IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 8 NO. 1 2022

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Impact of Capital Structure on the Profitability of Food and Beverage Firms

Okore Amah Okore, PhD. Anthony Odinakachukwu Nwadiubu, PhD

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Abstract

The main objective of the study was to examine the responsiveness of capital structure to firm performance in the food and beverage sector of Nigeria. The specific objectives were to determine the effect of debt equity ratio on gross profit margin ratio, analyze the effect of debt equity ratio on net profit margin ratio, assess the effect of debt equity ratio on return on equity and, examine the effect of debt equity ratio on return on asset. The research adopted the causal research design. Secondary data were used to determine the effect of debt equity ratio on gross profit, net profit, return on equity and return on asset. The population of the study was the entire quoted companies in the food and beverage industry. From the population, a sample of five listed companies from the food and beverage sector were used. The companies were Nestle Nigeria Plc, Cadbury Nigeria Plc, Unilever Nigeria Plc, Vita Foam and PZ Cussons. Data were collected from the annual financial report published by the various companies. The dependent and independent variables were observed over a period of ten years, that is from 2009 to 2018. Debt equity ratio was the independent variable in all four hypotheses while the dependent variables were gross profit, net profit, return on equity and return on asset. Data were analyzed using Panel Least Square method in an E-View statistical Package. The hypotheses were tested at 5% level of significance. The results shows that debt equity ratio had a positive and significant impact on gross profit ratio, debt equity ratio had a positive and significant impact on net profit ratio, debt equity ratio had a positive and significant impact on return on equity and debt equity ratio had a positive and significant impact on return on asset. Based on the findings, the study concludes that firm performance is positively and significantly responsive to capital structure. Hence, it is recommended that, firms' performance should be enhanced by

keywords:

Capital Structure, Profitability, Food and Beverage Firms, Panel Data

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