EFFECT OF FINANCIAL RATIO ANALYSIS ON PERFORMANCE OF SELECTED

COMPANIES IN NIGERIA
(CASE STUDY OF LISTED CONSUMER GOODS COMPANIES IN NIGERIA)

BY
HALIMA
ABSTRACT
The study examined the effect of financial ratio on the performance of listed cconsumer
goods company in Nigeria. The specific objective was to ascertain the effect of activity ratio
and market value ratio on return on asset. Ex-post facto design was the variant of research des
ign adopted. The population for the study covered all twenty one (21) listed consumer goods
companies in Nigeria. Secondary data were sourced from the annual reports of ten (10) select
ed listed consumer goods companies in Nigeria from 2014 to 2023. The study utilized Ordina
ry Least Square regression analysis to establish effect in addition to the descriptive statistical
analysis conducted with the use of mean, standard deviation, range values, skewness, kurtosis
and Jarque-Bera statistic. It was found that: activity ratio has a non-significant positive effect
on the return on asset of listed consumer goods companies in Nigeria (p > .05); market value t
o book value ratio has a non-significant negative effect on the return on asset of listed c
onsumer goods companies in Nigeria (p > .05). In conclusion, companies that reduce their lev
erage ratios to a level that minimizes their interest expenses and financial risk also attain bette
r financial results. The study recommends that companies should maintain an optimal level of
leverage and avoid over-reliance on debt financing.
INTRODUCTION
Financial ratios are commonly used by investors, analysts and other stakeholders to assess the
financial health and performance of a company. These ratios help in evaluating the
company’s profitability, liquidity, solvency, efficiency, and overall operational effectiveness.
Financial ratios are created with the use of numerical values taken from financial statements
to gain meaningful information about a company. The numbers found on a company’s
financial statements such as statement of financial position, statement of financial
performance and cash flow statement are used to perform quantitative analysis and assess a
company’s liquidity, leverage, growth, margins, profitability, rate of returns, asset valuation
and more. The impact of financial ratios on the performance of a company is significant as
they provide valuable insights into the company’s financial position and help in decision
making. Ratio analysis is a key tool used for performance analysis, because ratios summarize
financial information, often by relating two or more items to each other, and they present fina
ncial information in a more understandable form. Ratios also identify significant relationships
between different figures in the financial statements.
It is difficult to assess a company’s financial performance by analyzing the financial results f
or one year. Better information is obtained by making comparisons with financial performanc
e in the previous year, or perhaps over several periods (trend analysis). A ratio on its own doe
s not provide useful information. Ratios are useful because they provide a basis for making co
mparisons. Comparisons might indicate that performance or the financial position is better or
worse than it should be, or is getting better or worse than in the past. Ratio on its own does n
ot explain why any under-performance or out performance has occurred. Ratios are used to in
dicate areas of good or weak performance, but management then have to investigate to identif
y the cause. Rashid (2018) claimed that financial ratio analysis helps with "analyzing and ass
essing linkages between various pieces of financial information throughout the company's his
tory. They provide information about events as they happened throughout time and help asses
s a company's financial health.
Performance evaluation of a company is usually related to how well a company can use its as
sets, shareholders equity and liability, revenue and expenses. A sustainable business and miss
ion require effective planning and financial management (Ndum, 2020).
Generally, performance is crucial to any business organization survival and continues
patronage by prospective investors and other stakeholders. This shows that every business
organization has an important decision to make on continuous basis to increase its earnings
and returns. This is necessary to keep the firm’s returns high and remain competitive in the
ever dynamic business environment. (Sari & Rahyuda, 2021). This therefore suggests that
performance is a reflection of the firm's ability to manage and allocate its resources. A
company with an impressive return on its investment will by extension pay better dividend to
the shareholders. To achieve the desired level of performance through shareholders’ centered
decisions and policy, several corporate practices are always taken into cognizance such as
capital structure choice, inventory management practice, corporate social responsibility, good
corporate governance practice among others.
Despite the importance of ratio analysis, there is limited research on its applications in the Ni
gerian companies. There is limited empirical evidence on the effectiveness of ratio analysis as
a tool for performance evaluation among Nigerian companies.
Statement of the problem
Nigeria companies are operating in a dynamic and competitive environment, and their
performance is crucial for the stability and economic growth of the country. Therefore, there
is a need to evaluate the performance of companies in Nigeria using appropriate tools. The
problem is how the use of ratio analysis as a financial performance evaluation tool impacts
the overall financial performance of a company. Specifically, the study will analyze the
relationship between the utilization of ratio analysis and various financial performance
indicators, such as profitability, liquidity, solvency, and efficiency. The goal is to assess
whether the consistent use of ratio analysis enhances financial decision-making and
contributes to improved financial performance, or if it has minimal impact on the company's
overall financial [Link] figures reported in the financial statements of an organization at
the end of the accounting period does not indicate whether profit earned is sufficient or not,
or whether assets are being used proficiently, or whether productivity is efficient or not, or
whether financial issues exist within the business. However, ratio analysis makes it possible
for evaluating financial performances by extracting needed data from the financial
statements. In the absence of financial ratios, financial statements would be mostly lacking
usefulness to all but an expert. It is against this backdrop that this study sought to investigate
the effect of financial ratio on corporate financial performance of listed companies in Nigeria.
According to kramaric, Miletic and Pavic, investigation of a company’s performance has
received a lot of attention of the economists. Financial performance could be assessed using
the descriptive and analytical measures of financial position and performance. Descriptive
measures include total assets, total liabilities, stockholders’ equity, total revenues, total
expenses and net income. Analytical measures include profitability, efficiency, liquidity and
solvency measures.
Objective
The broad objective of the study is to examine the effect of financial ratio on the corporate
financial performance of some listed consumer goods companies in Nigeria. The specific
objectives are:
1. To determine the effect of activity ratio on return on asset.
2. To evaluate the effect of market value ratio on return on asset.
Research Question
1. To what extent does activity ratio affect return on asset ?
2. What is the effect of market value ratio on return on asset ?
Research Hypothesis
In line with the research questions and objectives, the following hypotheses are formulated in
their null form:
H0 1: Activity ratio has no significant effect on return on asset.
H0 2: Market value ratio has no significant effect on return on asset

Conceptual Review
Financial Ratio
A financial ratio is a mathematical comparison between two or more financial variables in
order to assess the performance, strength, and profitability of a company. It helps investors,
analysts, and stakeholders gauge the financial health and stability of a company by providing
insights into its liquidity, efficiency, profitability, and solvency. Some common financial
ratios include the current ratio, return on investment (ROI), earnings per share (EPS), debt-to-
equity ratio, and gross profit margin. These ratios provide meaningful information about a
company's ability to generate profits, manage its debts, utilize its assets efficiently, and
generate value for its shareholders.
According to Brigham and Ehrhardt (2010), financial ratios are intended to aid in evaluating.
Financial ratios are employed as a tool for planning and management. Users of internal and
external financial data who need to make decisions about investment and performance
evaluation utilize financial ratios. Financial ratio analysis is used to assess an organization's
performance in order to identify its strengths and weaknesses. It then gives remedies by
outlining suitable plans. There are several standards and different financial ratios, but the
selection of ratios relies on the activity of the business and the goal of the analysis (Tofeeq,
1997).
Financial ratios are also commonly used as yardsticks or indices to compare the performance
of different businesses or to compare a company’s performance over time (Latuconsina 2023)
Ratios are seen as analytical tools that provide a solution for clarity, enabling the user to
identify areas of strength and weakness. Financial ratio analysis is the most practical way to
interpret a company’s financial statements ( Ezekwesili, 2021) By analyzing ratios, one can
quickly determine a company’s financial health and identify areas that require improvement (
Thuita, 2021) Financial ratios can highlight areas of good and bad performance and provide
valuable insights into a company’s financial operations. Financial ratios are employed as a
tool for planning and management. Users of internal and external financial data who need to
make decisions about investment and performance evaluation utilize financial ratios.
Financial ratio analysis is used to assess an organization's performance in order to identify its
strengths and weaknesses. It then gives remedies by outlining suitable plans. There are
several standards and different financial ratios, but the selection of ratios relies on the activity
of the business and the goal of the analysis (Tofeeq, 1997)
Activity Ratio
An activity ratios is a type of financial metric that indicates how efficiently a company is
leveraging the assets on its financial position, to generate revenues and cash. Activity ratios a
re most useful when employed to compare two competing businesses within the same
industry, to determine how a particular company stacks up among its peers. But activity ratio
s may also be used to track a company’s fiscal progress over multiple recording periods, to d
etect changes over time. These numbers can be mapped to present a forward-looking picture
of a company’s prospective performance. These ratios provide insights into how well a
company manages its assets and how effectively it uses them to generate revenue. Activity
ratios are critical for assessing the operational efficiency of a company, as they reveal how
quickly a company can turn its assets into cash or sales.
The asset turnover ratio is also an important activity ratio that measures how effectively a
company utilizes its assets to generate revenue. In addition to the above ratios, there are other
activity ratios that are used to assess the operational efficiency of a company, such as the
accounts payable turnover ratio, the fixed asset turnover ratio, and the total asset turnover
ratio ( Esli, 2022). Thus, activity ratios are important for assessing the operational efficiency
and effectiveness of a company. By understanding how well a company utilizes its assets to
generate revenue, investors and analysts can gain valuable insights into the company’s
financial health and future prospects. In this study, activity ratio is measured as asset turnover
ratio.
Asset Turnover Ratio
Asset turnover ratio is a measure of a company's efficiency in using its assets to generate
sales revenue. It is calculated by dividing net sales by average total assets. A higher asset
turnover ratio indicates that the company is effectively utilizing its assets to generate sales.
On the other hand, a lower ratio may suggest that the company is not efficiently utilizing its
assets. It is important to compare the ratio with industry benchmarks and historical data to
gain meaningful insights into a company's performance.
The asset turnover ratio measures the value of a company’s sales or incomes in comparison to
the value of its assets. Thus, this ratio can be utilized to assess how efficiently a company is
using its assets to generate revenue. A higher rate of asset turnover implies that the company
is earning revenue from its assets effectively. Conversely, a low asset turnover ratio suggests
that a company is not effectively utilizing its assets to produce sales.
Return on Asset (ROA)
One of the profitability ratios is Return on Assets (ROA). This ratio is frequently highlighted
in financial statement analysis since it can reflect a company's ability to generate profits.
ROA can be used to forecast future earnings by measuring a company's capacity to make
profits in the past. The assets in question are the general properties of the company, which are
derived either from the capital itself or from foreign capital that has been turned into
company assets for corporate sustainability. Return on asset (ROA) is computed by
comparing available net profit for common shareholders to total assets, according to Brigham
and Houston (2001).

Market Ratio and Firm Performance

Evaluation Market value ratio is also call share ownership ratio. It referred to the stockholder
s way of analyzing the present and future investment in a company. In this ratio the stockhold
ers are interested in the way certain variables affect the value of their holdings. It helps the st
ockholder to be able to analyze the likely future market value of the stock. Shanab (2008) exa
mined the impact of returns and risks on the share prices for a sample of 38 industrial public c
ompanies in Jordan listed on Amman Security Exchange for the period of 2000 to 2007. The
results of the study showed that there is no effect for the returns, risks and dividends on the m
arket value per share. However, the results indicated that there is a significant relationship bet
ween cash flow and share prices. AL Kurdi (2005) study explored the ability of the published
accounting information to predict share prices for a representative sample of 110 Jordanian p
ublic companies listed in Amman Security Exchange for the period of 1994 to 2004. The resu
lts informed that there is a relationship between the published accounting information of the i
nsurance public companies and their share. The results also informed that market information
have more ability on predicting share prices compared to the accounting information.
Profitability Ratio
Profitability ratios are indicators for the firm's overall efficiency. It's usually used as a measur
e for earnings generated by the company during a period of time based on its level of sales, as
sets, capital employed, net worth and earnings per share. Profitability ratios measures earning
capacity of the firm, and it is considered as an indicator for its growth, success and control. C
reditors for example, are interested in profitability ratios since this indicate the company's cap
ability to meet their interest obligations. Shareholders are also interested in profitability. This
indicates the progress and the rate of return on their investments. Profitability ratio evaluate h
ow well a company is performing by analyzing how profit was earned relative to sales, total a
ssets and net worth of companies. (James 2009), state that the Profitability Ratio Analysis of I
ncome Statement and Balance Sheet are used to measure company profit performance. The in
come statement and balance sheet (now called Statement of Comprehensive Income and State
ment of Financial Position, respectively) are the two important reports that show the profit an
d net worth of the company. Its analyses show how well the company is doing in terms of pro
fits compared to sales. He also shows how well the assets are performing in terms of generati
ng revenue.
Theoretical Framework
This theory states that the firm is a system of stakeholders operating within a larger system of
the society which provides the required legal and market infrastructure for the firm to thrive.
The purpose of the firm in this case is to serve the general public who may have direct or indi
rect relationship with the firm (Duong et al., 2021). The management and the provision of inf
ormation should be directed at satisfying the interest of the general public who also have inter
est in the firm rather than concentrating on shareholders alone.
Stakeholders Theory
Stakeholders’ theory is rooted the fact that when companies become bigger, their influence o
n the society and environment within which they operate becomes wider that they have to pay
attention to and satisfy all sections of the society, having mutual interests in the organization
beyond stockholders (Adamu & Haruna, 2021). This implies that the concern of the company
should not be limited to only shareholders of the company but extended to other set of individ
uals such as staff, creditors, debtors, consumers among others who also have vested interest i
n the organization.
Value Maximazition Theory
According to the value maximization theory, companies must focus on generating sustainable
profits over the long term (Ohaju, 2020) . This means that they must create and implement
effective strategies that enable them to generate revenue and increase profits year after year.
This means that they must create and implement effective strategies that enable them to
generate revenue and increase profits year after year. It also seeks to maximize the value of
other financial beneficiaries such as debt and warrant holders. This means that companies
must ensure that they meet their financial obligations to all stakeholders and maintain a sound
financial position at all times. In practice, the value maximization theory has significant
implications for corporate decision-making (Wallace, 2003)
The theoretical framework of this study is hinged on the stakeholders theory. This is due to th
e understanding that apart from the shareholders of the company, there are other stakeholders
who rely on the financial statement of a company for critical decision making. Such
stakeholders include financial analyst, prospective investors, suppliers, bond/debenture
holders and tax authorities. Considering the forgoing, this study is underpinned by
stakeholder theory.
Empirical Review
Performance ratio analysis requires consistency in statement of financial position and
statement of financial performance. Comparisons will not be comprehensive and objective if
distortions exist in the final accounts of the company. Off balance sheet activities like
provisions and revelation of assets, creative accounting and window dressing practices distort
performance ratio analysis in many respect. (Barltrop and McNaughton 1997) suggest that
ratios that indicate a significant divergence from the peer comparison base and trend lines
that point away from the peer average should be a cause for concern and the basis for
discussion with top management of the company. Effective ratio analysis should be based on
accurate data and consistent format to calculate key ratios.
Key financial ratios are used to determine the strengths and weaknesses of management
activity by the method of ratio analysis. Ratio analysis is a quantitative technique used to
enhance management decisions (Ayandele, 2005) According to Nzotta (2002) ratio analysis
constitutes a major tool in the enterprise. It essentially involves reducing the magnitude of
information on the statement of accounts of an enterprise by either eliminating, reclassifying
combining or rearranging them in a better format. They are a shortcut method of conveying
crucial facts about an entity’s operations and financial situation to any interested party. He
insists that ratios could also be described as the relationship between two accounting figures
expressed mathematically. Ratios point out relationships, which may not be obvious from
available raw data and could equally show elements associated with successful and
unsuccessful enterprise performance. Ratios essentially look at the path an enterprise appears
to be moving towards as well as its recent performance and current financial situation (Hoel,
1984).
Sani and Dinuka determined the effect of financial rations (leverage, liquidity, and working
capital efficiency) on company’s profitability in Indonesia, from 2017 to 2021 [12]. A total of
185 samples, or 37 companies, were collected using a purposive sampling strategy. To access
secondary data in the form of financial reports for businesses, data collection was done by
collecting data that has been archived in the database. Statistical descriptive analysis,
estimating model selection (Chow, Hausman, and range multiplier test), classical assumption
test (multicollinearity, heteroscedasticity, and panel data regression), and hypothesis testing is
used to analyze the data (coefficient of determination test and partial test). The results of this
study indicate that Working Capital Efficiency and Liquidity (Current Ratio) have no
significant positive effect on Return on Investment. This research also found that leverage
(debt to equity) had a significant negative effect on return on investment.
Ezejiofor (2018) examined how value relevance of financial information in Nigerian
manufacturing firms has improved after the implementation of International Financial
Reporting Standards (IFRS). Ex-post facto research design was adopted for the study. A
sample of 54 manufacturing companies was randomly selected from manufacturing
companies quoted on the Nigerian Stock Exchange for the periods of 2008-2015. Annual
reports and accounts of the sampled companies were used to extract data for the study. A
modified price model for detecting value relevance of accounting data for two different
periods was employed. Regression Analysis and Chow test statistical tools were used to
analyze and validate the data with aid of SPSS version 20.0. The study found that the
adoption of IFRS has improved the book value per share, market share price, Earnings Per
Share and cash flow of manufacturing companies in Nigeria. The implication of findings is
that the value relevance of accounting information of manufacturing companies is more
sensitive during Post-IFRS era than the Pre-IFRS era.
Methodology
Research Design
Ex-post facto design is the variant of research design adopted in this study. This is because
the study aims to measure the relationship between dependent and independent variables,
with the aid of past events. Ex-post facto design is suitable for this study as it involves the
collection of data on an event which has taken place in the past.
Population of the Study
This study looked into the effect of financial ratios on the performance evaluation of
consumer goods companies listed in the Nigeria stock exchange in Nigeria from 2014 to
2023. The population for the study covered all
Twenty-one (21) listed consumer goods companies in Nigeria which are
shown in Table 1 below.
Table1: Study Population
1 Bua Foods Plc
2 Cadbury Nigeria Plc
3 Champions [Link]
4 Dangote Sugar Refinery Plc
5 DN Trye & Rubber Plc
6 Flour Mills [Link]

7 Golden Gunea Brew. Plc

8 Guiness Nigeria Plc
 9 Honeywell Flour Mill Plc
10 International Breweries
11 Mc Nichols Plc
12 Multi Trex Integrated Foods Plc
13 N Nigeria Flour Mills Plc
14 Nascon Allied Industries
15 Nestle Nigeria Plc
16 Nigeria Brew. Plc
17 Nigeria Enamelware Plc
18 PZ Cussons Nigeria Plc
19 Unilever Nigeria Plc
20 Union Dicon Salt Plc
21 Vita foam Nigeria Plc
Source: Nigerian Exchange Group (2024)
Sample Size and Sampling Technique
Ten consumer goods companies were selected for the study using purposive sampling
method, based on the availability of financial reports and audit data during the period under
investigation. The table below (Table 3.2) shows the names of the companies that were
included in the sample.
Table 2: Study Sample Size
1 Bua Foods Plc
2 Cadbury Nigeria Plc
3 Dangote Sugar Refinery Plc
4 Honeywell Flour Mill Plc
5 PZ Cussons Nigeria Plc
6 Flour Mills Nigeria Plc

7 Nestle Nigeria Plc

8 Nigeria Brew. Plc
9 Unilever Nigeria Plc
10 Nascon Allied Industries
Source: Researcher’s Compilation (2024)
Method of Data Collection
The data were sourced from the published financial statements of the sampled companies
from 2014 - 2023. These data include: profit after tax, total assets, total sales, total equity,
current assets, current liabilities, number of ordinary shares and share price.
Description of Variables
Table 3: Operationalization of Independent Variables
Variable proxy measurement
1. Activity Ratio 1. Activity Ratio 1. Activity Ratio Asset
Asset Turnover Ratio Asset Turnover Ratio Turnover Ratio Total
Total Sales/Total Total Sales/Total Sales/Total Assets
Assets Assets
2. Market Value Ratio 2. Market Value Ratio 2. Market Value Ratio
Source: Researcher’s Compilation, 2024
Model Specification
The model used in the study was adapted from the study carried out by Ndum and Ejimma
which specified the model below.
PERFEVA=α+β1LIQR +β2LEVR +β3MKTR + β4PROFTR
+μ eqn (i)
Where:
PERFEVA = Firm Performance evaluation: Return on asset was used to proxy firm
performance evaluation.
LEVR = Leverage ratio (Debt to equity ratio is used for leverage ratio).
MKTR= Market ratio (Earnings per share is used as a proxy for market ratio).
PROFTR = Profitability ratio (Return on equity is used as a proxy for profitability ratio)
However, since the present study uses ROE to proxy corporate financial performance and
uses market to book value ratio to proxy market value, the model in eqn i above is modified
to produce the
model in eqn ii below.
ROAit = α0 + β3 ACTRit + β4MBVRit + µit eqn (ii)
Where,
ROAit = Return on Asset for firm i in period t.
ACTRit = Activity ratio for firm i in period t
MBVRit = Market value ratio for firm i in period t
µ = white noise for firm i in period t
α0 it . = constant.
β1-4 = coefficients of the predictors
Method of Data Analysis
The technique employed in this study to estimate the effect of financial ratio on firm
performance evaluation is the Ordinary Least Square (OLS) technique. The study utilized
multiple regression analysis to establish effect in addition to the descriptive statistical
analysis conducted with the use of mean, standard deviation, range values, skewness, kurtosis
and Jarque-Bera statistic. The E-views Version 10 package was used to facilitate the process
of estimation of the models relating financial ratios with banking firm’s financial
performance in Nigeria. The acceptance or rejection of a null hypothesis is determined by the
significance of the t-test and its corresponding probability value. If the probability value of
the t-statistic is less than 0.05, the null hypothesis is rejected in favor of the alternative
hypothesis. On the other hand, if the probability value of the t-statistic is
Decision Rule
greater than 0.05, the null hypothesis is accepted
Presentation of Data and Descriptive Statistics
The study examined the effect of financial ratio on the corporate financial performance of
listed consumer goods companies in Nigeria. The specific objective was to ascertain the
effect of activity ratio and market value ratio on return on asset. Secondary data were sourced
from the annual reports of ten selected listed consumer goods companies from 2014 to 2023
(See Appendix I). The descriptive analysis of the data is shown below.
ROA ACTR MBVR
Mean 0.077843 0.108642 0.963029
Median 0.121778 0.107412 0.664201
Maximum 0.532816 0.173576 6.793735
Minimum -3.952171 -0.093002 -0.053226
[Link]. 0.442227 0.032221 1.033657
Skewness -8.644561 -2.011642 3.144241
Kurtosis 81.59643 14.15483 15.4316
Jarque-Bera 27171.22 587.9968 799.4401
Probability 0.000000 0.000000 0.000000
Sum 7.784138 10.56753 94.20294
Sum [Link]. 17.89095 0.112402 105.6223
 Observations 100 100 100
Source: Eviews 10 Analysis Output
Table 1 provides descriptive statistics for the variables used in the study. The variables
include Return on Asset (ROA), Activity Ratio (ACTR), and Market Value to Book Value
Ratio (MBVR).
Return on Asset (ROA): ROA is a measure of how much returns a company has generated
with the money invested on asset. The mean ROA of 0.077843 indicates that, on average, the
companies in the sample had a return on equity of 7.78%. However, the data also shows a
negative minimum value and a high level of skewness and kurtosis, suggesting that the
distribution of ROA is not normal and may be heavily influenced by outliers.
Activity Ratio (ACTR): ACTR is a measure of how efficiently a company uses its assets to
generate revenue. The mean ACTR of 0.108642 suggests that, on average, the company
generated ₦0.11 in revenue for every ₦1 of assets. The data also shows a negative minimum
value and a high level of skewness, indicating that the distribution of ACTR is not normal
and may be heavily influenced by outliers.
Market Value to Book Value Ratio (MBVR): MBVR is a measure of how much investors are
willing to pay for a company’s stock relative to its book value. The mean MBVR of 0.963029
indicates that, on average, investors were willing to pay about 96 cents for every naira of
book value. The data also shows a wide range of values, with a minimum value of -0.053226
and a maximum value of 6.793735. The high level of skewness and kurtosis suggests that the
distribution of MBVR is not normal and may be heavily influenced by outliers.
In this table, all of the Jarque-Bera statistics are very high, ranging from 587.9968 to
27171.22, indicating that the data does not follow a normal distribution. The probability
values associated with each test are all 0.000000, which means that the null hypothesis of
normality is rejected at the 5% significance level. This suggests that the data may be skewed
and have heavy tails, and therefore, statistical analyses that assume normality may not be
appropriate.
Data Analysis
Test of Hypotheses
The technique employed in this study to estimate the effect of financial ratio on firm
performance evaluation is the Ordinary Least Square (OLS) technique. The test output is
shown in Table 2.
Table 2: Ordinary Least Square (OLS) Regression Result
Dependent Variable: ROA
Method: Least Squares
Date: 08/25/24 Time: 12:30
Sample: 1 100
Included observations: 100
Variable Coefficient Std. Error t-Statistics Prob.
ACTR 0.412392 0.677464 0.598667 0.5493
MBVR -0.021421 0.024757 -0.878094 0.3980
C 0.254562 0.068814 3.582515 0.0005
R-squared 0.795942 Mean dependent var 0.077971
Adjusted R- 0.777971 S.D dependent var 0.433225
squared
S.E of regression 0.210067 Akaike info criterion -0.335325
Sum squared resi 3.831743 Schwarz criterion -0.18971
Log likelihood 21.51143 Hannan-Quinn criterion -0.255913

F-statistic 87.82161 Durbin-Watson stat 1.4675636

Prob(Fstatistic) 0.000000

Based on the information in Table 2, the study examined the effect of financial ratios on the
corporate financial performance of listed consumer goods company in Nigeria. The four
financial ratios examined were liquidity ratio (current ratio), leverage ratio (debt to equity
ratio), activity ratio (asset turnover ratio), and market value to book value ratio. The
dependent variable used to measure the financial performance was return on Asset.
The R-squared value of 0.795942 suggests that the independent variables in the model
explain about 79.6% of the variation in the dependent variable, return on asset. The adjusted
R-squared value of 0.777971 takes into account the number of independent variables in the
model, and it suggests that the independent variables explain about 77.8% of the variation in
return on equity. The F-statistic of 87.82161 with a probability value of 0.000000 suggests
that the overall model is statistically significant, indicating that at least one of the
independent variables in the model is significantly related to the dependent variable. The
Durbin-Watson statistic of 1.4675636 suggests that there is no significant autocorrelation
present in the model residuals.
Test of Hypothes I
H0 1: Activity ratio has no significant effect on return on asset of listed consumer goods
companies in Nigeria. The coefficient for the activity ratio (asset turnover ratio) is 0.412392,
which means that for each unit increase in the activity ratio, the return on asset increases by
0.412392 units. However, the probability value of 0.5493 indicates that this relationship is
not statistically significant at the conventional level of significance (α = 0.05). Therefore,
it can be concluded that the activity ratio has a non-significant positive effect on the return on
asset of listed consumer goods in Nigeria (p > .05).
Test of Hypothesis II
H0 2: Market value ratio has no significant effect on return on asset of listed consumer goods
companies in Nigeria relationship is not statistically significant at the conventional level of
significance (α = 0.05). Therefore, it can be concluded that the market value to book value
ratio has a non-significant negative effect on return on asset of listed consumer goods
companies in Nigeria (p > .05).
Discussion of Findings
Activity Ratio
The activity ratio measures the efficiency of a consumer goods company in managing its
assets. A higher activity ratio indicates that a consumer goods company is using its assets
more efficiently to generate revenue. In the case of consumer goods companies, a higher
activity ratio is positively correlated with the return on asset. This means that consumer
goods company that are more efficient in managing their assets tend to have higher returns on
asset. This positive effect can be explained by the fact that companies with higher activity
ratios can generate more revenue with the same amount of assets, leading to higher
profitability. This finding is in line with the result by Kalisa and Twesigye; Soni, Arora and
Le and Restia and Latuconsina [9, 13, 32].
Market Value to Book Value Ratio
The market value to book value ratio measures the market’s perception of a company’s value
relative to its book value. A higher market value to book value ratio indicates that investors
believe the company’s future growth prospects are strong. However, in the case of consumer
goods companies a higher market value to book value ratio is negatively correlated with the
return on asset. This negative effect can be explained by the fact that a high market value to
book value ratio can create unrealistic growth expectations, leading to overvaluation. This
can cause the company’s stock price to decline when these expectations are not met, leading
to lower returns on equity. Similar non-significant effect was realised by Oshoke and
Sumaina .
Conclusion
The positive effect of the activity ratio suggests that companies that improve their efficiency
in managing their assets realize better financial results since they implement measures that
can improve their asset utilization, such as optimizing their loan portfolio, streamlining their
operations, and investing in technology that can improve their operational efficiency.
However, a high market value to book value ratio generates expectations of unrealistically
high growth, which may cause the company to become overvalued. If these growth
expectations are not met, the stock price of the company may decrease, resulting in lower
returns on asset.

Recommendations
Based on the findings, the following recommendations were drawn:
1. Activity Ratio: Although the activity ratio has a non-significant positive effect on the
return on asset listed consumer goods companies in Nigeria, it still plays an important role in
the company’s profitability. Therefore, it is recommended that companies should strive to
improve their operational efficiency and increase their asset turnover ratio to boost
profitability.

2. Market Value to Book Value Ratio: The non-significant negative effect of the market value
to book value ratio on the return on asset of consumer goods companies in Nigeria suggests
that market perception of the company’s value does not necessarily translate to better
profitability. Therefore, it is recommended that company should focus on improving their
fundamental performance and financial metrics rather than solely relying on market
sentiment.

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