Improved financial performance without improved operational efficiency: the case of Nigerian firms

Olaniyi  Evans

doi:10.23762/FSO_VOL6_NO3_2

Published : 2018-09-14

Vol. 6 No. 3 (2018)

Improved financial performance without improved operational efficiency: the case of Nigerian firms

Olaniyi Evans

DOI: https://doi.org/10.23762/FSO_VOL6_NO3_2

Abstract

Is the financial performance of Nigerian companies really improving? If so, what about the operational efficiency of these firms? Though profits are on the rise, can these companies possibly be efficient, in spite of the problems inherent in the economy? In order to answer these questions, this study uses four different panel unit root tests to establish the stationarity of financial performance and operational efficiency in Nigeria, using one key performance variable (i.e. profit after tax) and three efficiency variables (i.e. return on assets ratio, asset turn ratio and portfolio activity & resilience) with a cross section of the 20 most quoted companies on the Nigerian Stock Exchange. The study shows that profit after tax is non-stationary while return on assets, portfolio activity & resilience and asset turn ratio are stationary. In other words, while financial performance (measured as profit after tax) is improving in Nigeria, operational efficiency (measured as return on assets, portfolio activity & resilience and asset turn ratio) is stagnant. What this means is that while corporate profits are on the rise, the companies are not operationally efficient.

Keywords:

financial performance, operational efficiency, profit after tax, rate of return on assets, asset turn ratio, portfolio activity & resilience

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Evans, O. . (2018). Improved financial performance without improved operational efficiency: the case of Nigerian firms. Forum Scientiae Oeconomia, 6(3), 25–39. https://doi.org/10.23762/FSO_VOL6_NO3_2

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Olaniyi Evans

oevans@pau.edu.ng

Affiliation:

School of Management and Social Sciences, Pan Atlantic University, Lagos, Nigeria Nigeria

Bio Statement (e.g., department and rank)

Olaniyi Evans is a faculty member at Pan Atlantic University, Lagos, Nigeria. His research interests lie in public policy, economic modelling, financial inclusion, digital economy and dynamic stochastic general equilibrium (DSGE) modelling from an African economic perspective. His research has been published in leading journals including the Journal of Developing Areas, Business Economics, Journal of Economic Studies, Digital Policy, Regulation and Governance, Tourism Economics, among many others. He is an award-winning author whose works include “How to Get a First-Class Degree”, “The Art of Research” and “iMathematics”. He received his BSc (first-class) and MSc (distinctions) degrees in Economics from the University of Lagos where he is currently
a PhD candidate.