Impact of capital structure on financial performance: a case study of Naivas supermarkets in Nairobi region
Capital structure is one of the most vital topics in finance majorly on the optimal capital structure that will bring about greater financial value of a given organization. This study attempted to determine the impact of capital structure on a firm’s performance in the case of Naivas Supermarkets in Nairobi County as little research on this area had been done to private limited companies and instead most works had focused on other sectors such as the banking sector, manufacturing and construction sector, non-financial sectors as well as companies listed in the Nairobi Stock Exchange. Financial performance was be expressed in terms of Return on Assets whereas capital structure was expressed in terms of Long-Term liabilities to Total Asset ratio with size of a firm expressed as revenue being the control variable. Furthermore, this study addressed on the vital theories related to capital structure as well as what others have said on the same area as well as the gaps involved for further inquiry and future research. Descriptive statistics techniques such as mean, mode , median, kurtosis and the like as well as multi-regression tests were used to quantitatively analyze the data and found out that average size of firms measured by sales was 20.7089 whereas for profitability in form of Return On Assets and capital structure expressed in terms of Long-term liabilities to Total Assets ratio were 0.8363 and 1.1493 respectively. Long-term debt had a strong negative impact on financial performance whereas revenue had a positive impact on financial performance hence a recommendation of variety of strategies to boost up firm sales as well as minimal use of debt to finance daily operations.