Abstract
The study aims to examine the impact of capital structure on the financial performance of the consumer goods industry in Nigeria. The population of the study comprised of the consumer goods companies listed on the Nigerian Stock exchange with a Sample size of six (6) companies, using filter as a sampling technique of which a period of five (5) years was used from 2012-2016. The Dependent variable of the study is financial performance proxied by return on asset (ROA), while the independent variables of the study are: Long term debt (LTD), Short term debt (STD) and shareholders’ funds (ROE). The data generated from annual report and accounts of the selected companies were analyzed by means of descriptive statistics, correlation and regression analysis using E-views 8.0. The result of the analysis was tested at 0.05 (5%) level of significance. The findings of the study show that Short term debts have no significant impact on the financial performance of listed firms in the Nigeria consumer goods industry. It was also discovered that Long term debts have no significant impact on the financial performance of listed firms in the Nigeria consumer goods industry. It was also discovered that Equity has significant impact on the financial performance of listed firms in the Nigeria consumer goods industry. The study recommended that in making a decision on what the composition of their capital structure will be, companies should look critically and make comparison between the cost of obtaining a particular source of capital and the benefit that can be derived from it instead of making capital structure decisions on baseless generalizations. This will help managers ensure that there will be a gain at the end of the day.
Highlights
Capital structure constitutes a substantial part of an organization and the way in which it is managed will have a significant impact on the profitability of the company concerned
The findings of the study show that Short term debts have no significant impact on the financial performance of listed firms in the Nigeria consumer goods industry
The results showed that there is a negative and significant relationship between short – term debt to total assets (STDTA) and long term debt to total assets (LTDTA) and return on asset (ROA) and profit margin (PM); while TDE is positively related with ROA and negatively related with PM
Summary
Capital structure constitutes a substantial part of an organization and the way in which it is managed will have a significant impact on the profitability of the company concerned. Financial performance in broader sense refers to the degree to which financial objectives begin or has been accomplished and is an important aspect of finance risk management. It is the process of measuring the result of a firm’s policies and operation in monetary terms. Consumer goods sector is a category of stock and companies that relate to items purchased by individual rather than manufacturers and industries. Capital structure means the approach a firm uses in financing their assets through the mixture of debt, and equity or hybrid securities [3]. Capital structure is a mixture of a company’s debt (long term and short term) [4]
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