Abstract:
Purpose- Major aim of this study was to evaluate the impact of capital structure on
profitability of food manufacturing companies operating in Pakistan.. In order to achieve
the objective of the study financial ratios are employed.
Methodology/sample- This study is focused on food industry of Pakistan and out of fifty
four companies three are taken as sample as stocks of these companies are traded on KSE
for the last four years.The reference period is of four years. The data has been presented
in two ways, one descriptive statistics and other regression analysis Data used in this
study is completely based on secondary data which has been collected from Karachi
Stock Exchange website and annual financial reports of the sample firms.
Findings- The analysis and comparative results suggested that food companies in
Pakistan mostly using debt as mode of financing and instead generating further profit,
financial burden put pressure to decrease profit. The results recommend that managers
shall not exclusively rely on debt rather they must try to finance their projects with
retained earnings and use leverage as a last option. Managers must work to achieve the
optimal capital structure level to maximize the firms’ performance and try to maintain it
as much as possible. By analyzing the regression of data the results shows that capital
structure ratios have significant impact on profitability.
Practical Implications- The outcomes of the research might help the companies to understand the importance of decision making regarding the use capital structure that can generate profits for further growth of the company.
