Capital Structure and Financial Performance of Manufacturing Companies in Nigeria

Abstract

This empirical research aimed at establishing the effect of capital mix on the financial performance of ten chosen manufacturing firms among companies listed on the Nigerian Exchange (NGX) for twelve years period, 2009 to 2020. Secondary data were extracted from the audited accounts and reports of the chosen firms. This research employed descriptive and inferential statistical analyses for data estimation. The results of this work reveal that debt in relation to equity (DER) has insignificant adverse effect on return on asset (ROA) of the selected firms. Contrarily, DER has a direct significant effect on return on equity (ROE) and a direct insignificant effect on the net profit margin (NPM) of the sampled manufacturing companies. Total debt to total assets (TDTA) has positive but insignificant effect on all the financial performance indicators. The study also found that short-term debt to total assets (SDTA) and long-term debt to total assets (LDTA) have negative negligble effect on all the dependent variables. The outcomes of the study imply that the management of these companies need to always be guided appropriately in their capital mix decisions in order to optimize their financial performance. Therefore, the main thrust of this study is that optimal capital structure is essential for the profitability of manufacturing companies in Nigeria.