Effect of Capital Structure on Firm Performance Case Study of Nestle Nigeria Plc
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To examine the current capital structure of Nestle Nigeria Plc, including its debt-to-equity ratio, leverage ratio, and other financial indicators.
- To analyze the financial performance of Nestle Nigeria Plc in the last five years, using key financial indicators such as return on equity (ROE), return on assets (ROA), and net profit margin.
- To determine the relationship between capital structure and financial performance, and to identify the factors that influence this relationship.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
INTRODUCTION
There are many studies related to the effect of capital structure on firm performance. Abor [8] conducted a study on the influence of capital structure to profitability of companies listed on Ghana Stock Exchange (GSE) for a five years period (1998-2002). Multiple regression analysis is used to estimate the model which connects the return on equity (ROE) variable with the capital structure. The results is show positive relationship between short term debt to total assets ratio and ROE. Meanwhile, negative relationship occurs between long term debt to total assets ratio and ROE. Ebaid [18] investigated the effect of capital structure choice to the firm performance in Egypt. Studied conduct on non-financial public companies listed in the Egyptian Stock Exchange during 1997 to 2005.Multiple regression analysis was used to estimate the relationship between leverage and firm performance. The firm performance is measured based on three variables, ROE, ROA and gross profit margin (GPM) while the capital structure is represented by the short-term debt to total assets (STD), long-term debt to total assets (LTD) and total debt to total aseets (TTD). In addition, there is also firm size (LogS) variable as the control variable. The results obtained is that capital structure choice, generally have a weak-no impact on firm’s performance. Vitor and Badu [14] examined the effect of capital structure on the performance of listed banks in Ghana during 2000 to 2010. The data is collected from Ghana Stock Exchange and annual reports of each bank. The method used is panel data regression. Result show that the public banks in Ghana have very high debt ratios and the debt level have negative influence on the bank performance. The research shows a high level of debt on each public bank. It can be seen from the banks that depend on short-term debt and it lead to low bond market activity. The regression results indicated that capital structure has negative effect to firm performance measured by ROE and firm value(Tobins’Q). Goyal [10] conducted a study on the effect of capital structure on the profitability of listed banks in India during 2008 to 2012. The multiple regression analysis is used to determine the relationship between dependent variable (short term debt to total capital, long term debt to total capital, total debt to total capital) on the independent variable (ROA, ROE and earning per shares). The control variables used are firm size (SIZE) and firm asset growth (AG).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain effect of capital structure on firm performance case study of Nestle Nigeria Plc. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an effect of capital structure on firm performance case study of Nestle Nigeria Plc.
Summary
This study was on effect of capital structure on firm performance case study of Nestle Nigeria Plc. Three objectives were raised which included: To examine the current capital structure of Nestle Nigeria Plc, including its debt-to-equity ratio, leverage ratio, and other financial indicators, to analyze the financial performance of Nestle Nigeria Plc in the last five years, using key financial indicators such as return on equity (ROE), return on assets (ROA), and net profit margin and to determine the relationship between capital structure and financial performance, and to identify the factors that influence this relationship. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Nestle Nigeria Plc. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The study investigated effect of capital structure on firm performance case study of Nestle Nigeria Plc. The study employed explained variables (debt to equity ratio, long term debt ratio and total debt ratio) representing capital structure and the explanatory variable (return on equity) representing firm performance. The results revealed a negative and insignificant relationship between Debt to equity ratio and return on equity, a positive and insignificant relationship was found between Long term debt ratio and return on equity and a positive and significant relationship was found between Total debt ratio and return on equity.
Recommendation
Capital structure was found to have a positive significant relationship with firm performance, Microfinance banks need to devise strategies that are effective to expand their debt profile in order to achieve better performance.
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