FINANCIAL LEVERAGE ON PROFITABILITY OF QUOTED CONSUMER GOODS COMPANIES IN NIGERIA

Abstract

The strategic use of financial leverage is a critical determinant of firm profitability, yet its impact remains ambiguous, particularly for consumer goods companies in Nigeria facing significant operational challenges. This study therefore investigated the effect of debt-to-equity, short-term, and long-term debt ratios on the return on assets of quoted consumer goods firms in Nigeria of ten (10) selected quoted consumer goods companies in Nigeria. The study adopted an ex post facto research design and utilized secondary data sourced from the Central Bank of Nigeria statistical bulletin and annual reports of sampled firms covering 2014–2023. Panel regression analysis was employed using E-Views 10. The results revealed that DTE had a positive and significant effect on ROA, indicating that equity financing strengthens profitability when combined with moderate debt. Conversely, both STDR and LTDR had negative and significant effects on ROA, suggesting that excessive reliance on debt financing, whether short- or long-term, erodes profitability. The Hausman test confirmed that the fixed effect model was more appropriate for the analysis. The study concluded that an efficient capital structure mix is crucial to enhancing profitability in Nigeria’s consumer goods sector. It recommended that managers adopt an optimal balance between debt and equity financing while monitoring debt costs to ensure they do not outweigh the benefits.