The Impacts of Gearing on Profitability of Manufacturing Companies in Nigeria

Abstract

The objective of the study is to examine the impacts of gearing on the profitability of manufacturing companies in Nigeria The researcher employed descriptive statistics to test the profitability of the companies used at case study when geared and un-geared The study reveals the reason for the use of long-term debts (debentures) to include the need to increase the amount of resources available to a company for growth and expansion, the desire to reduce the Weighted Average Cost Of Capital (WACC thereby increasing profitability and capital appreciation, the adoption of agency theory and the need for dynamism among others. Most importantly, there is empirical evidence that the profitability of the three companies used as the case study-Guinness Nigeria Pic The West African Portland Cement Plc and CFAO Nigeria Plc-was better when long- term debts were not used, though the effects vary from one company to another. The shady concludes that gearing has always been a controversial topic both among academics and financial experts and as such projects should be properly evaluated and appropriate source(s) of finance used in order to maximize shareholders' wealth