Financial Leverage and Profitability of Quoted Consumer Goods Firms in the Disruptive Economy

Abstract

This study investigated the Effect of Financial Leverage on Financial Performance of Quoted Consumer Goods Firm in Nigeria. Four objectives were developed and secondary data was generated from the annual reports and accounts of the sampled 16 consumer goods firms for a period of ten years (2013-2022). This study employed analytical software of Stata version 14 and Microsoft excel for the analysis. The secondary data collected was analyzed using descriptive statistics, correlation, and regression analysis. The test of hypothesis was carried out using ordinary least square regression at 5% level of significance. Findings reveal that Long-term debt to asset [coef. = -0.216 (0.101)] has an insignificant effect on profitability of listed consumer firms in Nigeria. While short term debt to asset [coef. = -0.332 (0.000)] has a significant negative effect on financial performance of the firm; Long term debt to equity [coef. = -2.884 (0.009)] has a significant negative effect on net profit margin; and Short-term debt to equity [coef. = 1.028 (0.005)] has significant positive effect on profitability of listed consumer goods firms in Nigeria. The study concludes that firms must choose the best financing sources when making informed decision to reach the optimal capital structure that would enable them to achieve positive returns. The study recommends improved and effective debt management practices to minimize the negative impact of short-term debt on profitability. This can be done by closely monitoring and managing debt levels, negotiating favorable interest rates, and optimizing the timing and structure of debt repayments.

Keywords

References