Effect Of Financial Ratios On Corporate Performance Of Listed Firms In Nigeria

ABSTRACT

The study investigated the effect of financial ratios on corporate performance of listed manufacturing firms in Nigeria from 2014-2018. It adopted the ex-post facto research design and extracted data from annual reports of the selected listed firms using the non-probability sampling technique. It employed a log of profit after tax, return on assets and return on equity as corporate performance indicators while current ratio and debt-to-equity ratio were used jointly as proxies for financial ratios. The study engaged panel least squares regression technique of data analysis to ascertain the relationship of the variables. The results established that 87% of the total variation in profit after tax is attributable to the joint financial ratios, 74.3% of the total variation in return on equity is as a result of variations in financial ratios and 52.7% of the total variation on return on assets is as a result of variations in financial ratios. The study also found that current ratio has positive significant relationship with profit after tax whereas debt-to-equity ratio has positive significant relationship with profit after tax, return on equity and return on assets of the sampled slisted firms. The study therefore concludes that financial ratios have significant effect on corporate performance of listed firms in Nigeria and recommend that management of listed firms should have an appropriate level of both current assets and current liabilities to boost performance, management of listed firms should ensure that borrowing be done only when necessary in order not to tie down funds to accumulate interest and principal repayments and that management of listed firms should always monitor the current ratio and debt-to-equity ratio so as not to hamper corporate performance.