Improved Financial Performance Without Improved Operational Efficiency: The Case of Nigerian Firms

Evans, Olaniyi (2018): Improved Financial Performance Without Improved Operational Efficiency: The Case of Nigerian Firms. Published in: Forum Scientiae Oeconomia , Vol. 6, No. 3 (2018): pp. 25-41.

Abstract

Is financial performance of firms really on the increase in Nigeria? If so, what about operational efficiency of these firms? Though profits are on the rise, can these companies possibly be efficient, in spite of the problems inherent in the economy? In order to answer these questions, this study uses four different panel unit root tests to establish the stationarity of financial performance and operational efficiency in Nigeria, using one key performance variable (i.e., profit after tax) and three efficiency variables (i.e., return on assets ratio, asset turn ratio and portfolio activity & resilience) with a cross section of the 20 most quoted companies on the Nigerian Stock Exchange. The study shows that profit after tax is non-stationary while return on assets, portfolio activity & resilience and asset turn ratio are stationary. In other words, while financial performance (measured as profit after tax) is increasing in Nigeria, operational efficiency (measured as Return on Assets, Portfolio Activity & Resilience and Asset Turn Ratio) is stagnant. What it means is that while corporate profits are on the rise, the companies are not operationally efficient.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Performance, Operational Efficiency, Profit after Tax, Rate of Return on Assets, Asset Turn Ratio, Portfolio Activity & Resilience
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D49 - Other; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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