The Impact of Debt Financing on the Financial Performance of state-owned companies a case study of TelOne Zimbabwe

Author

Tadiwanashe Makondora

Title

The Impact of Debt Financing on the Financial Performance of state-owned companies a case study of TelOne Zimbabwe

Abstract

This research sought to illuminate the ways in which debt financing can impact a company's financial strength, strategies and the financial health of state-owned enterprises. TelOne Zimbabwe, Telecommunications Company not registered on the Zimbabwe Stock Exchange, served as a case study for this exploration. The research was prompted by TelOne's increasing reliance on debt financing for projects that didn't seem to translate into better financial results. To address this concern and answer research questions encompassing both quantitative and qualitative data, a hybrid research method was employed. Data was collected from both secondary sources (financial documents) and primary sources (surveys and interviews). The initial population for interviews was 35, with a final sample size of 30 participants. This research utilized software SPSS 20 to analyze the quantitative data collected. The study focused on several variables: long- and short-term debt and tangibility (all considered independent factors influencing financial performance). The dependent variable, representing the company's financial health, was return on assets (ROA). The analysis revealed a statistically significant negative correlation between debt financing and TelOne's ROA, suggesting that increasing debt levels had an adverse impact on the company's financial performance. The research results showed a statistically significant negative relationship between debt financing and TelOne's financial performance at a confidence level of 95%, with a p-value close to 4%. This suggests that the initial assumption of no link between debt and performance was excluded. Interestingly, the analysis indicated that debt financing explained a substantial portion, approximately 85%, of the variation in TelOne's financial performance. This implies an overdependence on borrowed funds. Based on these findings, the study recommends using debt financing cautiously, as its costs seem to outweigh the benefits of debt-funded projects.

 

Date

June 2024

Publisher

BUSE

Keywords

Debt Financing

Financial Performance

State-owned

TelOne

Zimbabwe

Supervisor

N/A