Browsing by Author "Getachew Tilahun"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    The Effect of Capital Structure on The Financial Performance of Addis Ababa Large Food and Beverage Manufacturing Industry
    (AAU, 2025-02-17) Getachew Tilahun; Degefa Duressa
    The effect of capital structure on firm value has been a contentious issue in corporate finance, with inconsistent and inconclusive findings across various industries and countries. This study aims to examine the effect of capital structure decisions on the financial performance of large food and beverage manufacturing companies in Addis Ababa, Ethiopia. The primary objective is to analyze the effect of debt ratio and long-term debt to equity ratio on profitability, as measured by Return on Assets (ROA), while considering other variables such as firm size, liquidity, asset tangibility, sales growth, age, and inflation rate. Using secondary panel data from the audited financial statements of 12 large food and beverage companies for the period 2017-2022, the study employs econometric analysis to investigate these relationships. The findings reveal that capital structure, particularly higher leverage or debit ratio has a significant negative impact on financial performance, with long-term debt to equity ratio also having a statistically significant negative relationship with ROA .this is because of the excessive costs associated with debt .additionally asset tangibility and age of firms having significant negative relationships with ROA. In contrast, some variables, such as firm size and sales growth shows positive effects on performance. Based on these results, the study recommends that financial managers in the food and beverage sector carefully balance their debt and equity financing by reducing their debt to optimize profitability. Additionally, it suggests that firms should consider the specific economic and industry context when making capital structure decisions, as the effects can vary significantly across different environments