EFFECT OF DEBT FINANCING ON FINANCIAL PERFORMANCE OF FAST-MOVING CONSUMER GOODS COMPANIES IN NIGERIA
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Date
2022
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Abstract
This study aimed at examining the effect of debt financing on financial performance of fastmoving consumer goods companies in Nigeria. The study established a link between some debt
financial ratios, presumably debt-to-asset ratio (DAR), debt-to-capitalization ratio (DCR), and
debt-to-equity ratio (DER) on financial performance of fast-moving consumer goods firms in
Nigeria measured by return on assets (ROA) and sales return (ROS). The study gathered
secondary data on ten listed fast-moving consumer goods companies from 2012 to 2021. Two
models were drawn for the study. The dependent variables were return on assets (ROA) and
sales return (ROS) while the independent variables were debt-to-asset ratio (DAR), debt-tocapitalization ratio (DCR), and debt-to-equity ratio (DER) of the selected companies. The fixed
effect and the random effect regressions were conducted for both models while the Hausman
test selected the random effect regression as the best fit for analysis for both models also. From
the analysis, debt-to-asset ratio (DAR), debt-to-capitalization ratio (DCR), and debt-to-equity
ratio (DER) were all negatively and statistically significant in impacting returns on asset
(ROA). Also, debt-to-asset ratio (DAR) and debt-to-capitalization ratio (DCR) were positively
and statistically significant in impacting sales returns (ROS), but debt-to-equity ratio (DER)
was negatively not significant in impacting (ROS). The study therefore recommended that the
consumer companies should focus on debt financing in order to improve their financial
performances. This was due to the fact that debt financing ratios of debt-to-asset ratio (DAR),
debt-to-capitalization ratio (DCR), and debt-to-equity ratio (DER) were significant in
impacting return on assets).