Analysis: Business Environment, Capital Structure, and Cost Impact

This report investigates the multifaceted impact of the business environment, capital structure, and cost on firm profitability. It begins with an extensive literature review, examining how factors such as economic conditions, political environments, and legal regulations influence a firm's financial performance. The report then delves into the significance of capital structure, including the balance between debt and equity, and its effect on finance costs and overall profitability. Furthermore, it explores the role of cost management, encompassing direct and indirect expenses, and the effectiveness of various cost control methods. The research employs a quantitative methodology, including a survey of 30 respondents using simple random sampling, and utilizes statistical tools to analyze the relationships between these key variables. The study culminates in a discussion of expected research outcomes, providing valuable insights for business management and financial strategy.

IMPACT OF BUSINESS ENVIRONMENT,
CAPITAL STRUCTURE AND COST ON THE
FIRM PROFITABILITY

TABLE OF CONTENTS
Business research topic................................................................................................................3
Literature review..........................................................................................................................3
Research questions.......................................................................................................................6
Research methodology.................................................................................................................6
GANTT chart...............................................................................................................................7
Research process..........................................................................................................................8
Data collection and analysis........................................................................................................8
Expected research outcome.........................................................................................................8
REFERENCES................................................................................................................................9

Business research topic
Business research topic is “Impact of business environment, capital structure and cost on
the firm profitability”. In this regard detail study will be done on the factors like business
environment, capital structure and cost that have impact on the firm profitability. In respect to
this, suitable statistical tools will be used to discover relationship among the variables.
Literature review
According to Prajogo, (2016) business environment is the factor that have a very high
impact on the firm profitability and business performance. This is because business environment
refers to the business conditions that firm is facing in current time period. Sometimes these
business conditions are favorable and sometimes they are unfavorable. Both sort of conditions
significantly affect the company. As if business environment is favorable then in that case
performance of the company get improved. On other hand, if any sort of unfavorable change
takes 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 impact
on the firm performance. This is because economic environment refers to the economic condition
of the nation that take specific shape due to variation in global economic conditions and nation
economic as well as monetary policy. Thus, with slight negative change in these factors negative
message 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 cash
in the business firm find it difficult to run its business smoothly without any problem. There is
less amount of cash available for working capital finance in the business. It can be said that
business growth rate get reduced with small negative change in the economic condition of the
nation. Thus, out of all components of the business environment economic factor have a very
high impact on the firm profitability.
Khan and Quaddus, (2015) claims that apart from economic environment political factor
also greatly affect the business environment. This is because political environment refers to the
political parties and their ideology as well as way in which they work for the nation. If political
party is have development related thinking then nation grow at rapid pace or vice versa. It can be
said that directly or indirectly political environment affects firm business performance. If there is
a 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 government
take a lots of steps to eliminate problems faced by the business firms. Thus, it can be said that
political environment have impact on the firm profitability.
According to Georgescu and Popescul, (2015) political environment does not much
impact on the firm profitability. This is because it is the business strategy that help firm in
earning sufficient amount of profit in its business. Even political environment is not good firms
under good leadership manage to grow their business. Thus, it cannot be assumed that political
environment 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 are
associated with each other. This is because it is the legal rules and regulations that determine
whether firm culprit is or not for performing specific act. If there are strict rules and regulations
then firm is held liable for its mistakes and such kind of things tarnish firm image among the
customers. 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 company
profitability. Capital structure refers to the combination of debt and equity in the capital
structure. The debt and equity mix determine the finance cost for the business firm. Finance cost
is the mix of interest and dividend which is the finance cost of bank loan and shares. If capital
structure get imbalanced then in that case finance cost increased at rapid pace. This happened
because either equity or bank loan can be increased excessively. If bank loan increased at rapid
pace then burden of interest on the firm will be high. On other hand, if there is a heavy portion of
equity in the capital structure then dividend payment liability will increased at rapid pace in the
business 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 having
impact on the profitability. This is because percentage of finance cost as part of income
statement always remain low. Hence, it can be said that there is no huge impact of finance cost
on the firm profitability. However, there are some exceptional cases of the firms where debt in
the business is so huge and lead to earning of low profit in the business. On this basis it cannot
be assumed that finance cost have a heavy impact on the business performance.
Minsky, (2015) claims that finance cost seriously affects the firm performance when
firm earn low amount of profit in its business. There may be a situation in which less amount of
revenue is earned by the firm out of which operating and non-operating expenses are deducted.

Further deduction of finance cost from profit amount lead to low or no profit in the business.
Thus, it can be said that when low revenue is earned in the business finance cost negatively
affect the firm. It is very important for the managers of the business firms to maintain balance in
the capital structure. This is because if there will be balance in both then finance cost will be low
in the business and firm will earn sufficient amount of profit in its business.
As per views of Schepens, (2016) in order to ensure that there will be a less burden of
finance cost on the business firm standard debt equity ratio must be maintained. Standard debt
equity ratio can be assumed at 0.5:0.5. This means that firm main target must be to keep debt and
equity portion in capital structure 50%. If this percentage increased slightly then management
must take steps in order to ensure that in upcoming time period this percentage will not increase
again and everything will be in control. In this regard steps must be taken to ensure that
sufficient amount of profit is earned in the business. If firm will earn huge amount of revenue
then it can pay back debt and can bring down percentage and in this way balance can be
maintained in the capital structure.
Kaplan and Atkinson, (2015) claims that cost is the one of the most important factor that
have huge impact in the firm profitability. This happened because cost include both direct and
indirect expenses. Direct cost is related to the production process. Whereas, indirect expenses are
related to the non-core business activities. Both costs are summed up and deducted from the
earned revenue. Thus, if cost increases at sharp rate relative to revenue than in that case
profitability of the firm declined sharply. Thus, it can be said that business expenses affect the
profitability of the business firm. It became very important for the firms to ensure that cost of
production and non-operating expenses are in control in the business. In this regard, cost control
methods must be followed in the business. There are number of cost control methods like just in
time and economic order quantity that help business firms in substantially reducing the cost of
production and non-operating expenses in the business.
According to Ederer, (2015) there is a very close connection between the cost and
profitability of the business firms. Management must therefore every time must try to reduce
cost in the business. It is usually considered that cost can be controlled by following a cost
control methods but sometimes this assumption proved wrong. Due to economic uncertainty
turmoil comes in existence in the market which lead to increase in cost of raw material. In such

kind of situation cost control methods get failed and cost increase in business at rapid rate.
Hence, it can be said that cost control methods are not hundred percent effective.
As per views of Nguyen and Le, (2015) there are many firms like Tesco that get failed in
the business due to lack of control on cost. Sales price remain same but cost get increased which
lead to reduction in the profit of the business firms. It was not possible for the mentioned firm to
sale its product at reduced price because rivals were already selling products at low price. If
Tesco will further reduce its product price then profit in the business will reduce. Thus, it can be
said that firms must always try to reduce their production cost. This is because if same will not
be done then profit in business will decline sharply.
Research questions
The main aim of current research study is to identify the relationship that exist between
the capital structure in term of finance cost, business environment and cost in relation to earning
of profit in the business. In this regard some research questions are prepared which are given
below.
What impact business environment have on the profitability of the business firm?
What impact capital structure in terms of finance cost have on profit of the company?
What effect cost have on the profitability of the corporations?
These are the research questions whose answers will be discovered in order to derive
results. Current research study aimed at finding out the relationship that is between capital
structure in term of finance cost, business environment and cost in relation to earning of profit in
the business. Thus, answers of these questions will help one in identifying the factor that heavily
affect the profit of the business firm.
Research methodology
In the current research study sample of 30 respondents will be taken that have good
knowledge of business management. All these sample units will be taken by using a simple
random sampling method. This means that there will not be specific factors that will be
considered while picking any individual as sample unit from population (Finkler and et.al.,
2016). There are many other sampling methods like stratified and cluster sampling method. But
same will not be used in the present research. This is because in the current research study there
is no need take sample units by following certain parameters. Positivism philosophy will be used
in the current research study because statistical tools like regression will be applied on the data

set. In contrary to this, there is another philosophy that is commonly used by the researchers and
it is known by name interpretivism. This philosophy is used when research study is nonscientific
in nature (Research methods, 2013). Inductive approach will be followed in the present research
because first of all literature review will be done which will develop broad understanding about
research topic. Thereafter, data analysis will be done and on the basis of results theory will be
prepared. Hence, interpretivism philosophy will be used in the current research study.
GANTT chart
Figure 1 GANTT chart for research
There are four stages in which project will be completed. First of all secondary data will be
collected by the researcher. Thereafter, literature review or analysis of secondary data will be
done in the current research report. In third stage primary data will be collected from the specific
number of respondents and finally analysis of primary data will be done. At end research report
will be prepared. In these five phases research work will be completed. Totally ten days’ time is
required to collect secondary data. This is because it is very important to review sufficient
number of literatures in order to develop sufficient understanding about research topic. It is very
important to consider only reliable information in order to carry out present research work. If
research will be based on unauthentic information then research may go in wrong direction.
Hence, ten days’ time will be taken to collect secondary data. Two days’ time is needed for
literature review. As it is important to understand each and every thing very carefully. Hence, in
two days’ time period all collected facts and figures will be reviewed in systematic way. Primary
data will be collected within 5 days. Five days’ time period will be sufficient because within this
duration questionnaire can be easily received from the respondents. For analyzing primary data 2
days’ time is taken. This is because it is necessary to do data analysis in systematic way without

making any mistake. Finally, after doing primary research, report will be prepared in 4 days.
During this time period, detail description of literature review will be given and results as well as
discussion section will be prepared in the report. On the basis of entire analysis conclusion and
recommendation section will be prepared in the report.
Research process
As part of research process first of all secondary data will be analyzed and then
questionnaire will be distributed among the respondents in order to collect primary data.
Collected data will be analyzed by using regression tools and in this way entire research work
will be carried out.
Data collection and analysis
As mentioned above secondary data will be collected from books and journals. Primary
data will be collected by distributing questionnaire among sample units. Regression analysis will
be used to explore relationship among the variables in term of level of significance, correlation
and percentage change that happened in dependent variable due to change in independent
variable (Mackey and Gass, 2015).
Expected research outcome
It is expected that proposed research study will reveal the extent to which business
environment, capital structure in terms of finance cost and production cost affects the profit of
the business firm. Research result will also reflect that which of these factors heavily affect the
firm profitability.
Ethical form
Student name and ID: ________________________
Title of the project: __________________________
Please circle your answers
1. Will the human subjects be informed of the nature of their involvement in the collection
of data and of features of the research that reasonable might be expected to influence
willingness to participate?
Ans: Yes
2. Will the human subjects be told that they can discontinue their participation at any time?
Ans: Yes

3. Will the human subjects in your study be aware that they are the targets of the research?
Ans: Yes
4. If the subjects are underage, will their guardians be asked to sign consent form?
Ans: Yes
5. Is the confidentiality of the human subject identity positively ensured?
Ans: Yes
6. In cases where there is a possibility that the human subject identity can be deduced by
someone other than the researcher, is the subject right to withdraw his/ her data respected?
Ans: Yes
7. Will the researcher fulfill all the promises made to the human subjects including
providing the summary of the findings upon request?
Ans: Yes
8. Will all necessary measures be taken to protect the physical safety of the human subjects
from dangers such as faculty electrical equipment, poor grounding, lack of oxygen, falls,
traffic and industrial accidents, possibility of hearing and vision loss etc?
Ans: Yes
9. Will the human subject debriefed (told the true nature of the study) after the data has been
collected?
Ans: Yes
10. In cases in which the human subject is dissatisfied or a complaint about the researcher or
procedure, will the researcher explained to human subject that he or she may express the
complaint to the subject coordinator?
Ans: Yes
11. Does the study involve concealment from and or deception of the human subject?
Ans: No
12. Will deception be used in order to obtain agreement to participate?
Ans: No

13. Will the study involve human subjects who are legally or otherwise not in a position to
give their valid consent to participate such a children, prison inmates, mental patients?
Ans: No
14. Will information on your human subjects be obtained from third parties?
Ans: No
15. Will any coercion be exerted upon subjects to participate?
Ans: No
16. Will the study involve physical stress to the human subjects such as might result from
heat, noise, electric shock, pain, sleep loss, deprivation of food and drink, drugs, alcohol?
Ans: No
17. Will the study cause any mental discomfort to the human subjects such as fear, anxiety,
loss of self-esteem, shame, guilt embarrassment etc?
Ans: No
18. Could publication of research results possibly interfere with strict confidentiality?
Ans: No
19. Could publication of the research results possible harm the human subject directly or
through identification of his/her membership group?
Ans: No
20. Are there other aspects of the study that may interfere with the protection of the
wellbeing of the human subjects?
Ans: No

REFERENCES
Books and journals
Allen, F., Carletti, E. and Marquez, R., 2015. Deposits and bank capital structure. Journal of
Financial Economics. 118(3). pp.601-619.
Bah, E.H. and Fang, L., 2015. Impact of the business environment on output and productivity in
Africa. Journal of Development Economics. 114. pp.159-171.
Belás, J. and et.al., 2015. The business environment of small and medium-sized enterprises in
selected regions of the Czech Republic and Slovakia. E+ M Ekonomie a Management. (1).
p.95.
Ederer, N., 2015. Evaluating capital and operating cost efficiency of offshore wind farms: A
DEA approach. Renewable and Sustainable Energy Reviews. 42. pp.1034-1046.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative
Analysis. 50(03). pp.277-300.
Finkler, S.A. And et.al., 2016. Financial management for public, health, and not-for-profit
organizations. CQ Press.
Georgescu, M. and Popescul, D., 2015. Social Media–the new paradigm of collaboration and
communication for business environment. Procedia Economics and Finance. 20. pp.277-
282.
guidebook and resource. John Wiley & Sons.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Khan, E.A. and Quaddus, M., 2015. Examining the influence of business environment on socio-
economic performance of informal microenterprises: content analysis and partial least
square approach. International Journal of Sociology and Social Policy. 35(3/4). pp.273-288.
Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design.
Routledge.
Minsky, H.P., 2015. Can" it" happen again?: essays on instability and finance. Routledge.
Nguyen, D.T. and Le, L.B., 2015. Risk-constrained profit maximization for microgrid
aggregators with demand response. IEEE Transactions on Smart Grid. 6(1). pp.135-146.
Prajogo, D.I., 2016. The strategic fit between innovation strategies and business environment in
delivering business performance. International Journal of Production Economics. 171.
pp.241-249.

Schepens, G., 2016. Taxes and bank capital structure. Journal of Financial Economics. 120(3).
pp.585-600.
Online
Research methods, 2013. [Online]. Available through :<
http://www.alzheimer-europe.org/Research/Understanding-dementia-research/Types-of-
research/Research-methods> . [Accessed on 9th February 2017].