THE IMPACT OF DEBT FINANCING ON PROFITABILITY: AN EMPIRICAL ANALYSIS

Abstract

Purpose. The study investigates the relationship between debt financing and the profitability of Food and Care companies listed on the Pakistan Stock Exchange (PSX). It whether increasing debt structure affect firm profitability positively or negatively, providing insights for management and investors. It aims to determine whether increasing debt structure affect film profitability positively or negatively, providing insights for management and investors. aims to determine Methodology: The study uses a quantitative research design, analyzing secondary data from 18 consumer goods companies listed on PSX over a period of 10 years (2015 - 2024). Profitability is measured using ROE. The analysis is conducted using multiple regression via stata 17 to assess the impact of debt structure on profitability. Liquidity was introduced as a moderator to test whether firms with better liquidity manage debt more profitably. Findings: The results show that Short-term debt has no impact on ROE. Long-term debt has a negative and significant impacts on ROE. These findings suggest that reliance on short-term borrowing increases profitability, while long-term debt does harm performance. Originality / value: This research adds value by focusing on a specific and underexplored segment of the Pakistani market—consumer goods firms—providing targeted insights for financial managers and investors regarding optimal capital structure.