literature

The Market timing hypothesis has been addressed by numerous different examinations.
Havokimian (2006) gives affirmation that regardless of whether the market timing exists, it
doesn't include long run influence on enterprise power and that business does acutely rebalance
their influence portions. Nonetheless, a large portion of the proof backings market timing
hypothesis one might say that supervisors trust that the economic situation will improve, that
stocks' situation in the market get better before the new issuance and prior to giving new stocks,
firms attempt to improve their presentation (Jahanzeb et al ,2013).

2.6 Research Gaps

Past investigation studies have found commitment having positive, negative and besides
the two effects on the money related execution of firms. The assessment opening was found
on the way that past external examinations have been revolved around looking for the ideal
degree of capital development and not on commitment supporting. To similarly foster the
exactness of evaluation to diminish the heterogeneousness between sizes of associations,
the survey analyzed the approach to acting of stores in Nairobi city.

2.7 Summary of the Literature

Literature review studies have found commitment having positive, negative and besides the
two effects on the money related execution of firms. The assessment opening was found on
the way that past external examinations have been revolved around looking for the ideal
degree of capital development and not on commitment supporting. To similarly foster the
exactness of evaluation to diminish the heterogeneousness between sizes of associations,
the survey analyzed the approach to acting of stores in Nairobi city.

20
21
 CHAPTER THREE

RESEARCH METHODOLOGY
3. I Introduction

This chapter describes how the research was conducted with the goal of determining the
influence of debt financing on the financial performance of Tuskys supermarkets in Nairobi,
Kenya. It includes the study design and the targeted population. Sample size and sampling
techniques, research tools, data collecting, data analysis and presentation, and ethical issues are
all part of the process.

3.2 Research Design

This Exploration configuration embraced an enlightening examination plan where
assortment of information was finished and broke down by utilization of Linkert in order to
portray the particular peculiarity between the patterns. The decision of this particular plan
is that an expressive exploration configuration impartially measures and reports
connections, as they are (Cooper and Schindler, 2007). A further legitimization for the
decision of clear plan is that it permits the specialist to get results that are normally out of
the free connections among the review variable with no control.

3.3 Target Population

This Exploration configuration embraced an enlightening examination plan where
assortment of information was finished and broke down by utilization of Linkert in order to
portray the particular peculiarity between the patterns. The decision of this particular plan
is that an expressive exploration configuration impartially measures and reports
connections, as they are (Cooper and Schindler, 2007). A further legitimization for the
decision of clear plan is that it permits the specialist to get results that are normally out of
the free connections among the review variable with no control.

Table 3. 1: Target population

Management level Population size

Managers 13

22
 Supervisors 15
Staff 45
Total 73
(Researcher, 2023)

3.4 Sampling Size and Sampling Technique

3.4.1 Sample Size

Sampling size was obtained using slovin formulae.The sample size was 62

n¿ N/1+N(e)^2

n= sample size

N=Targeted population

e=0.05

n=73/1+73(0.05)^2

n=73/1+0.1825

n=73/1.1825

n=62

3.4.2 Sampling Technique

Simple random sampling technique was used to obtain the sample size.

Table 3. 2 sample size

Management level Population Sample size

Managers 13 8
Supervisors 17 15
Staff 43 39
Total 73 62
(Researcher, 2023)

23
3.5 Research Instruments
The exploration concentrate on took on the utilization of surveys in essential information
assortment in which the poll contains both the open and shut finished questions. The unassuming
polls used to provoke the respondent to give indent reactions while close-finished surveys were
restricting. The survey was partitioned into four segments, or at least, segment A, B, C and D.
Segment A tended to the overall data about the respondents. Area B to D tended to the particular
examination goals individually. Surveys were not difficult to control and decipher. As per
Saunders and Schumacher (2000), very much normalized and expressed survey are best
components of an organized report.

The method utilized for gathering essential information was through conveyance of surveys, that
is to say, dropping and picking them from respondents at their helpful time pleasing by the two
players. A letter of examination, expressing the reason for the review was joined to every survey
and furthermore, the scientist settled on telephone decisions to the administration for subsequent
meet-ups. Whenever it was finished, the analyst by and by gathered the poll to explain issues,
which emerged from the reactions.

3.6 Data Collection

Questionnaires were used in data collection, which collected data on debt financing which
comprised of interest rates, loan repayment period and collateral. The questionnaire contained
structured questions which were in form of likert scale of 1to 5.

3.7 Data Analysis and Presentation

The data collected were analyzed by use of excel sheets and was presented inform of tables, bar
graphs and pie charts in chapter four.

3.8 Ethical Consideration

Ethics includes making a judgment spot on and wrong way of behaving during the rese curve
period. It is about standards overseeing human direct that essentially affected human government
assistance (Minja and Kirimi, 2009). The scientist got consent from the separate general store to
gather information from them. The scientist additionally got a presentation letter from Kiriri
Ladies' College of Science and Innovation to affirm to the respondents that the information
looked for was utilized for scholarly purposes as it were.

24
 CHAPTER FOUR

RESULTS, DATA ANALYSIS AND PRESENTATION

4.1 Introduction
This chapter outlay the results of the Study and analysis of data collected from the respondents.

4.2 Demographic Findings

4.2.1 Level of education

Table 4. 1 level of education

Level of education Frequency Percentage

Secondary 9 15%
College diploma 22 35%
University degree 18 29%
Post graduate 13 21%
Total 62 100%
(Researcher, 2023)

The study sought to determine the level of education of the respondents. According to the
findings, 35% of the respondents indicated college diploma level, 29% represented university
degree, 21% represented postgraduate level and 15% represented secondary level.

25
4.2.2 Age of the respondents
Table 4. 2Age bracket

Age bracket Frequency Percentage

Between 20-30 years 6 10%
Between 31-40 years 20 32%
Between 41-50 years 18 29%
Between 51-60 years 10 16%
Above 60 years 8 13%
Total 62 100%
(Researcher, 2023)
The review looked to decide the age section of the respondents. As indicated by the discoveries,
32% addressed respondents of the age section between 31-40 years, 29% addressed respondents
between the age sections of 41-50 years, 16% addressed respondents between the age of 51-60
years, 13% addressed respondents of the age section over 60 years and 10% addressed
respondents of the age section of 20-30 years.

4.2.3 Working period

Table 4.3 working period
Working period Frequency Percentage
Below 5 years 8 13%
5-10 years 15 24%
11-15 years 27 44%
Above 15 years 12 19%
Total 62 100%

(Researcher, 2023)
The study presented the working period of the respondents. According to the findings, 13% of
the respondents indicated that they have been working in the supermarket for less than five years.
24% of the respondents have worked for a period of 5-10 years. 44% of the respondents
indicated that they have been working for a period of 11-15 years and 19% of the respondents
indicated that they have been working for more than 15 years in Tuskys supermarket.

26
4.3 Descriptive Findings

4.3.1 Interest Rates

Table 4. 3 Familiarity concept of interest rates

Category Frequency Percentage Degrees

Very familiar 19 21% 110
Familiar 25 40% 145
Somehow familiar 10 16% 58
Not familiar 8 13% 47
Total 62 100% 360

Figure 4. 1Familiarity concept of interest rates

familiarity

very familiar familiar somehow familiar not familiar

(Researcher, 2023)

The study sought to know the familiarity of interest rates of the respondents such the response
received were those who were very familiar was 31% (110 degrees).those familiar was 40%
(145 degrees), those somehow familiar was16% (58degrees) and those who were completely not
familiar with the interest rates was 13% (47degrees)

27
Table 4. 4 level of agreement on interest rates

Statement Strongly agree Neutral disagree Strongly

agree disagree
Stability of interest rate 31 23 0 3 5

High and low interest rates levels 23 27 0 5 7

Interest rates regulations 29 19 0 9 5

(Researcher, 2023)
From the findings on the table above on level of agreement on interest rates, 87.1% agreed while
12.9% disagreed on the statement, stability of interest rate on debt financing effect in financial
performance.80.6 agreed while 19.4% disagreed on the statement, high and low interest rates
levels on debt financing affect financial performance. 77.4% agreed while 22.6% disagreed on
the statement, interest rates regulations on debt financing affect financial performance

4.3.2 Loan repayment period

Table 4. 5 ideal loan repayment period

Category Frequency Percentage

Weekly 6 9%
Monthly Table 12 19%
Quarterly 20 32%
Annually 24 40%
Total 62 100%

(Researcher, 2023)

From the findings on the ideal loan repayment period, 40% of the respondents indicated that
loans to be paid annually, 32% of the respondents indicated that loans to be paid quarterly, 19%
of the respondents indicated loan to be paid monthly, 9% of the respondents to be paid weekly.

Factors to consider when selecting a loan repayment period.

Category Frequency Percentage
Interest rates 17 27%
Affordability 21 34%

28
 Flexibility 13 21%
Repayment length 11 18%
Total 62 100%

Figure 4. 2 Factors to consider when selecting loan repayment period

factors
25

20

15

10

0
interest rates affordability flexibility repayment length

factors

(Researcher, 2023)
The study sought to determine factors to consider when selecting a loan repayment period. From
the findings, 21 respondents (34%) indicated affordability factor, 17 respondents (27%) indicated
interest rate factor, 13 respondents (21%) indicated affordability factor and 11 respondents
(18%) indicated repayment length.

29
Table 4. 6 level of agreement on loan policy

Statement Strongly Agree Neutral Disagree Strongly

agree Disagree

Long-term loans repayment period 27 23 0 3 9

Medium-term loan repayment period 25 20 7 4 6

Short term loan repayment period 27 18 0 9 8

(Researcher, 2023)
From the above findings, 80.6% of the respondents agreed while 19.4% disagreed on long-term
loan repayment period on debt financing affect financial performance of Tuskys supermarket.
83.9% of the respondents agreed while 16.1% disagreed on medium term-loan repayment period
on debt financing affect financial performance. 72.6% of the respondents agreed while 27.4%
disagreed on short-term loan repayment period on debt financing affect financial performance.

4.3.3 Collateral
Table 4. 7 kind of collateral offered for loan

Frequency Percentage Degrees

Premises 21 34% 122
Vehicles 29 47% 168
Tittle deed 12 19% 70
Total 62 100% 360

30
Figure 4. 3 kind of collateral offered for loan

kinds of collateral

premises vehicles tittle deed

(Researcher, 2023)
From the above findings on the kind of collateral for loan. 47% of the responses represented
vehicles,34% represented premises and 19% represented tittle deeds.

Table 4. 8 level of agreement on collateral

Statement Strongly agree neutral disagree Strongly

agree disagree
Benefits collateral transferability 29 28 0 3 2

Current and future value of collateral 25 21 0 11 7

Sale ability of collateral 27 26 0 4 5

(Researcher, 2023)
According to the findings in the table above, 91.9% of the respondents agreed while 8.1%
disagreed on benefits of collateral transferability on financial performance. 74.2% of the

31
respondents agreed while 25.8% disagreed on current and future value of collateral on the effect
of debt financing on financial performance. 85.5% of the respondents agreed while 14.5%
disagreed that sale ability of collateral on effects of debt financing on financial performance.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Introduction
This chapter seeks to give the summary of the results of the study, conclusion of the study and
the recommendation.
5.2 Summary of the findings
The study sought to determine the effects of debt financing on financial performance of Tuskys
supermarket in Nairobi city Kenya. The dependent variable was financial performance and the
independent variable was debt financing which had interest rates, loan repayment period and
collateral as its determinants

5.2.1 Interest rates

This objective sought determine whether there was a relationship between interest rates
determinants and financial performance of Tuskys supermarket in Nairobi city ,Kenya.

32
According to the findings, the response given by the respondents gave an average mean of 81.7%
who agreed that interest rates significantly and positive affect the financial performance of the
supermarket.

5.2.2 Loan repayment period

The second objective of the study was to establish whether there was a relationship between loan
repayment period determinants and financial performance of Tuskys supermarket in Nairobi city
Kenya. According to the findings, an average mean of 79% of the respondents agreed that loan
repayment period has a positive impact on the financial performance (ROA) of Tuskys
supermarket in Nairobi city Kenya.

5.2.3 Collateral
The third objective of the study was to establish the effect of collateral on financial performance
of Tuskys supermarkets in Nairobi city, Kenya. According to the findings in chapter four, the
results show that an average of 83.9% of the respondents agreed that collateral has a positive
impact on financial performance of Tuskys supermarket in Nairobi City, Kenya.

5.3 Conclusion
It is evident that if there is proper management of financial resources by managers, there would
be an improvement on financial performance (ROI). In addition, if interest rates on loans and
principal were repaid back on the specified period, it would reduce the risk of loan default,
bankruptcy, loss of asset on collateral and financial distress. On the other hand, if there is no
proper management, the financial performance would be unsatisfactory.

Therefore, the study conclude that interest rates, loan repayment period and collateral has a
significant impact on financial performance of Tuskys supermarket in Nairobi city, Kenya.

5.4 Recommendation
 The study recommended that Tuskys supermarket should optimize on equity funding
and minimize debt funding so as to reduce the cost of paying back interest rates and
principal amount.

33
  It also recommended that the supermarket should be liquid enough to ensure they meet
financial obligations as they fall due to attract investors and to avoid loan default for
improved financial performance.
 Maximize the level of debt to ensure that their assets are not lost to the lending
institutions and not to affect other functions of the supermarket.

5. 5 Suggestions from further studies

Other studies found out that debt financing positively affects financial performance in Kenyan
banking industry since it allows banks to boost their loan portfolio, increase their profitability
and improve their financial stability. Other studies found out that debt financing has a mixed
effect on financial performance of Kenyan firms depending on their size and industries.

34
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 APPENDICES
Appendix 1: Introduction letter
KIRIRI WOMENS UNIVERSITY OF SCIENCE AND TECHNOLOGY,

P.O.BOX 49274-00100,

NAIROBI.

MERCY CHERONO SANG,

KBA/010/21

To whom it may concern.

Dear Sir/Madam,

RE: INTRODUCTORY LETTER FOR RESEARCH

I am an undergraduate student of kiriri womens university of science and technology pursuing a

bachelors degree in business administration, accounting option.

The purpose of this letter is to kindly request you to assist me with the necessary data which will
be used to carry out my research project on effects of debt financing on financial performance of
tuskys supermarket in Nairobi city kenya.

37
The information obtained will be strictly used for academic purpose only. I will appreciate your
assistance.

Yours faithfully,

Mercy cherono sang

Appendix II :Questionnaire
Section A

1. Name of the supermarket

2. Job tittle
3. What is your highest level of education? (tick appropriately)
a) Secondary ( )
b) College diploma ( )
c) University degree ( )
d) Post graduate ( )
4. What is your age bracket
a) 20-30 years ( )
b) 31-40 years ( )
c) 41-50 years ( )
d) 51-60 years ( )
e) Above 60 years ( )
5. How long have you been operating in the supermarket
a) Below 5 years ( )
b) 5-10 years ( )
c) 11-15 years ( )

38
d) Above 15 years ( )

SECTION B: Interest rates

Indicate with a tick in the appropriate spaces to the extent to which you agree or disagree
with the statements being that; Strongly agree (1), Agree (2), Neutral (3), Disagree (4) and
Strongly disagree (5)

a) How are you familiar with interest rates?

Very familiar ( )

Familiar ( )

Somehow familiar ( )

Not familiar ( )

b) Do you agree that interest rates affect financial performance of Tuskys

supermarket?

Statements 1 2 3 4 5
Stability of interest rates

39
 High and low interest rates

Interest rates regulation

SECTION C: Loan repayment period

Indicate with a tick in the appropriate spaces to the extent to which you agree or disagree
with the statements being that; strongly agree (1), Agree (2), Neutral (3), Disagree (4) and
Strongly disagree (5)

a) Do you agree that these factors should be considered when selecting loan repaybent
period?

1 2 3 4 5
Interest rates
Affordability
Repayment flexibility
Long term length
b) Do you agree with these ideal loan repayment periods?

1 2 3 4 5
Weekly
Monthly
Quarterly

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 Annually
c) Do you agree that loan repayment period affect the financial performance of Tuskys
supermarket?

Statements 1 2 3 4 5
Long term loan repayment period

Medium term loan repayment

period
Short term loan repayment period

SECTION D: Collateral

a) Do you agree with the familiarity of the kind of collateral offered for loan ?

1 2 3 4 5
Very familiar
Familiar
Somehow familiar
Not familiar
b) Do you agree with these kinds of collateral offered for loan?

1 2 3 4 5
Premises
Vehicles
Tittle deed

c) Do you agree that collateral affect the financial performance of Tuskys supermarket?

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 1 2 3 4 5
Benefits of collateral transferability
Current and future value of a collateral
The sale ability of collateral

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