International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online)

The Impact of Capital Structure on Firm’s Profitability: A Case of Cement Industry of Pakistan
Muhammad Ashraf, Ahsan Ameen & Kiran Shahzadi

Abstract
The objective of the study is to find out the impact of capital structure on firm’s profitability and explore the optimal capital structure of cement industry of Pakistan. The data are collected of 18 companies listed on Karachi Stock Exchange (KSE) for the time series of 10 year from 2006-to-2015. The firm’s profitability is measured by ROA and ROE, while capital structure determinants like, debt equity ratio (DER), interest coverage ratio (ICR), debt Ratio (DR), short term debt ratio (STDR), and long term debt ratio (LTDR). The balance panel data has been used to obtain results of descriptive, correlation and panel least square by using E-Views 9. Results demonstrate that debt ratio and long term debt ratio have significantly negative relationship with return on asset (ROA) and return on equity (ROE), while short term debt have significantly positive link with ROA and ROE. This study explores the impact of capital structure on firm’s profitability and helps the firm’s manager to formulate optimal capital structure.

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