The Relationship among Cash Flow, Firms’ Size and Financial Performance of Food and Beverage Companies Listed on the Nigerian Stock Exchange (NSE)

Abstract

Cash flow viewed to be more effective in determining company’s or firm’s effectiveness and competitiveness in the market while, firm size is a form of learned interest that has much explanatory power, and an understanding of its importance can be significant for companies or firms which operate in today’s competitive environments. Examining the role of firm size and cash flow in explaining financial performance has been in existent in the fields of business organization and industrial economies. The study based on the return on assets, equity and sales which are the models of this study: Relationship among cash flow, firms’ size and financial Performance of food and beverage companies listed on (NSE) from the period of 2013 to 2020. The specific objectives: investigate the impacts of cash flow and firms’ size, to examine the relationship between firm size and financial performance and explore the association between firms’ leverage and financial performace of selected food and beverage companies. Cash flow measured using Net Cash Flow from Operations/Total Current Liabilities and proxied by liquidity, firm size as independent variable measured using Natural Log of Total Assets, firms leverage measured using Total Liabilities/Total Assets, while financial performance as dependent variable, proxied Return On Assets (ROA) measured by Net Income/Total Assets, Financial performance proxied Return On Equity (ROE) measured by Net Income/Total Equity and financial performance proxied Return On Sales (ROS) measured by Net Profits/Net sales. The study emphasized the description of the dataset and trend analysis, Cross-sectional reliance test and unit root tests. The Husman and Kaos tests were employed for co-integration analysis, Pooled ordinary least Square (OLS) and random panel regression. The study used secondary data, which were gathered from quarterly financial reports and accounts, fact books and websites of selected food and beverage companies listed under Nigerian Stock Exchange (NSE). The study findings indicated that Current ratio (as cash flow index) has a positive and significant impact on return on assets as a measure of financial performance, also cash flow ratio (as a cash flow index) has a positive and significant impact on return of equity (as a measure of financial performance). Findings from the studies imply positive impacts of cash flows on financial performance where the p value of cash flow 0.2450<5, while firm size seen to have a significant but negative impact on return on sales as a measure of financial performance of the p value 0.0001<1, also the causation results further revealed that firm size has a direct impact on both return on assets and return on equity as a measure of financial performance of listed food and beverage companies in Nigeria. In conclusion, there was significant impact of cash flows and firm size on financial performance; there was a relationship between firm’s leverage and financial performance and there was relationship between firm size and financial performance of listed food and beverage companies. It was recommended that firms should try to match their high market performance with real activities that can help make the market performance reflect financial performance and the firms should develop a good strategy targeted at using more of equity to maximize their market performance in such a way that it yields growth opportunities.