European Journal of Accounting, Finance and Investment

The Regulatory Impact Of Financial Ratios On Profitability Of Agricultural Enterprises In Emerging Economies: A Nigerian Case Study

Ojeh Augustine, Ph.D., FCA

Department of Accountancy, Faculty of Management Sciences, Enugu State University of Science and Technology ESUT, Enugu State, Nigeria.

Geoffrey Ndubuisi Udefi Ph.D

Department of Accountancy, Faculty of Management Sciences, Alex Ekwueme Federal University Ndufu-Alike (AE-FUNAI), Ebonyi State, Nigeria

Festus Ndubuisi Nkwo

Department of Accountancy, Faculty of Management Sciences, Gregory University Uturu, Abia State, Nigeria

Okonkwo, Bonaventure .S. Ph.D

Department of Accountancy, Faculty of Arts, Management and Social Sciences, Peace land University Enugu, Nigeria

Keywords: Return on Assets, Liquidity Ratio, Leverage Ratio, Efficiency Ratio, Profitability Ratio, Operating Expense Ratio, Agricultural Firms, Financial Performance

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Abstract

This study examines the effect of financial ratios on the financial performance of agricultural firms in Nigeria from 2014 to 2024, with Return on Assets (ROA) serving as the measure of profitability. The specific objective was to assess how the Liquidity Ratio (Current Ratio), Leverage Ratio (Debt to Equity Ratio), Efficiency Ratio (Asset Turnover Ratio), Profitability Ratio (Gross Profit Margin), and Operating Expense Ratio influence ROA. Using panel data from listed agricultural firms and applying panel least squares regression analysis, the study found that three of the examined financial ratios had a statistically significant effect on ROA. Liquidity Ratio (β = 0.1185, p = 0.0000), Efficiency Ratio (β = 0.1227, p = 0.0000), and Profitability Ratio (β = 0.2362, p = 0.0000) exhibited statistically significant positive relationships with ROA, indicating their strong influence on firm profitability. In contrast, Leverage Ratio (β = 0.0149, p = 0.0845) and Operating Expense Ratio (β = -0.0724, p = 0.4810) had statistically insignificant effects. This suggests that while some traditional financial ratios are strong predictors of financial performance, others may have limited explanatory power in the agricultural context. Descriptive statistics indicated considerable variability in the financial structures and performance of the firms, underscoring the unique challenges faced by the sector. The findings imply that external factors such as regulatory conditions, environmental volatility and infrastructural deficits may also significantly shape profitability. The study concludes that financial ratios are useful internal tools for monitoring performance but may not fully capture all the dynamics affecting profitability in agricultural enterprises. It recommends that firms adopt a more integrated approach, combining financial indicators with contextual and strategic factors to improve long-term profitability and sectoral resilience.

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