EFFECT OF PROFITABILITY ON FIRM VALUE OF MANUFACTURING FIRMS IN NIGERIA

Abstract

The study examined the effect of profitability on firm value of manufacturing firms in Nigeria. The predictive variables of the study and measures of firm profitability are Net Profit Margin, and Earnings Per Share, while the dependent variable and proxy for firm value is Net Assets Per Share. Time series data were extracted from the annual reports and financial statements of the selected firms and analyzed using Panel Data Regression (Fixed Effect Model). Research findings suggest that Net Profit Margin positively and significantly affects Net Assets Per Share {NPM Coefficient = 10.18733: (P-value: 0.0000<0.05)}, While Earnings Per Share has positively and significantly affected Net Assets Per Share {EPS Coefficient = 0.265168: (P-value: 0.0016<0.05)}. We concluded that profitability has a significant positive effect on firm value of manufacturing firms in Nigeria. The study recommended that manufacturing firms in Nigeria should increase their products’ quality and firm sales and reduce cost and wastage to increase firm value. The firms should also increase their earnings per share by increasing their firms’ profitability or by reducing the number of shares outstanding through repurchasing of shares from the stock market. The firms should also increase their return on equity by using more debt financing than equity financing. Debt financing strengthens owners' stake in the firms and increases return on equity especially if the debts are properly utilized.