EFFECTS OF DISCOUNTED CASHFLOW ANALYSIS MODEL ON THE FINANCIAL PERFORMANCE OF INSURANCE FIRMS

Abstract

The purpose of the study was to examine the effects of discounted cashflow analysis model on the financial performance of insurance firms. A descriptive research design was employed targeting insurance companies listed on the Nairobi Securities Exchange (NSE). Primary data was collected, organised, coded and analysed using Microsoft Excel and SPSS. Regression analysis was applied to test the relationships between variables where the models under research showed a positive correlation with the Financial Performance. DCF and ECL reflected as the most consistently utilized models while FVM is displayed as moderately applied model with EV least utilize due to its complexity through the descriptive analysis. From the findings there was significant effect between Discounted Cash Flow (DCF) and insurance financial performance in terms of ROA (β=0.303, p=0.000). The Discounted Cash Flow (DCF) model positively relates with the financial performance metrics (ROA) where its application in long-term capital budgeting and intrinsic valuation validates the importance of sound cash flow forecasting and appropriate discount rate estimation. The consistent mean and low standard deviation indicate that insurers are increasingly integrating DCF into strategic planning, enhancing financial performance. Insurance firms should refine Discounted Cash Flow (DCF) application through improved data management since the DCF model’s effectiveness hinges on data quality and cost of capital estimation, firms must adopt enterprise resource planning (ERP) systems that centralize financial forecasting and historical trend analysis. This will enhance internal investment evaluations and guide strategic capital deployment.