Effect of Financial Leverage on Financial Performance of Listed Industrial Firms in Nigeria.

Abstract:

The research explores how the use of financial leverage impacts the financial performance of listed industrial companies in Nigeria from 2018-2022. To assess financial leverage, it utilized total debt to asset ratio and interest coverage ratio as proxies, while gross profit margin was used as a measure of financial performance. The data was analyzed using panel data, which included information from the individual financial statements of the listed industrial companies. The dataset consisted of thirteen (13) industrial companies listed on the Nigerian Stock Exchange Group (NGX). The research utilized a panel regression model to determine the main relationship between financial leverage and gross profit margin. The result shows that total debt to asset ratio had a positive significant effect on gross profit margin of listed industrial firms in Nigeria, while, interest coverage ratio had negative significant effect on gross profit margin of listed industrial firms in Nigeria. The management of the industrial firms should employ more sustainable debt financing to critical areas of firm’s investment for asset expansion, in order to gross profit and financial performance of the firm. The study also recommends that industrial firms in Nigeria should consider debt with lower percentage of interest coverage. This will minimize its capital cost and reduce the risk of default on loan payments and help financial manager to improve the financial performance of the firm.