Capital Structure and Cost on the Firm Profitability
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Added on 2020-01-07
Capital Structure and Cost on the Firm Profitability
Added on 2020-01-07
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IMPACT OF BUSINESS ENVIRONMENT,CAPITAL STRUCTURE AND COST ON THEFIRM PROFITABILITY
TABLE OF CONTENTSBusiness research topic................................................................................................................3Literature review..........................................................................................................................3Research questions.......................................................................................................................6Research methodology.................................................................................................................6GANTT chart...............................................................................................................................7Research process..........................................................................................................................8Data collection and analysis........................................................................................................8Expected research outcome.........................................................................................................8REFERENCES................................................................................................................................9
Business research topicBusiness research topic is “Impact of business environment, capital structure and cost onthe firm profitability”. In this regard detail study will be done on the factors like businessenvironment, capital structure and cost that have impact on the firm profitability. In respect tothis, suitable statistical tools will be used to discover relationship among the variables. Literature reviewAccording to Prajogo, (2016) business environment is the factor that have a very highimpact on the firm profitability and business performance. This is because business environmentrefers to the business conditions that firm is facing in current time period. Sometimes thesebusiness conditions are favorable and sometimes they are unfavorable. Both sort of conditionssignificantly affect the company. As if business environment is favorable then in that caseperformance of the company get improved. On other hand, if any sort of unfavorable changetakes place in the business environment then in that case firm start making loss in its business.Thus, it can be said that business environment heavily affects the profitability of the firms. As per views of Belás and et.al., (2015) economic environment have a very huge impacton the firm performance. This is because economic environment refers to the economic conditionof the nation that take specific shape due to variation in global economic conditions and nationeconomic as well as monetary policy. Thus, with slight negative change in these factors negativemessage gone to investors and at same time liquidity also positively or negatively get affected.This lead to availability of less amount of bank loan to the business firms. Thus, due to less cashin the business firm find it difficult to run its business smoothly without any problem. There isless amount of cash available for working capital finance in the business. It can be said thatbusiness growth rate get reduced with small negative change in the economic condition of thenation. Thus, out of all components of the business environment economic factor have a veryhigh impact on the firm profitability. Khan and Quaddus, (2015) claims that apart from economic environment political factoralso greatly affect the business environment. This is because political environment refers to thepolitical parties and their ideology as well as way in which they work for the nation. If politicalparty is have development related thinking then nation grow at rapid pace or vice versa. It can besaid that directly or indirectly political environment affects firm business performance. If there isa government that wants to develop a nation at fast pace then it will take business support
decisions rapidly which makes a positive atmosphere in the nation. Such kind of governmenttake a lots of steps to eliminate problems faced by the business firms. Thus, it can be said thatpolitical environment have impact on the firm profitability.According to Georgescu and Popescul, (2015) political environment does not muchimpact on the firm profitability. This is because it is the business strategy that help firm inearning sufficient amount of profit in its business. Even political environment is not good firmsunder good leadership manage to grow their business. Thus, it cannot be assumed that politicalenvironment have a big impact on the revenue earning of the business firm.As per views of Bah and Fang, (2015) legal environment and firm profitability areassociated with each other. This is because it is the legal rules and regulations that determinewhether firm culprit is or not for performing specific act. If there are strict rules and regulationsthen firm is held liable for its mistakes and such kind of things tarnish firm image among thecustomers. If such kind of incidents happened then firm profitability heavily get affected. According to Faccio and Xu, (2015) capital structure have an impact on the companyprofitability. Capital structure refers to the combination of debt and equity in the capitalstructure. The debt and equity mix determine the finance cost for the business firm. Finance costis the mix of interest and dividend which is the finance cost of bank loan and shares. If capitalstructure get imbalanced then in that case finance cost increased at rapid pace. This happenedbecause either equity or bank loan can be increased excessively. If bank loan increased at rapidpace then burden of interest on the firm will be high. On other hand, if there is a heavy portion ofequity in the capital structure then dividend payment liability will increased at rapid pace in thebusiness firm. Thus, in both cases capital structure have an impact on the firm profitability.As per views of Allen, Carletti and Marquez, (2015) capital structure does not havingimpact on the profitability. This is because percentage of finance cost as part of incomestatement always remain low. Hence, it can be said that there is no huge impact of finance coston the firm profitability. However, there are some exceptional cases of the firms where debt inthe business is so huge and lead to earning of low profit in the business. On this basis it cannotbe assumed that finance cost have a heavy impact on the business performance.Minsky, (2015) claims that finance cost seriously affects the firm performance whenfirm earn low amount of profit in its business. There may be a situation in which less amount ofrevenue is earned by the firm out of which operating and non-operating expenses are deducted.
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