Abstract:
This research study attempted to study the relationship between the capital structure and
the profitability of the companies in various non-financial sectors. For the purpose of this
study, five representative industries from non-financial sector were chosen. These
industries are: Textile industry, food industry, chemical industry, energy sector and paper
industry.
This study concludes that capital structure decisions indeed impact the profitability of the
companies in the non-financial sector. Precisely, the relationships were established in the
five representative industries from the non-financial sectors; these industries are: Textile
industry, Food industry, Energy Sector, Chemical industry and paper industry. The
results from the food industry were more statistically significant as compared to other
industries.
The results concluded that the capital structure of the companies is made such that the tilt
is more towards the debt side, the profitability of the companies will be negatively
influences. Objectively speaking, if debt is increased, the profitability will go down. One
or all of the profitability ratios will fluctuate with the capital structure decisions, that is,
Debt to Equity ratio.
The implications of the results are therefore very important for the financial managers as
well as the top management of any company. Managers should therefore try to strike a
proper balance between the debt and equity so as to make the company more and more
profitable. It is therefore of paramount pertinence that the managers make a well targeted
attempt to achieve an optimum capital structure that not only fulfills the profitability
requirements but also meet the other imminent demands put forward by various
stakeholders of the company.
