IMPACT OF CAPITAL STRUCTURE ON PROFITABILTY OF FOOD MANUFACTURING COMPANIES IN PAKISTAN

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.