Significance of the study

Students.

This study will provide students knowledge on the extent of the practice of management

accounting tools in the actual corporate world. At the end of the study, accounting students, who

are management accountants in the making, would know the degree of significance and

relationship of the management accounting practices with the companies’ financial performance.

Future researchers

This study will be a useful reference for the researchers who would plan to make any related

study in management accounting.

Strategic analysis

Strategic Analysis. The business environment has become intensively dynamic and

increasingly unpredictable in recent decades and correspondingly, managing company has

become more demanding. To achieve competitiveness, companies apply different strategies and

management accounting should be used as one of the main supporting system for strategy

implementation. For this purpose, strategic management accounting and strategic cost

management have been developed. Kenneth Simmonds is considered to be the founder of

strategic management accounting when he introduced the concept in 1981 (Ramljak and

Rogošić, 2012).

According to Keith Ward (2011), in relation to the concept of Simmonds, strategic

management accounting is the provision and analysis of management accounting data about a

business and its competitors for use in developing and maintaining the business strategy. It

focuses on the relative levels and trends in real costs and prices, volume, market share, cash flow

and the proportion demanded of a firm’s total resources. The study of Gatandi (2012) has
investigated whether strategic management accounting techniques are associated with

improvement in financial performance in the service sector or not. In the case of strategic

management accounting techniques, there is considerable doubt as to the efficacy of strategic

management accounting techniques as initiatives that can assist in achieving improved financial

performance.

Conceptual framework

The conceptual framework depicts the relationship between independent variable and the

dependent variable. The independent variables are the management accounting practices

including Costing, Budgeting, Performance Evaluation, Information for Decision Making and

Strategic Analysis. The dependent variables includes the financial performance of the

companies which are determined by computing the financial ratios derived from their financial

statements.

The succeeding diagram graphically shows the hypotheses to be tested. Each hypothesis

will determine if there is a significant relationship between the following management

accounting practices and the financial performance of the manufacturing companies.

Figure 1 shows the five hypotheses to be tested in this study. H0-1 would test the

relationship between the Costing System and the financial performance measures. H0-2 would

test the relationship between the Budgeting and the financial performance measures. H0-3 would

test the relationship between the Performance Evaluation and the financial performance

measures. H0-4 would test the relationship between the Information for Decision Making and the

financial performance measures. H0-5 would test the relationship between the Strategic Analysis

and the financial performance measures. In order to determine the relationship between the
management accounting practices and the financial performance, researchers will employ the

Mean and Spearman Rank- Order Correlation.

TABLE 6

Table 6.

Correlation between management accounting practices and profitability

Management Profitability
Accounting Practices
ROA ROE GPR NPR OPM

Costing System .706 .736 .618 .706 .618

Budgeting .771 .714 .771 .657 .771

Performance .706 .441 .794 .706 .794

Evaluation

Information for .551 .464 .696 .435 .696

Decision Making

Strategic Analysis .657 .771 .657 .600 .657

*. Correlation is significant at the 0.05 level (2-tailed).

**. Correlation is significant at the 0.01 level (2-tailed).
Results of Table 6 indicates that a strong positive correlation exists between Costing

System and ROE, rs = .736. Also, strong positive correlation exists between use of Costing

System and ROA and NPR, both resulting to a rs = .706. Furthermore, there is still strong

positive correlation exists between the use of Costing System and GPR and OPM having rs =

.618. Strong positive correlation exists between the use of Budgeting and the profitability

measures ROA, GPR, and OPM, all having the value rs = .771. Moreover, strong positive
correlation exists between the use of Budgeting and ROE and NPR having, rs = .714 and, rs =

.657 respectively. In addition, strong correlation exists between the use of Performance

Evaluation and GPR and OPM, both resulting to values of rs = .794. Also, strong positive

correlation exists between the use of Performance Evaluation and ROA and NPR, both resulting

to values of rs = .706. While moderate positive correlation exist between the use of Performance

Evaluation and ROE, having the value rs = .441.Strong positive correlation exists between the

use of Information for Decision Making and the profitability measures GPR and OPM, both

having the value rs = .696. Moderate positive correlation exists between the use of Information

for Decision Making and ROA and ROE and NPR, having the value rs = .551, rs = .464, rs =

.435, respectively. Lastly, strong positive correlation exists between the use of Strategic Analysis

and the measure ROE, having the value rs = .771. Moreover, strong positive correlation exists

between the use of Strategic Analysis and ROA, GPR and OPM, all having the value rs = .657.

Additionally, strong positive correlation exists between the use of Strategic Analysis and NPR,

having the value rs = .600.

However, none of the correlation coefficients were found significant at 0.05 level.

Decision making

Information for Decision Making. Spearman Rank- Order Correlation showed that there

is no significant relationship between the extent of use of information for decision making in the

overall financial performance. This is in contrast with the study of Matambele (2014) which

states that the decision-makers are strongly encouraged to make use of reports generated by

management accountants to assist them in making appropriate and informed decisions that will

benefit the organization. The study indicated that decisions to utilize information from
Management Accounting tools lie with the decision-makers in these organizations. In addition,

information for decision making practices was established as having the greatest impact on

financial performance of manufacturing companies in Kenya. Likewise, Baines and Langfield-

Smith (2003) found that firms with a greater reliance on non-financial accounting information

improved their performance. These findings support the suggestion that changes in MAS are

associated with good financial performance (Laitinen, 2006).

Information for Decision Making and Performance Measure. Information for decision

making resulted to varying negative weak to positive strong relationship with the overall

financial measures of the company. However, these results indicated insignificant correlation

between Information for decision making with profitability, liquidity, solvency and activity. The

researchers believed that these above-mentioned measures are mostly affected by other factors

other than management accounting especially financial performances regarding liquidity,

solvency and activity which showed weak negative correlations.