Abstract:
Purpose. This paper has been evaluated that how the capital structure impact on the
profitability of a company on the cement industry of Pakistan. The aim of this study is to
determine the effective mix of debt and equity in the capital structure which influences
the financing and borrowing decisions of the management and also which impacts the
profitability of the companies.
Methodology/sample: The study has analyzed five companies which are listed in 100
index of the Pakistan stock exchange. This research have analyzed time period to analyze
is 5 years which is from 2012 to 2016. The data gathered from the company’s websites.
The variables which have been used to analyze the results are return on equity (to
measure the profitability) as dependent predictor and equity ratio, debt ratio, growth and
size are as independent predictors. To analyze the collected data, regression pooled
analysis, panel least square method, correlation and multicollinearity tests have used.
Findings: The results determine that there are positive relation between the return on
equity which is the dependent variable and equity ratio, debt ratio, growth and size which
are the independent variables. After analysis, the research also concludes that the model is
highly statistically significant.
Practical Implication: This research outcomes might give benefits to the company’s
management to make the best mix of debt and equity for better financing and investment
decisions which helps the management to get higher gain at lower interest rates and make
more profits than their competitors.
