The Effect of Inflation on the Financial Performance of Selected Food and Beverage Companies in Nigeria

This study examines the effect of inflationary pressures on the financial performance of selected food and beverage companies listed on the Nigerian Exchange Group. Nigeria has experienced persistently elevated inflation rates, particularly following the devaluation of the naira and removal of fuel subsidies in recent years. The food and beverage sector, which relies heavily on imported raw materials and energy inputs, is among the most inflation-sensitive segments of the manufacturing economy. This study uses an ex-post facto research design and extracts financial data from the annual reports of eight listed food and beverage firms for the period 2019 to 2023. Inflation is measured using the Consumer Price Index published by the National Bureau of Statistics, while financial performance is proxied by gross profit margin, net profit margin, and return on capital employed. Panel data regression with random effects estimation is employed. Findings indicate that inflation has a statistically significant negative effect on net profit margins and return on capital employed in the sampled companies. Gross profit margins showed greater resilience, suggesting that firms partially passed cost increases on to consumers. However, volume sales declined in response to price increases, limiting revenue growth. The study concludes that inflation poses a significant threat to profitability in Nigerian food and beverage manufacturing. It recommends that firms adopt local raw material sourcing strategies and engage in commodity price hedging to reduce inflationary exposure.

Keywords: inflation, food and beverage companies, financial performance, naira depreciation, profitability.