EFFECT OF CAPITAL STRUCTURE ON REPORTED PROFITABILITY OF LISTED MANUFACTURING FIRMS

Abstract

This study investigates the effect of capital structure on the profitability of Nigerian manufacturing firms, focusing on five leading companies—Dangote Group, Nigerian Breweries Plc, Nestlé Nigeria Plc, Unilever Nigeria Plc, and Guinness Nigeria Plc—over the period 2014 to 2023. Profitability was measured using Return on Assets (ROA), while capital structure was proxied by Short-Term Debt to Total Assets Ratio (STDTA), Long-Term Debt to Total Assets Ratio (LTDTA), and Debt to Equity Ratio (DER). Employing an ex-post facto research design and multiple regression analysis, the study finds that all three capital structure variables exert a statistically significant negative impact on profitability. Specifically, increases in short-term and long-term debt levels, as well as higher leverage relative to equity, are associated with reduced returns on assets. These results corroborate theoretical perspectives suggesting that excessive debt financing increases financial risk and cost burdens, ultimately impairing firm performance. The study recommends prudent management of debt components and leverage to optimize capital structure decisions and enhance profitability in Nigerian manufacturing firms. These findings provide valuable insights for corporate managers, investors, and policymakers aiming to promote sustainable growth and financial resilience in the sector.