Impact of Capital Structure on Firm’s Financial Performance: A Study on Mineral Industry of Pakistan

Abstract

This study aims to access the impact of capital structure on financial performance of mineral industry of Pakistan. In this study we have considered debt to equity ratio, debt to asset ratio, long term debt ratio, short term debt ratio as independent variables of capital structure. Dependent variables include return on asset, return on equity is a determinant of financial performance. For the analysis financial data of 8 companies registered in Pakistan stock exchange were taken and the data is collected from annual report of companies available at State bank of Pakistan company database. The analysis was done through different method including descriptive analysis, correlation, regression analysis. The results of the study show a significant impact of capital structure on a firm’s financial performance. In terms of relationship among variables return on asset show a negative relation with the indicator of capital structure (debt to assets ratio, LTD Ratio, STD Ratio) and a mixed relationship with return on equity. The biggest correlation occurs between LTD and debt to asset ratio which show the high leverage of the firms in the sector