The Impact of Financial Structure, Financial Leverage and Profitability on Industrial Companies Shares Value (Applied Study on a Sample of Saudi Industrial Companies)

Abstract

The study aimed to investigate the effect of financial structure, financial leverage and profitability on industrial company’s value as a long term strategic analysis that helps the analyst in predicting future company’s value on the light of the mentioned variables in addition to external environment analysis.A sample was selected from Saudi industrial companies listed in Saudi Stock Market amounting Forty-six companies .The study used the brochures issued by Saudi capital market for four years during the period of 2009 – 2012. The study used a set of statistical methods to determine the effect of study variables that reflect the operational, financing and investment aspects on company’s value of the as an ultimate goal of increasing shareholder wealth .The study concluded that there is statistically significant direct relationship between two independent variables: return on equity and capital structure and the dependent variable represented by stock market price. However, there is weak and inverse relationship between financial leverage and stock value, and this relationship is not significant, so there is no statistically significant relationship between financial leverage and company’s value. There is a positive relationship between capital structure and return on equity upon using multiple regression analysis; it was shown that the strongest relationship was between capital structure and dependent variable (company’s stock value). Finally, there is a clear impact of financial structure return on equity on company’s value, and therefore by reviewing these variables the financial analyst can predict future company’s value.

Keywords: Financial Leverage, Financial Structure, Profitability, Stock Market Value, Company’s Value.