Aimable, Nyirimana and Prof. Isaie Kadhafi, Misago (2025) Exploring the Relationship between Capital Structure and Financial Performance in Rwanda Manufacturing Firms: Case of Cimerwa PLC (2019-2023). International Journal of Trend in Scientific Research and Development, 9 (4). pp. 1139-1189. ISSN 2456-6470

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Abstract

This study examines the relationship between capital structure and financial performance at Cimerwa Plc for the period 2019 to 2023. The problem addressed in this research is the lack of comprehensive understanding regarding how capital structure decisions, particularly the mix of debt and equity, affect the financial performance of manufacturing firms in Rwanda. This gap in knowledge is particularly critical for Cimerwa Plc, a leading cement manufacturer, which relies on optimal capital structure for its financial stability and growth. The primary objectives of the study were to analyze Cimerwa’s capital structure, assess its financial performance over the period under study, and determine the nature of the relationship between capital structure and financial performance. This study is grounded in three key theories: the Trade-Off Theory, which suggests that companies balance the benefits of debt (such as tax shields) against the potential costs of financial distress; the Pecking Order Theory, which posits that firms prefer internal financing over external financing sources; and the Agency Theory, which addresses conflicts of interest between managers and shareholders that can lead to suboptimal capital structure decisions. These theories provided the framework for understanding how capital structure affects financial performance, particularly in the context of manufacturing firms in Rwanda. The study adopted a quantitative research design, using a sample size of 40 observations from the company’s annual reports and interviews with industry experts. Data collection methods included documentary analysis of financial records and expert interviews to capture both secondary data and qualitative insights. Multiple linear regression analysis was used to test the relationship between capital structure variables (debt ratio, equity ratio, and financial leverage) and financial performance indicators such as Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS). The findings of the study indicated a significant positive relationship between capital structure and financial performance. The regression model showed an R value of 0.791, indicating a strong positive correlation between the independent variables and Cimerwa's overall financial performance. The R Square value of 0.625 suggests that approximately 62.5% of the variance in Cimerwa's financial performance can be explained by the capital structure variables included in the model. The Adjusted R Square value of 0.603, which adjusts for the number of predictors, indicates that the model still explains a good portion of the variation in the dependent variable, highlighting the relevance of these predictors. Furthermore, the F Change statistic of 178.171, with a Sig. F Change value of 0.000, confirms the statistical significance of the model, demonstrating that capital structure decisions have a significant impact on Cimerwa's financial outcomes. Based on the findings, the study recommends that Cimerwa Plc adopt a more structured approach to its financing strategy, focusing on maintaining an optimal balance between debt and equity. This would minimize financial risks while maximizing returns. Additionally, continuous monitoring of financial performance, strategic debt management, and improved liquidity management are essential for sustaining long-term growth and financial stability.

Item Type:	Article
Subjects:	Q Science > Q Science (General)
Divisions:	Postgraduate > Master's of Islamic Education
Depositing User:	Journal Editor
Date Deposited:	01 Sep 2025 07:27
Last Modified:	01 Sep 2025 07:27
URI:	http://eprints.umsida.ac.id/id/eprint/16315

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