Effect of liquidity and leverage on the financial performance of Nigerian listed consumer goods firms

Abstract

The study examines liquidity effect of leverage on the financial performance of Nigerian listed firms using data of seventeen consumer goods firms listed on the Nigerian Stock Exchange using the annual report of 2012 to 2017. The objective of the study is to determine the impact of liquidity on profitability and to determine the impact of leverage on profitability. The study adopted multiple regression method, with pooled Ordinary Least Squares as estimation technique. The population of the study was made up of 28 consumer goods firms that are listed on the Nigerian Stock Exchange’s floor as of December 31, 2018. 17 companies were chosen as a sample for the study from 2012 to 2017 using a purposive sampling technique. The finding revealed that leverage proxies- degree of operating leverage and degree of combined leverage have significant effect on financial performance. The study could not however provide empirical evidence in support of liquidity proxies- current ratio and quick asset ratio having
significant effect on financial performance of the companies. The study recommends that to improve profitability level, corporate managers and top decision makers of Nigerian listed consumer goods firms should take advantage of debts’ tax shield from the interest in companies’ financial structure and develop robust strategies that will monitor and efficiently manage liquidity requirements.