FINANCIAL RATIOS AS PREDICTORS OF CORPORATE PERFORMANCE

(A Case Study of Zamfara Textiles Industries (Nig.) Ltd)

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Author

Presented To

Department of Administration

ABSTRACT
This study examines the extent to which financial ratios can serve as reliable predictors of corporate performance, using Zamfara Textiles Industries (Nig.) Ltd as a case study. In the face of persistent financial distress within Nigeria's textile industry, the research investigates whether key financial ratios - specifically liquidity, profitability, leverage, and efficiency indicators - can effectively assess and forecast the financial health of a manufacturing firm.
The study employed a quantitative research design based on secondary data derived from the company’s audited financial statements covering a five-year period (2018-2022). Descriptive trend analysis and multiple linear regression techniques were used to analyze the relationship between selected financial ratios and corporate performance, as measured by Return on Assets (ROA).
Findings revealed that the Current Ratio, Net Profit Margin, and Debt-to-Equity Ratio significantly influenced corporate performance. Liquidity and profitability had positive impacts, while high leverage was negatively correlated with ROA. Inventory turnover had a weak and statistically insignificant relationship with performance.
The study concludes that financial ratios are effective tools for predicting corporate performance and should be actively used by managers, investors, and policymakers for performance evaluation, strategic planning, and early detection of financial distress. It recommends that firms improve their liquidity management, reduce excessive debt financing, and adopt regular financial ratio monitoring as part of their performance management practices.
This research contributes to the body of knowledge on financial analysis in Nigeria by providing empirical evidence on the predictive relevance of financial ratios in a key industrial sector. It also lays a foundation for further studies involving multi-firm comparisons and integration of non-financial performance indicators.
Keywords: Financial Ratios, Corporate Performance, Liquidity, Profitability, Leverage, Regression Analysis, Textile Industry, Nigeria.

TABLE OF CONTENTS
TITLE: 1
ABSTRACT 2
TABLE OF CONTENTS 4 CHAPTER ONE 6
INTRODUCTION 6
1.1 Background to the Study 6
1.2 Statement of the Problem 8
1.3 Objectives of the Study 9
1.4 Research Questions 10
1.5 Research Hypotheses 10
1.6 Significance of the Study 11
1.7 Scope and Delimitation of the Study 12
1.8 Organization of the Study 13
CHAPTER TWO 14
LITERATURE REVIEW 14
2.1 Introduction 14
2.2 Conceptual Framework 14
2.2.1 Financial Ratios: Definition and Classification 14
2.2.2 Corporate Performance 19
2.3 Theoretical Framework 21
2.3.1 Signaling Theory 22
2.3.2 Agency Theory 24
2.3.3 Resource-Based View (RBV) 26
2.3.4 Pecking Order Theory 29
2.4 Empirical Review 31
2.4.1 Global Studies 32
2.4.2 Nigerian Studies 33
2.5 Gaps in the Literature 35
2.6 Review of Related Concepts 37
2.6.1 Importance of Financial Ratios to Management 37
2.6.2 Role of Financial Ratios in Investment Decisions 39
2.6.3 Limitations of Financial Ratios 40
2.7 Summary of Literature Review 41
CHAPTER THREE 44
RESEARCH METHODOLOGY 44
3.1 Introduction 44
3.2 Research Design 45
3.3 Population and Sampling Technique 45
3.3.1 Population of the Study 45
3.3.2 Sampling Technique 46
3.4 Sources of Data 46
3.5 Data Collection Methods 47
3.6 Analytical Techniques 47
3.6.1 Ratio Analysis 47
3.6.2 Trend Analysis 48
3.6.3 Regression Analysis 48
3.7 Model Assumptions and Validity 49
3.8 Reliability and Validity of Data 50
3.9 Ethical Considerations 50
3.10 Limitations of the Methodology 51
3.11 Summary 51
CHAPTER FOUR 52
DATA PRESENTATION, ANALYSIS AND INTERPRETATION 52
4.1 Introduction 52
4.2 Financial Data Overview 53
4.3 Computed Financial Ratios 53
4.4 Trend Analysis and Interpretation 54
4.4.1 Liquidity Ratio (Current Ratio) 54
4.4.2 Profitability Ratios (Net Profit Margin, ROA, ROE) 55
4.4.3 Leverage Ratio (Debt-to-Equity Ratio) 56
4.4.4 Efficiency Ratio (Inventory Turnover) 57
4.4.5 Interest Coverage Ratio 57
4.5 Regression Analysis 58
4.6 Hypothesis Testing 59
4.7 Discussion of Findings 60
4.8 Summary of the Chapter 60
CHAPTER FIVE 61
SUMMARY, CONCLUSION AND RECOMMENDATIONS 61
5.1 Summary of the Study 61
5.2 Conclusion 63
5.3 Recommendations 64
5.4 Contribution to Knowledge 65
5.5 Limitations of the Study 65
5.6 Suggestions for Further Research 66
REFERENCES 67

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