Effects of Liquidity, Leverage, and Profitability on Financial Distress among Industrial Goods Firms in Nigeria
DOI:
https://doi.org/10.62486/agma2025279Keywords:
Financial distress, Altman Z-score, Liquidity, Leverage, Return on EquityAbstract
Introduction: There are limited empirical studies that can be found on liquidity, leverage and profitability as indicators of financial distress in the industrial goods sector of Nigeria.
Objective: This study examines the determinants of financial distress among industrial goods firms listed on the Nigerian Exchange Group using liquidities, leverage and profitability.
Methods: The study employed a fixed effect panel regression model using panel data of 11 purposively selected firms in a ten year period (2015- 2024) with Altman Z score as a proxy for financial distress.
Results: The findings indicated a negative, but statistically insignificant, effect of liquidity on financial distress suggesting that short term solvency does not fully predict financial distress in the sector. It was found that debt leverage had a considerable negative effect, meaning that managed debt can decrease the chances of financial distress. On profitability, return on equity was also highly correlated with an inverse relationship with financial distress. The model of financial distress proved very robust since the explained percentage of the variation in financial distress was 72.3%.
Conclusion: It concludes that firm managers should give more importance to the strategies that yield profitability like cost control, revenue maximization, and optimum use of capital by maintaining the optimum debt structure so as to reduce the risk of financial solvency.
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