Analysis of Financial System Governance on Financial Sustainability of Manufacturing Companies in Rwanda

Harelimana BJ and Buregeya BJ

Published on: 2020-10-29

Abstract

This study intended to analyse the financial system governance on financial sustainability of manufacturing company in Rwanda. The objective of this study was to find out the relationship between financial system governance and financial sustainability of AMEKI COLOR. The Methodology applied the descriptive and linear regression approaches. Target population was 270 employees of AMEKI COLOR and Sample size were 73 respondents. The findings on the level of determinants of financial system governance of AMEKI COLOR were presented on the tables from 4.2 to 4.6 that show the financial system subsidiarity as confirmed on average rate of 75.9%. The financial system deserved authority is confirmed on average rate of 81.4%. The financial system mutual trust confirmed on average rate of 83.55% while the efficiency financial decision making of AMEKI COLOR confirmed on average rate of 88.0%. The levels of indicators of financial sustainability of AMEKI COLOR presented on the table 4.7 up to 4.15 which confirmed that profitability was confirmed on average rate of  85.83%. The liquidity of AMEKI COLOR was confirmed on average rate of 84.25%. Solvability was on average rate of 89.46% as confirmed by respondents of AMEKI COLOR. In terms of the relationship between financial system governance and financial sustainability of AMEKI COLOR were shown table 4.18 which confirmed that proper financial system mutual trust between staff help organization to increase performance was on rate of 86.3% respondents. Based to the findings the research hypotheses were verified where null hypothesis was rejected and alternative hypothesis was retained by saying that there is a relationship between financial system governance and financial sustainability of AMEKI COLOR. AMEKI COLOR should take the stock of the overall performance of the portfolio in relation to the program’s objectives and strategies.

Keywords

Financial System Governance; Financial Sustainability; and Manufacturing Company

Introduction

The ultimate goal of every manufacturing firm's strategy is to enable thinking and acting over the long term, creating a competitive position on a set of performances [1]. Since the 1990s, sustainable production and products have become a selling argument and part of the business strategy of many companies [2]. Global restrictions, legislation, and customers' awareness of sustainability, together with the worldwide competitive environment, have forced companies to recognize their impacts on the triple bottom line i.e. environment, society, and economy [3]. Including sustainability as a new paradigm for manufacturing companies, which is supposed to enhance business growth and competitiveness by means of environmental and social soundness, has created new opportunities and challenges for firms World Economic Forum, 2012. Industries have been required to foster their environmental and social performance to comply with the demands of pressures from several stakeholders [4,5]. The sustainable manufacturing as the capacity to use natural resources in such a way that the economic, environmental, and social aspects are attained, minimizing the adverse impacts of industrial operations on the environment [6]. Then, the measurement of sustainability should go beyond the traditional considerations of return on investment, profits, and shareholder value [7]. In 1999, many leading firms in the United States, Europe, and Japan decided to become sustainable companies and adopted many initiatives to improve the environmental and social performance of their products, processes, and facilities [8]. Nevertheless, they faced the challenge of tracking their evolution towards financial sustainability. To support the decision-makers, the author [9]. proposed a model to measure the sustainable performance considering (a) the resource and value indicators; (b) the environmental, economic, and social dimensions; (c) the life cycle of products; and (d) financial system governance. The financial system is more than just the institutions that facilitate payments and extend credit. It can be thought of as encompassing all those functions that direct real resources to their ultimate uses. In this sense, it is the central nervous system of a market economy [10].  The financial system contains a number of separate, though interdependent, components, all of which are essential to its effective working. One is the set of intermediaries (such as banks and insurance companies) which act as principals in assuming liabilities and acquiring claims. A second is the markets in which claims are exchanged. These include those for equity and fixed-interest securities, but also exchanges or over-the-counter markets for foreign currencies, commodities, and derivative contracts [11-13]. A third is the infrastructure necessary for the effective interaction of intermediaries and markets. Infrastructure includes, most obviously, securities exchanges and payment and settlement systems. This would include, for example, credit ratings, accounting, auditing, and financial analysis, as well as the supervisory and regulatory framework for ensure the effective financial system governance. The three components intermediaries, markets, and infrastructure are inextricably intertwined to achieve on financial sustainability [14]. In African’s Countries, various components of the financial system work together to improve the information available to guide the allocation of resources for firms where the high-quality information is the raw material for directing resources to their most efficient use, facilitating intertemporal contracts, and thus strengthening growth potential. Financial sector reform, to be of greatest service to users of financial services, should protect and enhance the capacity of the system to generate such information and make the financial sustainability of the firms [15]. In fact, of course, well-functioning financial system governance plays an essential role in generating high levels of saving, promoting the efficient allocation of investment, and smoothing economic fluctuations stemming from nonfinancial causes. By facilitating informed risk taking, it is a key element in achieving optimal levels of productivity growth and rising living standards [16]. In EAC especially Kenya, Tanzania Uganda, the financial system consists of institutional units and markets that interact, typically in a complex manner, for the purpose of mobilizing funds for investment and providing facilities, including payment systems, for the financing of commercial activity. Financial markets provide a forum within which financial claims can be traded under established rules of conduct and can facilitate the management and transformation of risk. Sound financial system is crucial for country’s economic growth and competitiveness and also for the strengthening global economy at the same time. For sound financial system the most important is that all the main components for the strong financial base are in place in mutually supportive and self-reinforcing ways [17].  According Rwanda Industrial Policy report 2011 Rwanda’s manufacturing sector has been experiencing a steady growth. But every success always has its mothers and fathers, which in case of Rwanda manufacturing sector can be brought around one common denominator includes National Policies. Those policies driving the growth of manufacturing sector we can say Vision 2020, where an industrial contribution of 26% to GDP by 2020 is expected; EDPRS 2, where industrial contribution of 20% to GDP by 2018 is expected and annual growth rate of 14%. Rwanda aims at increasing domestic production, improving export competitiveness and creating an enabling environment for industrialization; Private Sector Development Strategy which aims at building a more competitive manufacturing sector; Favourable fiscal and non-fiscal incentives provided to manufacturers; Serviced land in Special Economic Zones and industrial parks to facilitate quick project implementation; stimulates financial system, and Export Processing Zone (EPZ) status advantages for manufacturers who export 80% of their produce (MINICOM, 2016).

Objectives

The general objective of this study is to analyse the financial system governance on financial sustainability of manufacturing company in Rwanda. The specific objectives are:

  • To analyze the levels of indicators of financial sustainability of AMEKI COLOR
  • To assess the of determinants of financial system governance of AMEKI COLOR
  • To find out the relationship between financial system governance and financial sustainability of AMEKI COLOR.

Literature review

The study of Wagner C, on measuring the Sustainability of a Manufacturing Process: A conceptual framework [18]. They argued that recently, besides recurrent financial gains, industries have been required to boost their environmental and social performance to fulfill the demands of several stakeholders. Moreover, the need to measure the sustainability of manufacturing processes is recognized because the production and operations managers need to know how they are contributing to the triple bottom line of their respective companies.

To do that, many initiatives have been developed although all of them face some limitations:

  • They are only appropriate for the company as a whole, which makes their application for a manufacturing process difficult;
  • They consider the measures for sustainability (economic, environmental and social) as separate variables with no integration among them, which could become a methodological difficulty in case indicators move in different directions; or
  • They are too complicated to be used as a practical tool on the factory floor.

Hence, this study proposes a framework to evaluate the sustainability level of a manufacturing process, integrating the economic, environmental, and social variables into a single combined measure. A case study exemplifies how the proposed procedure can be applied in real-world situations. Joseph Momanyi 2018 studied the effects of corporate governance practices on growth of microfinance institutions in Kenya. This study seeks to analyze the effect of corporate governance practices on the growth of microfinance institutions in Kenya. The objectives of the study were to analyze the effect of financial accountability on growth of microfinance institutions, assess financial sustainability on growth of microfinance institutions and establishing how financial transparency affect the growth of microfinance institutions in Kenya. This was a census study based on all the 43 non-bank deposit-taking microfinance institutions registered with Association of Microfinance Institutions (AMFI). Normality tests were carried out using the Kolmogorov-Smirnov normality test. The data was subject to both descriptive and inferential statistics. It was found out that only financial transparency was a statistically significant predictor of asset growth among institutions registered with AMFI-K. It was concluded that not also aspects of the corporate governance induce growth in the industry. This study recommends that the country therefore needs to strengthen policies to improve institution-level corporate governance in order to attract investors and bolster overall growth. The study of Christian Herzigand Jeremy Moon, (2010) on corporate social responsibility, the financial sector and economic recession. The financial crisis has brought about dramatic consequences for our economy and society and we are still witnessing a fragile recovery. The financial sector has been broadly held at least partly responsible for the financial crisis, albeit in the context of regulatory failure and borrower short-sightedness. The question of sources of responsibility for the crisis has drawn attention to the concept of corporate social responsibility (CSR) and its relationship with the recession.  CSR is a contested and cluster concept which in essence refers to the expectations that business is:

  • Responsible for its impacts on society and the environment,
  • Accountable for these impacts,
  • Conducted in a responsible fashion and
  • Managed within the corporation-society interface.

This paper briefly introduces the concept of CSR, particularly with regard to its relationship to the financial sector and the recession.  Building upon a short analysis of the UK recession in the 1980s and the rise of CSR since then, our main interest is debate around the group of questions which emerge from the current recession and the role of CSR in the financial sector.  With this in mind, the paper presents findings from a discourse analysis of articles and reports which were published in UK media between September 2007 and August 2009. The four discourses which emerge from our analysis provide insights into distinct types of attitudinal change and expectations of the change required to ensure a more responsible financial sector. They are titled ‘Market Rationalization’, ‘Moralization and Ethical Leadership’, ‘reconceptualisation and Professionalization’ and ‘Political Economy Restructuring’ and presented in depth the paper using illustrative quotations. Findings reveal a tension in the discourses concerning the sector’s ability to ‘heal itself’. Moreover, the function of accountability and the question of the capacity of CSR to be a reliable feature of responsible business emerge across all four discourses and are discussed in the paper. Crucially, the insights into the array of possible responses enable leaders and professionals, companies and institutions to better understand the shared disquiet about the state of responsibility in the financial sector and may act as a device to better embed responsibility in the financial sector and avoid future crises.

Satisfaction and Existence

Based on the model results, the basic scheme of system activity is as follows:

  • The system identifies dissatisfaction - uneven distribution, stress - and is activated
  • As a prerequisite for the solution, stress is found in the distribution of success
  • In the summary of these stresses of success, a proven solution scheme is found
  • Based on it, the reconstruction mechanisms will be activated
  • These mechanisms will remove the stress of success and, consequently, satisfaction

The activity of the system is thus an eternal cycle of solving dissatisfaction, and hence the extraordinary importance of the parts of the proceedings connected with its identification. At the same time, it can be seen that from the point of view of the global, aggregate activity of the object, it is possible to combine "existence" with a pair of phenomena: the increase of dissatisfaction and with the distance its decrease. This is the scheme of existence. Satisfaction itself is determined in the model for management purposes as the standard deviation of the distribution of success in a group of companies. It is always a group that is somehow similar, ie, for example, doing business in the same area and it is possible to assume that their success will be similar. By the way, whenever there is talk of a property of a company, it is always a matter of changing it. Thus, the change in success is monitored and its irregularities create the magnitude of the stress of success. A change in satisfaction as a change in the uniformity of the distribution of a change in success creates a quantity of satisfaction stress, etc.

Methodology

This study employed both quantitative and qualitative approaches. In respect of this study, descriptive approach was applied where it is describing the levels of financial determinants factors of financial system governance of AMEKI COLOR as independent variable, and the levels of indicators of financial sustainability of AMEKI COLOR as dependent variable.  The correlational approach is also adopted in this study by using Statistical Packages for Social Sciences as statistical tool in order to show the relationship between financial system governance and financial sustainability of AMEKI COLOR. According to Mathias and Jackson (2001), a sample is a part of population, which is deliberately selected for the purpose of investigating the properties of the parent population.  In this study, sample size is selected from the target population of 270 employees who work in AMEKI COLOR. This study uses 10% of margin errors and confidence level is 90%. The study applies the formula of Taro Yamane 1982 [19-22].

Table 1: Sample size structure.

 No

All services/AMEKI COLOR

Target population

Sample size

1

Administration

7

2

2

Finance

5

1

3

Importation

3

1

4

HRM

3

1

6

Maintenance

13

4

7

Selling services

19

5

10

Marketing

4

1

14

Paints production unit

129

35

16

Metallic fabrication unit

18

5

17

Plastic Fabrication unit

16

4

18

Polyester

12

3

19

Atelier Meubles

32

9

20

Unit of mechanical engineering

9

2

Total

270

73

solvability” as dependent variable. 

Where, Y is dependent variable indicators which are presented by “profitability, liquidity, and solvability”. X is independent variable factors which are “Financial system subsidiarity; Financial system deserved authority; Financial system mutual trust; and Efficiency financial decision making”.

Results and Discussion

Determinants of financial system governance of AMEKI COLOR

The results found that the determinants of financial system governance of this manufacturing company were looked in its financial system subsidiarity, financial system deserved authority, financial system mutual trust, and efficiency financial decision making. The financial system subsidiarity of AMEKI COLOR as among the determinants of financial system governance of AMEKI COLOR where good division of roles, responsibilities, tasks and powers within the organization were confirmed on rate of 76.7% of respondents. Build the capacity of those responsible for the tasks effectively were confirmed by 91.8% respondents. Organize good supervision of tasks were on rate of 68.5%. Set up a good performance management system were confirmed by 79.5% respondents. Everyone is more focused on the tasks for which they are most appropriate were on rate of 72.6%. More economy within less displacement and wasted time were confirmed by 67.1% respondents from AMEKI COLOR. More motivation and more productivity were on rate of 75.3% respondents. The findings on the financial system subsidiarity as determinant of financial system governance of AMEKI COLOR included by good division of roles, responsibilities, tasks and powers within the organization, build the capacity of those responsible for the tasks effectively, organize good supervision of tasks, set up a good performance management system, everyone is more focused on the tasks for which they are most appropriate, more economy within less displacement and wasted time, and more motivation and more productivity of AMEKI COLOR as confirmed on average rate of 75.9%. The perceptions of respondents on the financial system deserved authority as determinant of financial system governance of AMEKI COLOR where persons in authority provide evidence of their skills and legitimacy was confirmed by 67.1%. Employees execute orders more easily as confirmed by 79.5%. The problems quickly returned to authority were confirmed by 79.5% respondents. Motivation and productivity are high were confirmed by 87.7% respondents. Authority is concerned with doing the right thing were confirmed by 93.2% respondents. Generally, the financial system deserved authority is determinant of financial system governance of AMEKI COLOR that presented by the persons in authority provides evidence of their skills and legitimacy, the employees execute orders more easily, the problems quickly returned to authority, motivation and productivity are high, and authority is concerned with doing the right thing as confirmed on average rate of 81.4%. The perceptions of respondents on the financial system mutual trust as determinant of financial system governance. In AMEKI COLOR, the productive relaxation was confirmed by 89.0% respondents to be factor of financial system mutual trust. Taking initiative was confirmed by 78.1% respondents of AMEKI COLOR.  Positive synergies were confirmed by 80.8% respondents while to make sure that others do their work properly in AMEKI COLOR were confirmed by 86.3% respondents. According to the results indicated above, we may conclude saying that financial system mutual trust characterized by productive relaxation, taking initiative, positive synergies, and make sure that others do their work properly in the financial system governance of AMEKI COLOR as influence of its sustainability as confirmed on average rate of 83.55%. The perceptions of respondents on efficiency financial decision making as determinant of financial system governance of AMEKI COLOR where evaluation of the income statement or statement of comprehensive income was confirmed by 91.8% respondents. Checking the statement of financial position was 90.4% respondents. Elaboration of the statement of changes in equity was on rate of 84.9% respondents. Preparation of the future plan of improvement was confirmed by 84.9% respondents. The findings from respondents on the efficiency financial decision making of AMEKI COLOR as determinant of financial system governance confirmed AMEKI COLOR presents the evaluation of the income statement or statement of comprehensive income, checking the statement of financial position, elaboration of the statement of changes in equity, and preparation of the future plan of improvement in the efficiency financial decision making of AMEKI COLOR as confirmed on average rate of 88.0%. The ffinancial system subsidiarity is determinant of financial system governance: this was indicated by a strong mean of 4.2400 and a standard deviation of .61160. This implies that financial system subsidiarity is determinant of financial system governance of AMEKI COLOR that influences its sustainability. Financial system deserved authority is determinant of financial system governance of AMEKI COLOR: This was indicated by a strong mean of 4.2267 and a standard deviation of .55928. This implies that financial system in financial system governance helps AMEKI COLOR to be sustainable in present and future. Financial system mutual trust is determinant of financial system governance of AMEKI COLOR: This was indicated by a strong mean of 4.2800 and a standard deviation of .45202. This implies that financial system mutual trust has made the influence in the financial system governance of AMEKI COLOR. Efficiency financial decision making is determinant of financial system governance: This was indicated by a strong mean of 4.4267 and a standard deviation of .49792. This implies that Efficiency financial decision making is easy to make sustainability in the financial system governance of AMEKI COLOR. Overall assessment shows that financial system governance has improved in AMEKI COLOR; this was indicated by a mean of 4.2933 and a standard deviation of .53020. This implies that determinants of financial system governance have improved sustainability of AMEKI COLOR.

Financial sustainability of AMEKI COLOR

The perception on the profitability where there is progressive Return on Asset was confirmed on the rate of 84.9%. Progressive Return on Equity was confirmed by 87.7%. Progressive net gross profit was on the rate of 84.9%. The profitability was confirmed on average rate of 85.83%.

Return on Assets of AMEKI COLOR

In 2012, AMEKI presents the ROA was 17,10%, in 2013 was 18,50%, ROA in 2014 was 15,78%,  in 2015 it was 12,26%,  in 2016 ROA was 50,82%, in 2017 ROA was 15.00%, in 2018 was 9.17% while in 2019, ROA was 8,68%. However, this metric measures how effectively the AMEKI COLOR produces income from its assets. They calculate ROA by dividing net income for the current year by the value of all the company's assets and multiplying the quotient by 100. AMEKI COLOR presents high progressive return on assets from 2012 to 2013, 2015 to 2016. The increase of ROA in AMEKI COLOR is caused by different factors included by appropriate assets, financial system governance and etc.

Return on Equity

In 2012, AMEKI COLOR presents ROE of 132,77%, in 2011 ROE was 319,08%, in 2014 was 158,02%, in 2015 was 138,35%, in 2016 ROE was  65,04%, in 2017 was 18,95%, in 2018 ROE was 104,56% while in 2019, ROE was 12,54%. Thus, return on equity of AMEKI COLOR measures how much a company makes for each Rwandan franc that owner of this company put into it. AMEKI COLOR calculated by taking the net income earned for year by the amount of money invested by shareholder and multiplying the quotient by 100. It was clear that AMEKI COLOR got progressive ROE in 2012 to 2013, and 2016 up to 2017. 

Net Profit Margin ratios  

In 2012, NPM was 19,42%, in 2013 was 17,06%, in 2014 NPM was 16,51%, in 2015 was 14,90%, in 2016 was 5,16%, in 2017, NPM was 1,953%, in 2018 was 11,03%, and in 2019 NPM was 21,01%. NPM of AMEKI COLOR calculates the percentage of each sale frw remains after deducting interest, dividend, taxes, expenses and costs. In other words, it calculates the percentage of profit AMEKI COLOR is earning against its sale. Higher value of return on sale shows the better performance that lead to sustainability of Company.

The liquidity of AMEKI COLOR  

Liquidity ratio measures the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. The perceptions of respondents on the liquidity of AMEKI COLOR. The progressive current ratio was confirmed by 84.9% respondents in AMEKI COLOR. Progressive quick ratio or acid ratio was confirmed on the rate of 83.6%. The liquidity of AMEKI COLOR was confirmed on average rate of 84.25%.

Current ratio  

Table 4.12 shows the information about the current ratio of AMEKI COLOR in 2012 to 2019.  In 2012, CR was 0,95, in 2013 was 0,71, in 2014 it was 1,10,  in 2015 was 0,84, CR in 2016 was 0,022, in 2017 CR was 0,018, in 2018 CR was 0,028, and in 2019, CR was 1,37. However Current ratio of AMEKI COLOR calculated by dividing the total current assets by total current liability. Current ratio equals current asset over current liability in AMEKI COLOR.

Quick ratio  

In 2012, QR was 0,87, in 2013 was 0,64, in 2014 QR was 1,04, in 2015 was 0,77, in 2016 QR was -0,059, in 2017 was (0,053), in 2018 QR was (0,02), while in 2019 was 0,64. Quick ratio of AMEKI COLOR is equaled the current asset minus inventory over current liabilities.  It is very useful in measuring the liquidity position of a company. Thus AMEKI COLOR presents progressive of quick ratio in the 2013 to 2014, and 2018 to 2019.

The Solvability  

The study at AMEKI COLOR shows the information on the progressive debt to equity ratio, progressive equity ratio, and progressive debt ratio. The perception on the solvability. Progressive Debt to Equity Ratio was confirmed by 93.1% respondents. Progressive Equity Ratio was confirmed by 84.9% respondents. Progressive Debt Ratio was confirmed by 90.4% respondents. AMEKI COLOR presents the Solvability on average rate of 89.46% as confirmed by respondents.

Debt to Equity Ratio  

Debt to Equity Ratio of AMEKI COLOR was 2,08 in 2010, and in 2011 it was 5,42. In 2012, Debt to Equity Ratio was 2,28. In 2013, debt to equity ratio was 2,95.  In 2014, debt to equity ratio was 4,30. In 2015, it was 3,31. In 2016, debt to equity ratio was 2,36, while in 2017, debt to equity ratio was 0,38.

It was found that debt to equity ratio of AMEKI COLOR is a financial, liquidity ratio that compares a company's total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditor and investor.

Equity Ratio: It was found that in 2010, Equity Ratio of AMEKI COLOR was 0,12.  In 2011, Equity Ratio was 0,057. In 2012, it was 0,099. In 2013, Equity Ratio was 0,088.  In 2014, Equity ratio was 0,781. In 2015, Equity ratio was 0,079. In 2016, equity ratio was 0,087 while in 2017, equity ratio was 0,692. The equity ratio of AMEKI COLOR is an investment leverage that measures the amount of assets that are financed by owner's investment by comparing the total equity in the company to the total assets. The equity ratio of AMEKI COLOR highlights two important financial concepts of a solvent and sustainable business.

Debt Ratio: In 2010, Debt Ratio of AMEKI COLOR was 0,268.  In 2011, Debt Ratio was 0,314. In 2012, it was 0,228.  In 2013, Debt Ratio was 0,261. In 2014, it was 3,361. In 2015, Debt Ratio was 0,263. In 2016, Debt Ratio was 0,207 while in 2017, debt ratio was 0,269. Debt ratio of AMEKI COLOR measures a firm's total liabilities as a percentage of its total assets.

The relationship between financial system governance and financial sustainability of AMEKI COLOR

During this study at AMEKI COLOR, it was found that effective financial system subsidiarity implementation influences the profit evolution of company, financial system deserved authority stimulates sustainable growth of business company, proper financial system mutual trust between staff help organization to increase performance, and efficiency financial decision making improve future financial performance of AMEKI COLOR. The perceptions of respondents on the relationship between financial system governance and financial sustainability of AMEKI COLOR. Effective Financial system subsidiarity implementation influences the profit evolution of company was confirmed by 78.1% respondents. Financial system deserved authority stimulates sustainable growth of business company was confirmed by 78.1%. Proper Financial system mutual trust between staff help organization to increase performance was on rate of 86.3% respondents. Efficiency financial decision making improve future financial performance of company was confirmed on rate of 90.4% respondents in AMEKI COLOR. The Model Summary of financial system subsidiarity, financial system deserved authority, financial system mutual trust, and efficiency financial decision making on financial sustainability of AMEKI COLOR where R2 was .506 while adjusted R-Square was .477.   

Table 2: ANOVA.

Model

Sum of Squares

df

Mean Square

F

Sig.

Regression

32.664

4

8.166

17.446

.000b

Residual

31.829

68

.468

 

 

Total

64.493

72

 

 

 

a. Dependent Variable: financial sustainability of AMEKI COLOR

b. Predictors: (Constant), Financial system subsidiarity, Financial system deserved authority, Financial system mutual trust, and Efficiency financial decision making.

Table 3: Overall regression analysis.

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

(Constant)

.328

.246

 

1.336

.186

Financial system subsidiarity

.596

.084

.683

7.056

.000

Financial system deserved authority

-.169

.083

-.201

-2.034

.046

Financial system mutual trust

.256

.113

.236

2.267

.027

Efficiency financial decision making

.115

.098

.122

1.173

.245

a.        Dependent Variable: financial sustainability of AMEKI COLOR

The linear regression test between the financial system governance and financial sustainability of AMEKI COLOR shows the result follows:

However, X1 represent financial system subsidiarity, X2 is financial system deserved authority, X3 is financial system mutual trust, and X4 is efficiency financial decision making and lastly, ε represents standard errors.  As explained by the linear regression equation, it is clear that one unit change of X1, X2, X3, and X4 lead to change times of dependent variable respectively .596, -.169, .256, and .115.

  • When ignoring others factors of financial system governance in AMEKI COLOR, the financial system subsidiarity has 
  • The financial system deserved authority contributes to the sustainability of AMEKI COLOR on y=
  • In absence of others factors, the financial system mutual trust has the influence on financial sustainability on 
  • While using only efficiency financial decision making, it contributes financial sustainability y=

However, if all independent variable indicators are zero, the dependent variable equals to the constant (.328). Thus, according to the result indicated to the table 4.21, there is positive relationship between financial system subsidiarity, financial system deserved authority, financial system mutual trust, and efficiency financial decision making as the indicators of financial system governance.

Conclusion

This study intended to analyse the financial system governance on financial sustainability of manufacturing company in Rwanda. The study highlighted the good division of roles, responsibilities, tasks and powers within the organization were confirmed on rate of 76.7% of respondents. Build the capacity of those responsible for the tasks effectively were confirmed by 91.8% respondents. Organize good supervision of tasks were on rate of 68.5%. Set up a good performance management system were confirmed by 79.5% respondents. Everyone is more focused on the tasks for which they are most appropriate were on rate of 72.6%. More economy within less displacement and wasted time were confirmed by 67.1% respondents from AMEKI COLOR. More motivation and more productivity were on rate of 75.3% respondents. The findings on the financial system subsidiarity as determinant of financial system governance of AMEKI COLOR included by good division of roles, responsibilities, tasks and powers within the organization, build the capacity of those responsible for the tasks effectively, organize good supervision of tasks, set up a good performance management system, everyone is more focused on the tasks for which they are most appropriate, more economy within less displacement and wasted time, and more motivation and more productivity of AMEKI COLOR as confirmed by majority participants in this study. The perception of respondents on the financial system deserved authority as determinant of financial system governance of AMEKI COLOR where persons in authority provide evidence of their skills and legitimacy was confirmed by 67.1%. Employees execute orders more easily as confirmed by 79.5%. The problems quickly returned to authority were confirmed by 79.5% respondents. Motivation and productivity are high were confirmed by 87.7% respondents. Authority is concerned with doing the right thing were confirmed by 93.2% respondents. The perceptions of respondents on the financial system mutual trust as determinant of financial system governance. In AMEKI COLOR, the productive relaxation was confirmed by 89.0% respondents to be factor of financial system mutual trust. Taking initiative was confirmed by 78.1% respondents of AMEKI COLOR.  Positive synergies were confirmed by 80.8% respondents while to make sure that others do their work properly in AMEKI COLOR were confirmed by 86.3% respondents. The perception of respondents on efficiency financial decision making as determinant of financial system governance of AMEKI COLOR where evaluation of the income statement or statement of comprehensive income was confirmed by 91.8% respondents. Checking the statement of financial position was 90.4% respondents. Elaboration of the statement of changes in equity was on rate of 84.9% respondents. Preparation of the future plan of improvement was confirmed by 84.9% respondents. The results confirmed that there is progressive Return on Asset was confirmed on the rate of 84.9%. Progressive Return on Equity was confirmed by 87.7%. Progressive net gross profit was on the rate of 84.9%. The return on assets of AMEKI COLOR at the end of 2017 showed that there was an increase of return on assets from 2010-2017 where in 2010, ROA was 17,10%, in 2011 was 18,50%, ROA in 2012 was 15,78%,  in 2013 it was 12,26%,  in 2014 ROA was 50,82%, in 2015 ROA was 15.00%, in 2016 was 9.17% while in 2017, ROA was 8,68%. Return on Equity of AMEKI COLOR at the end of 2017 presented an increase of ROE where in 2010, ROE was 132,77%, in 2011 ROE was 319,08%, in 2012 was 158,02%, in 2013 was 138,35%, in 2014 ROE was  65,04%, in 2015 was 18,95%, in 2016 ROA was 104,56% while in 2017, ROA was 12,54%. The profit margin ratio from 2010 to 2017 was increased in AMEKI COLOR where in 2010, NPM was 19,42%, in 2011 was 17,06%, in 2012 NPM was 16,51%, in 2013 was 14,90%, in 2014 was 5,16%, in 2015, NPM was 1,953%, in 2016 was 11,03%, and in 2017 NPM was 21,01%. The perceptions of respondents on the liquidity of AMEKI COLOR, the table 4.11 show the perceptions of respondents on the liquidity of AMEKI COLOR. The progressive current ratio was confirmed by 84.9% respondents in AMEKI COLOR. Progressive quick ratio or acid ratio was confirmed on the rate of 83.6%. Table 4.12 shows the information about the current ratio of AMEKI COLOR in 2010 to 2017.  In 2010, CR was 0,95, in 2011 was 0,71, in 2012 it was 1,10,  in 2013 was 0,84, CR in 2014 was 0,022, in 2015 CR was 0,018, in 2016 CR was 0,028, and in 2017, CR was 1,37. Table 4.13 illustrates the quick ratio of AMEKI COLOR since 2010 to 2017. In 2010, QR was 0,87, in 2011 was 0,64, in 2012 QR was 1,04, in 2013 was 0,77, in 2014 QR was -0,059, in 2015 was -0,053, in 2016 QR was -0,02, while in 2017 was 0,64. The perception of respondents on the Solvability. It was found that AMEKI COLOR shows progressive debt to equity ratio as it was confirmed by 93.2%. Progressive Equity Ratio was confirmed by 84.9%. Progressive debt ratio was confirmed by 90.4%. The Debt to Equity Ratio of AMEKI COLOR.  Debt to Equity Ratio was 2,08 in 2010, and in 2011 it was 5,42. In 2012, Debt to Equity Ratio was 2,28. In 2013, Debt to Equity Ratio was 2,95.  In 2014, Debt to Equity Ratio was 4,30. In 2015, it was 3,31. In 2016, Debt to Equity Ratio was 2,36, while in 2017, Debt to Equity Ratio was 0,38. The Equity Ratio of AMEKI COLOR. It was found that in 2010, Equity Ratio was 0,12.  In 2011, Equity Ratio was 0,057. In 2012, it was 0,099. In 2013, Equity Ratio was 0,088.  In 2014, Equity ratio was 0,781. In 2015, Equity ratio was 0,079. In 2016, equity ratio was 0,087 while in 2017, equity ratio was 0,692. The Progressive Debt Ratio of AMEKI COLOR. In 2010, Debt Ratio was 0,268.  In 2011, Debt Ratio was 0,314. In 2012, it was 0,228.  In 2013, Debt Ratio was 0,261. In 2014, it was 3,361. In 2015, Debt Ratio was 0,263. In 2016, Debt Ratio was 0,207 while in 2017, Debt Ratio was 0,269. The results confirmed that effective financial system subsidiarity implementation influences the profit evolution of company was confirmed by 78.1% respondents. The financial system deserved authority stimulates sustainable growth of business company was confirmed by 78.1%. Proper financial system mutual trust between staff help organization to increase performance was on rate of 86.3% respondents. Efficiency financial decision making improve future financial performance of company was confirmed on rate of 90.4% respondents in AMEKI COLOR. The linear regression test between the financial system governance and financial sustainability of AMEKI COLOR shows the result follows: y=0.328+0.596X_1-0.169.X_2+0.256X_3+0.115X_4+ε However, X1 represents the financial system subsidiarity, X2 is the financial system deserved authority, X3 is the financial system mutual trust and X4 is the efficiency financial decision making and lastly, ε represents standard errors.  As explained by the linear regression equation, it is clear that one unit change of X1, X2, X3, and X4 lead to change times of dependent variable respectively .596, -.169, .256, and .115. In the other case if all independent variable indicators are zero, the dependent variable equals to the constant (.328).  Thus, according to the result indicated to the table 4.21, there is positive relationship between the financial system subsidiarity; the financial system deserved authority, the financial system mutual trust, and efficiency financial decision making as the indicators of financial system governance. Based to the findings, AMEKI COLOR should review and report. Thus, it should take the stock of the overall performance of the portfolio in relation to the program’s objectives and strategies. It should report the progress to the governing body including any adverse effects of the program’s activities. It should serve the needs of the governing body by preparing strategies, policy statements. It should maintain a lean administrative cost structure (while recognizing that administrative costs tend to be higher during the launch period). It should propose ways to maintain high performance while reducing costs to increase operational effectiveness. AMEKI COLOR should implement board-approved policies for stakeholder inclusion in programmatic activities. It should find ways to increase the effectiveness of stakeholder participation in all aspects of the program. It should review the performance of operational staff on a regular basis, as well as the performance of consultants at the end of their assignments. It was found that the findings on financial system governance of AMEKI COLOR presented the financial system subsidiarity on average rate of 75.9%, financial system deserved authority on average rate of 81.4%, financial system mutual trust confirmed on average rate of 83.55% while the efficiency financial decision making of AMEKI COLOR on average rate of 88.0%, then AMEKI COLOR is advised to improve its financial system governance in order each factor among mentioned ones in the above reaches on the use of 100.0% [23-36].

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