Impact of Capital Structure on Financial Performance of Quoted Consumer Goods Firms in Nigeria

Abstract

This study evaluated the Impact of Capital Structure on Financial Performance of Quoted Consumer Goods Firms in Nigeria for the period 2011- 2020.The study data, which was collected by secondary means, was analyzed using STATA 13 to test the relationship between the independent variable (capital structure proxied by debt-to-equity ratio, long term debt to total assets ratio and short term debt to total assets ratio) and the dependent variable (financial performance proxied by return on assets and net profit margin). Findings from the study indicate that whilst long-term debt ratio has a negative relationship with net profit margin and return on assets, short-term debt ratio has a positive relationship with net profit margin. This means that while short term debt is beneficial to operations of quoted consumer goods firms in Nigeria, long term debts are not. This conclusion is in line with the static trade-off theory which suggests that there is an optimal debt to equity ratio beyond which debt is no longer beneficial to a firm. The study recommends that consumer goods firms in Nigeria should strive to understand and establish their optimal capital structure to enable them take advantage of both debt and equity at the right mix to support their business operations