Capital structure, a term interchangeably used with financial structure by most authors, is one of the most important effective parameters on the valuation and direction of economic enterprises. In recent times, changing business environment demands that rating companies, also in terms of the credit, depend partly on their financial structure and strategic planning required in selecting effective resources to achieve objective of shareholders’ wealth maximization (Drobetz and Fix, 2003). In pursuit of this goal, managers face the task of determining the best combination of financial resources of the firm. The decision on how to finance the firm’s asset from stakeholders and how much debt and equity the firm will require to finance its asset is very crucial in the determination of corporate financial performance. According to Modarres and Abdoallahzadeh (2008), since the company’s cost of capital is seen as a function of its financial structure, choice of optimal financial structure or adequate and appropriate financing and investment reduce the company’s cost of capital and increase its market value which also increase shareholders wealth.

Literature on studies on the relationship between financial (capital) structure and firm’s financial performance mostly adopted specific measures such as Return on Equity (ROE), Return on Asset (ROA), Earning per Share (EPS) and Market values of the firm. These were used to measure financial performance of firms with reference to profitability as measured by Profit before tax which represents a more comprehensive financial performance indicator. Most studies that tried to adopt profitability as measure of performance are of foreign origin (Abor, 2005, and Deskalakis and Psillaki, 2005). These studies may have explained how capital structure affected profitability of quoted firms in their respective countries. It may not offer such explanation for profitability of quoted consumer goods manufacturing firms in Nigeria. 


Research Hypotheses

This study tested the following hypotheses which are formulated in null form:

Ho1: There is no significant relationship between financial structure and return on assets of quoted consumer goods manufacturing firms in Nigeria.

Ho2: There is no significant relationship between financial structure and return on equity of quoted consumer goods manufacturing firms in Nigeria.

Ho3: There is no significant relationship between financial structure and earnings per share of quoted consumer goods manufacturing firms in Nigeria.


Concept of Financial (Capital) Structure

Van Horne and Wachowicz (1995) referred to Capital Structure as the mix of a firm permanent long-term finning represented by debt, preferred stock and common stock equity. Firms use different financing mix such as shares, reserves or retained earnings, preferred stocks and debts; the basic division is between equity and debt financing. When a firm’s total financing is intended the structure of financing is referred to as Financial Structure. Hence, financial structure is the mix or combination of equity and debt in financing an organization’s operation (Amadi, 2004). Some authors have used capital structure when their explanations cover a firm’s financial structure. For instance Muritala (2012), defined capital structure as the means by which an organization is financed. This no doubt must include the total financing of the firm. Financial Structure is the mix of total debt and equity maintained by a firm (Stickney, Brown and Wahlen, 2007). Hasan, Ahsan, Rahaman and Alam (2014) while titling their study capital structure actually studied financial structure of the firms’ performance. According to the authors, most studies on capital structure are restricted to equity and long-term debts, their study included other short-term funding of firms.

To Ezirim and Nwakanma (2004), the capital structure of a company shows the relationship which exist between the different classes of share capital, loan capital and current liabilities. It is further noted that capital structure refers to the composition of long term sources of funds such as debentures, bonds, 

preference shares and equity capital (ordinary shares plus retained earnings). 

Financial structure choice has been an issue of great interest in the corporate finance literature. This is because the mix of debt to equity funds (Leverage ratio) is believed to have effect on the cost and availability of capital and thus, firms’ investment source. As Sander and Lambert, (2007) observed, financial structure is one of the more important aspects of managing business. An appropriate financial structure is a critical decision for any business organization (Harris and Raviv, 1991).                                                                                               


Financial Performance Indicators

There are a number of indicators that are used in measuring financial performance of firms. According to Aborode, (2005), these include some accounting based measure of performance indicators calculated from financial statements of organizations such as- return on owners’ equity (ROE), return on asset (ROA), earnings per share (EPS) and net profit margin (NPM). Stock market return and volatility in returns are also used as performance indicators of firms (Welch, 2004). According to Stancu (2007), corporate finance theory established two major relative measures of profitability which are return on assets and return on equity.


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