NANCIAL LEVERAGE ON FINANCIAL PERFORMANCE: EVIDENCE FROM QUOTED COMPANIES IN NIGERIA CONSUMER GOODS SECTOR

ABSTRACT

This paper evaluated the relationship between financial leverage and financial performance using selected quoted consumer goods companies in Nigeria. The study employed secondary data which were gathered from the yearly reports of selected firms. A sample of 13 firms were selected purposely out of the entire listed consumer goods firms on the Nigerian Stock Exchange (NSE). This was done based on the availability of annual reports of the chosen firm for the period of 2018-2022. A structural equation model was employed to find out the relationship between financial leverage and financial performance through the use of AMOS 26.0.0. The finding revealed the independent variables which are debt-equity (DER), asset-equity (AER) and degree of financial leverage (DFL) has a positive significant effect on the dependent variables which are return on assets (ROA), return on equity (ROE) and earnings per share (EPS). It was recommended that since the major aim of firms is to make profit and increase shareholders wealth, firms should ensure that leverage level is maintained at the optimum since high leverage will bring high interest and reduce firm profit. In addition firms should increase the equity portion of their debt to equity mix in order to reduce debt to equity gap and improve financial performance.