Research relationship between Capital structure variables with firms

Research
Question:

§  To
find out that capital structure has any impact on firm’s performance or not.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

§  To find out the
relationship between Capital structure variables with firms financial
performance variables.

§  To
investigate the impact of these relationship if exist on firms profitability.

Justifications
and Important of Research topic:

Capital
structure refers to the financing option that a financial manger adopts to
finance its firms operation. In other words Capital structure of a firm is
referred to the Firm’s financing through different sources like Equity (Common
and Preferred Equity) and Debt (Short-term and Long-term). Capital structure always plays a
significant role in financial decision making process especially in present
market scenario where everyone want to increase their profit by using limited
scarce financial resources. The debate of optimal capital
structure has been the focal point of the finance literature for previous
several decades There is many theories are present on capital structure .The
first basic model of capital structure given by MM (1958) stats that capital
structure has no impact on the value of firm ,so financial manger can used both
financing option .Later on they said that as debts finance provide a tax shield
to the firms so a firm can increase its profit by using 100% debit finance in
the  tax market but according to third
amendment  of MM they  argue that although debt Provides a tax
shield but it also amplify its riskiness, so firm should use such mixture of
financing mix which will diminish its weighted average cost of capital (WACC). Despite
of all efforts made in the subject of corporate finance, the puzzle of optimal
level of capital structure and its impact on the firm financial performance and
overall value has been remained a question mark in the midst of financial
scholars and optimal level of capital structure is different for each industry
and each firm.

 

In
today’s business world determining optimal amount of capital structure is one
of the most complex business decisions managers have to take, because any  Immature capital structure decision can result
in high cost of capital that directly impact on firm profitability. So an
optimal level of capital structure helps a firm to remain competitive in
industry and attractive for investors.

 

 

For
this research I want to select top 3 industrial sector of Pakistan they include
Cement industry (15 companies)
textile industry (15companies) and Sugar industry (10 companies) The data was
collected from the official website of the state bank of Pakistan and the data
was named as financial statement analysis because in the file merged accounts
of all the financial statements were given.

Conclusion:

The import of this
studies that s to provide insights into the relationship between capital
structure and financial performance of Pakistan’s top three industries at the
same time. It will help the investors and financial analyst to create such a
combination of capital structure that yields them maximum profit. It will also
enable them that how a choice of capital structure effects the financial
performance of the company