Leverage and Profitability of Quoted Health Care Firms in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue II, February 2020 | ISSN 2321–2705

Leverage and Profitability of Quoted Health Care Firms in Nigeria

Olaifa Oluwafemi Olumuyiwa¹, Yakubu Abubakar² and Dangana Umaru^3
1Department of Accounting, Ahmadu Bello University, Zaria, Nigeria
²Gbenga Olowe & Co Chartered Accountants Firm
³College of Education, Gidan Waya, Nigeria

Abstract:-Capital structure and its influence on profitability has been a major point of argument among researchers, since different research come up with divergent views to explain how relevant or irrelevant it is. This study looks at the effect of Leverage on profitability of Quoted Healthcare firms in Nigeria for a period of 10 years (2003-2012). The study employed panel data analysis by using Ordinary Least Square regression model. It was found out that leverage has a significant effect on profitability of quoted healthcare firms in Nigeria. The study concludes that leverage impact return on asset, return on investment and earnings per share negatively while it affect return on equity positively. It is recommended that management should balance the use of equity and debt in a way that will impact positively on firms value, we also added that Central Bank of Nigeria (CBN) should review and lower interest rate on bank loan so that healthcare firms can have access to cheaper capital to develop standard healthcare facilities, create more wealth and employment opportunities which in turn will affect the economy in a positive way.

Keywords: Leverage, Return on asset, Return on Investment and Earnings per share.

I. INTRODUCTION

The term Capital Structure refers to the combination of diverse option and financial framework in which a firm uses to finance its trading, operating and investing activities. It largely consists of external debt, external equity and internal equity. Depending on the need of the firm, the financial manager may chose to use any of the available sources of capital or a combination of all, and that forms the firm’s capital structure. The survival, sustenance and profitability of a firm may hinge on its capital structure; hence, it is so crucial and very important to the firm. The capital structure of a firm is a major prerequisite to the firm’s ability to succeed by making profit and satisfying its shareholders and other contributor of capital. Improper financing strategy and capital structure has been identified as leading factors to business collapse in developing countries. However, the bane of financial managers in developing and developed countries would be finding the right balance or proportion of capital structure mix that suits their respective economy and businesses.

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