Relationship between Profitability and Capita...

Relationship between Profitability and Capital Structure: A Study of Indian Cement Companies

Author Name : Mr. Santu Charan Das

ABSTRACT

Capital structure is the combination of debt capital and equity capital which refers to the permanent financing of the company and Profit is the final outcome of the company which helps to survive and grow for long period. The objective of this paper is to establish a relationship between profitability and capital structure of Cement companies. Return on equity and return on Assets have been used as a measure of profitability and Total Debt to Total Assets and Debt-Equity ratios are considered as a measure of Capital Structure of the firm. Descriptive statistics like mean, median, range, standard deviation, Correlation, Regression analysis, Unit Root Test, Multi colinearity test, and testing of hypothesis have been used to arrive at the capital structure decision. It is evident from the study that Return on Assets (ROA) is inversely related with Total Debt to Total Assets (TDTA) ratio; Return on Equity (ROE) is also inversely related with Debt-Equity ratio (DER). Size, liquidity and tangibility are also largely dependent on the profitability of the firm.

KEYWORDS: Debt-equity ratio, Return on equity, Return on asset, Liquidity, Tangibility