The financial performance of a firm which is described as a measure of an enterprise’s gains over its operative years is determined by several factors according to various empirical studies. Stierwald (2009) investigated the determinants of financial performance by considering a case of large firms in Australia. The study established that the financial performance of a firm is influenced by a number of variables which include lagged profit, productivity level and size. It was further indicated that the degree of concentration in a given sector influences firm behaviour and financial performance. More so, it was postulated that differences in firm-level characteristics such as efficiency, organizational structure and/or quality management may cause differences in financial performance of mid- size manufacturing firms.

The internal audit aspects that affect the financial performance of the firms include independence of internal audit (i.e. formalized principles, operations structure), professional competency (qualifications, auditors personnel, internal audit quality), internal control systems (reporting, management support of IA, advisory role) and internal audit standards (objectivity, accountability, discipline, risk management). In addition, working capital, firm characteristics and policies, capital structure, size of the firm and firm liquidity determine the financial performance of mid-sized enterprises.

2.3.1 Working Capital

Makori and Jagongo (2013) conducted an empirical analysis of environmental accounting and firm financial performance amongst selected firms listed in Bombay Stock Exchange, India. The study relied on data from annual reports of the selected firms. The major findings indicated that the relationship between environmental accounting and return on capital employed (ROCE) was significant and negative. Patel (2014) argued that net profit ratio (NPR) and working capital are related. The author opined that NPR is one of the best measures of the overall results of a firm particularly when it is included in the evaluation of how well a firm is using its working capital (Filbeck & Krueger, 2005). The authors established that there exist significant differences between industries in working capital practice over certain duration of time.