IMPACT OF CAPITAL STRUCTURE ON COMPANY’S PROFITABILITY OF CEMENT SECTOR OF PAKISTAN

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.