Financial ratios and firm performance of Nigerian manufacturing companies

Performance of Nigerian manufacturing companies. Past literature argued that among the challenges of the firms include management problems and financial constraints. Studies revealed that firms’ success could be examined through liquidity efficiency, financial leverage, operating activities, and management competency. Thus, this study aims to assess the financial ratios in relation to firms’ financial performance. Using stakeholders’ theory, agency theory, and signaling theory, four hypotheses related to the financial ratios and financial performances are proposed. Return on assets and return on equity are the dependent variables, while liquidity efficiency, financial leverage, business operating activities and management competency are the independent variables. This research examines published financial statements of 66 listed Nigerian manufacturing firms covering a period of years 2011 to 2015, giving a total observation of 330. The data were analyzed using descriptive statistics, correlation test, and multiple linear regression via the EVIEWS8 version. The overall findings of the study reveal that liquidity efficiency (cash gap), leverage efficiency (total debt to total assets), and firm size show a significant positive relationship with both returns on assets and return on equity. Further, the findings show that leverage efficiency (long-term debt to total equity) has a significant positive relationship with return on equity. The study will add to the existing literature by applying the stakeholder theory concerns with stakeholder-oriented management to increase profitability. Agency theory will assist on an optimal debt financing decision to enhance profit maximization and signaling theory helps to reveal a firm’s success or failure through financial ratios. Practically, this study will benefit the management of Nigerian manufacturing firms in financial performance improvement. Further, it will assist owners, investors, government, and management consultants in relation to decision-making related to the Nigerian manufacturing firms.