EVALUATION OF COST BENEFIT ANALYSIS AS A TOOL ON FINANCIAL PERFORMANCE OF SELECTED PUBLIC SUGAR FIRMS IN KENYA

Abstract

There has been a lot of concern over rising operational costs across the globe and more so
particularly in Kenya due to energy costs, staff costs and even borrowing costs amongst many
others. Sugar firms have over the last few years faced financial challenges causing uncertainty
and anxiety to key stakeholders within and outside the company. The problem for the research
was the apparent high operational costs that continued being exhibited which resulted in
losses and therefore poor performance. The purpose of this study is to evaluate cost benefit
analysis tools on financial performance of selected public sugar firms in Kenya. The specific
objective of the study was to determine the extent of application of Cost-Benefit Analysis as a
tool on financial performance. On average, the cost of producing a ton of sugar was highest at
USD 870 and lowest at USD 300 in Kenya and Brazil which showed an extreme and
unfavorable variance against sugar firms in Kenya of USD 570 (Eleventh Parliament,Third
Session, 2015). The problem for the research was the apparent high operational costs that
were being exhibited uncontrollably and which resulted in losses and therefore poor financial
performance of the selected public sugar companies in Kenya. Cost - Benefit Analysis
provides a means of appraising the future benefits in light of the costs that must be incurred in
the present and its purpose is to measure the expected benefits of the investment so as to guide
in rational resource allocation (Woodhall, 2004). Amongst the many accounting – based
financial performance measurements are Return on Assets (ROA), Gross Profit Margin,
Return On Investment (ROI) and Earnings Per Share (San & Heng, 2011). In the report of
Cokins(2006), it stated that there was an overwhelming desire among firms to know well
their costs and factors that drive them. It however found out that there is no clear
understanding of the costs and the tools or methods to distinguish them. The reviewed
literature above does not show any work done on evaluation of Cost Benefit Analysis Tools
on financial performance of corporate organizations. A mixed methodology was used because