Effect Of Debt Financing On Financial Performance Of Gawo Webera Saving And Credit Cooperative Union In Dale Webera District, Kelem Wollega Zone,Oromia Regionalstate, Ethiopia

Abstract

Debt financing is the acquisition of funds through borrowing. This study determined the effects of debt finance on financial performance measured Return on equity and Return on asset. The study investigated the effect of interest rate, loan tenure, debt/equity ratio, Long-term debt, Short-term debt and interest coverage ratio on financial performance of savings and credit cooperative Union in the study area.The study used a quantitative research approach and causal research design to analyse the effect of debt finance on the financial performance of savings and credit cooperative Union. Secondary data from the Saving and credit,cooperative Union financial statements for the last ten years is used. Descriptive and inferential statistics were used with the help of Stata-13 software and the results are presented in tables. A negative relationship of -0.0469266 between debt finance and Retur on equity was revealed, the other varialbles are positive relationship. return on asset, Interes trate,loan tenure and debt equity ratio,interest coverageratio,long-term debt interest,short-term debt interest had significant effects on Returnonequty. A negative relationship existed between Return on asset and debt finance at -3.1300, return on equity, loan tenure and long-term interest and short-term interest are significant. while shortterm is negative relationship was revealed with Return on asset. The regression -0.0565553,0.0882694 results indicate that Long-term interest and Short- term interest are important in influencing the profitability of Saving and credit Union. The researcher recommended that a well-managed capital structure in terms of debt financing leads to an increase in the profitability of the Saving and creditUnion as shown in the result and The management of the Saving and credit Union should work to maintain an interest coverage ratio that is high enough to cover the bank's commitment to pay interest