EFFECT OF FREE CASHFLOW, INVENTORY TURNOVER, AND FINANCIAL LEVERAGE ON MARKET VALUATION OF LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

This study investigated the effect of free cashflow efficiency, inventory turnover, and financial leverage on the market valuation of listed manufacturing firms in Nigeria, using Tobin’s Q as the measure of market value. A quantitative panel data approach was adopted, covering 49 manufacturing firms listed on the Nigerian Exchange Group (NGX) between 2012 and 2023. Data were obtained from audited annual reports and analyzed using a random effects regression model, with relevant diagnostic tests confirming model validity. Findings revealed that financial leverage had a statistically significant and positive effect on market value, indicating that firms with higher leverage tended to achieve stronger market valuation. In contrast, free cash flow efficiency and inventory turnover did not exhibit statistically significant effects, although inventory turnover showed a weak positive association with firm performance. Financial leverage, however, exhibited a significant positive influence on Tobin’s Q, suggesting that moderate use of debt enhances market valuation. Despite the model’s overall significance, its explanatory power was modest, implying the presence of other influencing factors. The study concluded that properly managed leverage improves firm value, while the influence of internal cash flow and inventory efficiency is context-dependent. It recommended disciplined debt strategies and improved reinvestment governance for sustained performance.