Impact of capital structure on financial performance of listed consumer goods firms in Nigeria

Abstract

The main objective of the study is to investigate the impact of capital structure on the financial performance of listed consumer goods firms in Nigeria. The study adopted Expost-facto research design and extracted data from secondary source. A quantitative approach was employed for data analysis to analyze data sourced and drawing a sample of 12 using a stratified sampling technique through filtering criteria, out of the population of 21 listed consumer goods firms on the Nigerian Exchange Group PLC's Data Fact Sheet. The study covered a 10-year period (2014-2023). The study concludes that Short Term Debt Ratio (STDR) has a significant negative relationship with the return on capital employed for consumer goods firms in Nigeria, while Long Term Debt Ratio (LTDR), Leverage Ratio (LEVR), and Profitability Ratio (PR) have an insignificant negative association with the return on capital employed. The study recommends that the sampled firms should reduce reliance on short-term debt which may lead to improved financial performance. Firms should assess their capital structure to find an optimal balance of long-term debt, as its influence on performance was not significant in this study, firms should limit short-term debt levels and explore cost-effective, longer-term financing, firms should nonetheless monitor leverage ratios to ensure they remain within manageable levels, and firms can enhance their proprietary ratios by retaining profits or improving operational efficiency to strengthen the firm's equity base.