Capital structure decision making has become one of the most difficult task for the fate of a firm
Capital structure decision making has become one of the most difficult task for the fate of a firm. Capital structure decision plays a virtal role for any business organization which aims at maximizing returns and makes it able to compete in its competive environment.The relationship between debt and profitability of firm has been a center of attention for many researchers over decades, however there is difference of opinion between different researcher about the role of debt, some researcher found negative, some found positive. While some found mixed result of debt on profitability.
This difference of opinion is due to many reasons including different types of variables (Capital structure, Financial leverage, Operating leverage, combined leverage, Return on Assets, Earing Per Share).This study focuses on finding the impact of debt on profitability srujana. This study focuses on expanding the existing empirical knowledge on the impact of debt on profitability of srujana. Different sets of variables have been used to investigate the relationship between debt and profitability of firm using data of five years i.e., 2012-2013 to 2016-2017.
Financial leverage: – Financial leverage exists due to the existence of fixed financial charges which do not depend on the operating profits of the company. This financial leverage is mainly deals with the mix of debt and equity in the capital structure of the firm.
Operating leverage: – Operating leverage is one of the important type of investment activities of the organization which includes the fixed operating costs of the organization in its income stream. The operating costs are classified into 3 types as: Fixed cost, variable cost and semi-variable or semi-fixed cost.
Combined leverage: – The changes in sales will give a relative change in the earnings per share of the firm if the company uses both the financial and operating leverages. It expresses the relationship between the revenue of sales and taxable income.