DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED FOODS AND BEVERAGES COMPANIES IN NIGERIA

MSC Project Topics in Accounting and Finance

Abstract 
This study seeks to find out the factors that influence financial performance of listed foods and beverage companies in Nigeria. The dependent and independent variables of the study were searched out from literatures of previous works. ROA measured as EBIT to total assets, firm size as natural logarithm of total assets, leverage as total debt to total assets, intangibles is the total sum incurred to acquire the assets, while liquidity ratio is measured as current assets to current liabilities and firm age is the number of firm‟s years in existence. The study used correlation research design, as data on ROA, firm size, firm age, leverage, intangible assets and liquidity ratio were sourced from published annual report of five (5) out of nine (9) of these firms from 2004 – 2013.The result obtained from fixed effect regression model, documented that firm age, leverage and liquidity ratio are determinantsof financial performance of listed foods and beverages companies. Therefore, the study recommends, among others that managers of these firms should never compromise but always maintain reasonable level of liquid assets in order to meet immediate needs of the firm, the option for leverage should be considered for only profitable ventures and for a lower cost of returns.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

The question of firm performance is very important for different group of people. This is because all agents that have to make any financial decision about a company are concerned with its financial position (Vira2008). Thus, owners, managers, potential investors, banks, other financial institutions, creditors, business partners, employees, and government are always interested in models that help to analyse and predict the performance of the companies. Little wonder, the primary motive of most business organizations is profit maximization, wealth creation and other secondary objectives that are deemed important to such organizations(Pathirawasam&Adriana, 2013). On this note, Kolawole (2013) opined that, organizations seek to improve performance, create value in terms of additional wealth for their shareholders and increase satisfaction to their customers and other stakeholders. This view was further confirmed by Nousheen&Arshad (2013) that maximizing the profit of a firm is one of the major objectives of managers.

Therefore, the profitability of a firm is a key concern as it has the ability to absorb market shocks and contribute to the stability of the system in general and the firm specifically. Hence, profitability of a firm has become the major criterion in determining its financial performance, since investors and other stakeholders pay most of their attention on profitability before dealing with firms.However, some of these businesses have experienced the opposite of their stated objectives, thus for organizations to achieve their set objectives.They must employ different types of firm performance management systems (Kolawole, 2013), considering the fact that, a firm‟s performance is likely to be determined by different factors. A firm is a legal fiction which serves as a nexus for a set of contracting relationship among individuals. Regardless of this analysis, firms are no longer viewed as identical black boxes in any given market structure but as dynamic collections of specific capabilities influenced by distinctive organizational structures and specific decisions (Hawawini, Subramaniam&Verdin 2003).

To determine the factors that influence performance of business organizations, (Capon, Farley &Hoeng, 1990) as cited by Bala&Matthew (2005), suggest that performance of firms can be explained by various characteristics that could be firm specific or and industry specific alike. Consequently, certain factors are likely to either improve or impair a firm performance. Therefore, emphasis of corporate performance cannot be over looked to a reasonable extent since the performance of firms could be and are most often used as yardstick or benchmark as well as comparison measures to know if the motives behind the establishment of these business organizations have been achieved or not.

In the same vein, the business world will always require management to be creative in an effort to improve their performance; they should have the ability and take advantage of opportunities to improve company’s performance. To improve the company’s performance is to create strategies, techniques and business tools that are appropriate and suitable for the company as high firm performance will increase the company’s stock market prices and investors will respond positively.

The concept of performance has become more prominent because of its application to everything and everywhere, thus serving as basis for comparison. Firm performance is a core concept in the business world, as it is one essential tools of business management (Francoise, Gerald &Mansi, 2005). Performance is used as a measure to dictate organizational growth and development. The performance of an organization shows the level of improvement made by a firm within a period of time that is, firm performance serves as a barometer that measures the success of the company, hence used as a bench mark for investors to invest their funds.

Furthermore, performance has been described by Sabine and Michael (1990), to be a multi-dimensional concept. It is also seen to be a complex phenomenon and this has consequently increased the studying of firm performance and its determinants globally. According to Andreas (2009), determinants of firm performance are considered as a well addressed research topic in the field of Industrial organization however, there seems to be no consensus as to the actual proxy and measurement of firms‟ performance.

More so, firms‟ performances over time have been measured differently by researchers‟ fewer than three major groupings: profitability ratios, growth rates and margins. Based on this, Kemp, De dong &Wubben (2003) &Costae (2006), concluded that performance can be defined and measured in several ways depending on the goals and context of the research.

However, Mark, Susan &Randall (1997), kolawole (2013) and Yana (2010) have suggested that, the use of modern financial ratios as performance measures are best because they consider some degree of market risk and create more value as against classical financial ratios that provide information of performance from the past. So, modern financial ratios are regarded more relevant when compared to the classical financial ratios. Nevertheless, the recent development and use of proxies like ; quality of management and quality of intellectual capital, environmental factors and others are considered and seen to be more efficient (Costea, 2006) in determining the performance of a firm .

Again, literatures on business policy have considered two major streams of research on the determinants of financial performance. One is based primarily upon an economic tradition, emphasizing the importance of external market factors in determining firm success. The other line of research builds on the behavioral and sociological paradigm and sees organizational factors and their fit with the environment as the major determinants of performance. In this school of thought, little direct attention is given to the firm‟s competitive position and advantage and hence drives firm profitability (Noel, Sebastian &Eduardo, 2009). Similarly, economics traditionally have disregarded factors internal to the firm and of these internal factors will be enumerated and discussed adequately.

Firm size as an internal factor of a company has been considered a very important determinant of performance. This is because the size of a firm determines its level of economic activities and the possible economics of scale enjoyed by the firm.When a firm becomes larger it enjoys economics to scale and its average cost of production is lower and operational activities are more efficient. Hence, larger firms generate larger returns on assets. However, if the top management loses control over certain strategic and operational activities the reverse might be the case (Pathirawasam& Adriana, 2013).

On the other hand, smaller firms do not enjoy economics of scale of which their average production cost could be higher than the larger firms but the flexibility in the system and the fewer top management; provides opportunity to make quick decision, adapt to changes in the environment that result to larger average returns or profits for the firms. Firm size can be measured by the total asset of a firm, hence it is believed that the larger the firm‟s total asset, the larger the size of the firm. Although, studies like Pavlos (2007), Owen and Paul (2003) used number of employees, natural resources and economic resources as a measure for firm size.

Most scholars have agreed that firm age determines growth as well as performance (Muhammad &Shahimi 2013). They believethat the hazard rate of a firm will fall with time and firm survival increases with age of the firm. Thus, this statement can be considered true because new firms are perceived unable to achieve economies of scale and they rarely have the sufficient managerial resources and expertise.While, some scholars made a conflicting remark stating that old firms are not flexible enough to make rapid adjustment, indicating barriers to innovation and profit making. Their organizational rigidities limit their growth by inhibiting change as they become harder to change over time, since most of the firms still own and use outdated machines, plants and equipment that limit their capability to innovate.

However, studies on firm age did not give conclusive evidence on the relationship between performance and the measurement of age. Several studies like Muhammad and Shahimi (2013) used different variables to measure firm age. Though, most literatures definedfirm age as the length of time a firm has been in existence. It could also be the number of years in existence after listing on the stock exchange.

Leverageconsists of various financial instrument or borrowed capital such as margin used to increase the potential return of an investment of a firm. It is that amount of debt used to finance a firm‟s assets. It is assumed and expected that, the greater the amount of debt, the more stringent is the monitoring of managers and therefore firms‟ performance will be superior. Thus, firms with a significant level of debt than equity is said to be highly levered.

A firm is the amalgamation of the various assets and liabilities (tangibles, intangibles, financial, fictitious and current assets; current and long term liabilities) that comprise the totality of the firm. The physical assets of a firm can be valued on a similar basis to the firm itself. But, the distinguishing features of “current assets” and “current liabilities” (liquidity position) is that a firm cannot operate effectively and efficiently without them being present, thus, we could say that they are not separable from the firm itself. Finally, intangible assets can be considered as a variable likely to influence financial performance. Our attention is been drawn to this factor because economies are becoming knowledge and technology-based, more so the intangible elements of firms are becoming fundamental determinants of firm current and future competitiveness as well as firm value and growth. Similarly, Bernard (2005) identified that it is impossible to navigate a business to success without the necessary performance information (intangibles inclusive) to guide your strategic decision making. Intangible assets include research and development expenditures, the acquisition of human resource, advertisement, patient right, goodwill and so on.

In view of the basic challenges facing business enterprises in this period of extensive innovation and modernization in business, it becomes pertinent to examine the factors that impact performance of firms in order to enable business enterprises concentrate on their competitive advantage. This study is aimed at determining financial performance of foods and beverages companies in Nigeria, using some internal variables of firms.

MSC Project Topics in Accounting and Finance

DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED FOODS AND BEVERAGES COMPANIES IN NIGERIA

Department: Accounting and Finance (M.Sc)

Format: MS Word

Chapters: 1 - 5, Preliminary Pages, Abstract, References, Appendix.
Delivery: Email

No. of Pages: 95

NB: The Complete Thesis is well written and ready to use. 

Price: 10,000 NGN

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