The firm’s financial strength is measured by the cash flows, when the cash inflows are more than the outflows, the organization is considered to be healthy. The use of debt to finance firm’s operation is more advantages since interest on debt is deductible. Optimal capital structure is the target. Optimal structure is attend when the company tends to maximize their value while minimizing their weighted cost of capital (WACC). This study pursue to investigate the effect of capital structure on the financial performance of non-financial firms listed at the Nairobi security exchange. The study will adopt descriptive research design. The target population for the study will consist of 12 non-financial firms listed at NSE. The collected data will analyzed using SPSS software. The study adopted descriptive research design. The target population for the study consisted of 12 non-financial firms listed at NSE. The collected data was analyzed using SPSS software. The study found out that 25.5% change in capital structure among nonfinancial firms listed on the NSE is explained by the three independent variables of the study (Leverage, liquidity and Size), moderate negative correlation exists between leverage and financial performance, a strong positive relationship exists between liquidity and financial performance and that a strong positive correlation exists between the Firm size and financial performance. The study concludes that capital structure affects financial performance of the non-financial firms listed at NSE. The study further concludes that statistically significant association exists between the independent variables (leverage, liquidity and size) and the dependent variable financial performance among non-financial listed firms on NSE. The study recommends that the management of all non-financial firms listed at NSE should judiciously strike a balance between the debts and equity in their capital structure. Non-financial listed firms should not have too much debt (leverage) in their capital structure as this increase the risk of insolvency. Non-financial firms listed at NSE should have considerable levels of debts in their capital structure so as to enjoy the interest tax shield that accrue from the use of debts in the capital structure and also enhance their liquidity positions by proper working capital management practices. This calls for shortening of their cash conversion cycles. Sound management of accounts receivables, accounts payables, inventory and cash of non-financial firms will also enhance their liquidity and therefore their ability to meet short term obligations as and when they fall due, there is also need for non-financial listed firms at NSE to employ growth strategies that will see their increment in sizes. An increase in size will enable nonfinancial firms to enjoy the advantages of economies of scale that accrue out of large scale of operations.

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