Effect of Leverage on Profitability of Food and Beverage Manufacturing Companies in Addis Ababa
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Date
2020-05
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A.A.U
Abstract
The major focus of this study is to investigate effect of leverage on profitability. Twelve medium
tax payers’ food and beverage manufacturing companies in Addis Ababa were included in the
sample that had at least eight years annual report. Document review was used for collecting
data from 2011/12- 2017/18 annual reports. In line with this objective, the study adopted
quantitative methods of research approaches to test the study hypothesis. The study applied
return on asset as the measurement of profitability and panel data model with its random effect
estimate to test a series of hypotheses that emerge through the review of existing literature. The
collected data then analyzed using descriptive statistics, correlation analysis, and panel data
regression analysis. To confidently forward conclusion, normality, multicollinearity,
heteroscedasticity and autocorrelation tests were conducted on the data. The data then was
processed using Eviews 8 statistical package.Then, regression result indicates that leverage has
a negative relationship with profitability and statistically significant. While managerial
efficiency and capital intensity has a positive and significant effect on profitability and firm
growth has a positive insignificant effect on profitability. Inflation is the only independent
variable which does not have significant effect on profitability in this study. Therefore, medium
tax payers’ food and beverage manufacturing companies’ for better and stable growth
recommended that must not depend heavily on leverage funds, as all leverage has its impact on
their earning which ultimately effects its portability and inventors perception for firms. Finally
firm with high leverage ratio have to examine their efforts to control unwanted risk and exposure
which will impact their portability and hit their market potential.
Description
A Thesis submitted to the department of accounting and finance in partial
fulfillment for requirement of Degree of Masters Science in Accounting and
Finance
Keywords
Beverage manufacturing companies and panel dat, Return on asset, leverage