Impact of Capital Structure on Firms Profitability: Evidence from Cement Sector of Pakistan.

Abstract

The objective of the study is to find the impact of capital structure on firm’s profitability of cement sector of Pakistan. A panel data of 18 firms listed on the Karachi Stock Exchange and data taken for the period of 10 year from 2006 to 2015. To indicate capital structure set of variables are used i.e. Debt/Equity Ratio, Debt Ratio, Interest Coverage Ratio, Short term debt ratio, and Long term debt to ratio and for Profitability i.e. Return on Asset, Return on Equity. The variables were analyzed through correlation and regression methodology by using EViews 9. Results demonstrate that debt ratio and long term debt ratio has negative and significant relationship with profitability determinants return on asset and return on equity. The short term debt ratio has positive and significant relationship with return on equity.

Keywords: Return on equity, Debt, Equity, Capital Structure, Profitability, Asset