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Impact of Capital Structure on the Profitability

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Added on  2020-10-22

Impact of Capital Structure on the Profitability

   Added on 2020-10-22

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BUSINESS RESEARCHPROPOSAL
Impact of Capital Structure on the Profitability_1
TABLE OF CONTENTSTitle.............................................................................................................................................1Background.................................................................................................................................1Research questions......................................................................................................................1Research objectives.....................................................................................................................1Critical literature review.............................................................................................................2Research methodology................................................................................................................3Ethical issues...............................................................................................................................5Timescale....................................................................................................................................5REFERENCES................................................................................................................................9
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TitleThe Impact of capital structure on the profitability of companies operating in UK retail sector:A study on Morrison's, Sainsbury, Tesco and M&SBackgroundCapital structure comprises equity and debt capital, both holders have initial concern onfirm's wealth as equity capital holders are in interest with share price and dividend of shares. Thecapitalization structure is replicated to money which is used through organization application foroperations of fund and their origination. Capital could be raised via acquisition of debt or equityas well (Tchuigoua, 2015). Generally, debt to equity ratio is used for analysing the successfulfunctioning of business firm. Analysing liquidity is very significant for both external and internalanalysts due to close association with regular operations of business. The objectives ofprofitability are contradictory to every other in decision making process. Henceforth, firms withhigh liquidity might have presence of low profitability and vice versa.The GDP of United Kingdom comprises 11% of retail sector and employed 1.2 million or12.8% of labour force which could be stated that it is very important component in economy(Vătavu, 2015). This study will help in enhancing knowledge of overview of companiesoperating in retail sector in United Kingdom and impact of capital structure on profitability.Research questionsWhat factors are giving impact on capital structure of retail business.Research aimTo analyse the impact of capital structure on the profitability of companies operating in UKretail sector: A study on Morrison's, Sainsbury, Tesco and M&SResearch objectivesTo understand capital structure and associated theories. To assess factors that impact capital structure of retail firms.To investigate relationship between capital structure and profitability of UK retailorganizations.To recommend suitable capital structure to retail firm which leads organization'sprofitability.Significance of study1
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This study will help in seeking relationship among capital structure and profitability ofcompanies which are operating in retail sector in United Kingdom. It will help the organizationsfor maintaining their capital structure and increase its organisational performance and growth. Inthe same series, it will enhance knowledge of retail organizations at current state. This study willalso help other researcher for extracting the behaviour of past study related to capital structureand profitability. Critical literature reviewAccording to Serfling (2016), there was study of four performance measures such asreturn on asset, return on equity, earning per share and Tobin's Q as dependent variable. Thecapital structure measure which comprises long and short term debt, growth and ratios asindependent variable. This has been indicated about presence of significant positive relationshipin the capital structure ans performance of the firm. However, Klasa and et.al., (2018) studiedabout relationship in profitability and capital structure as it has been extracted about positiveassociation among short term debt and return on equity. This recommended about raising shortterm debt with less rate of interest would lead to increase in profitability but when firm increasesdebt of long term and it outcomes for reduction in profitability.On the contrary Schepens (2016) argued that, findings are related to impact of capitalstructure on profitability by tracing its effect of capital structure on profitability. This hadimplied that increase in debt position is associated with reduction in profitability as it could beelaborated that higher the debt, lower the profitability. The results had reflected that profitabilityraises with different control variables like size, sales growth, control variables. As per views of Alipour, Mohammadi and Derakhshan (2015), with study of capitalstructure and financial performance where data was extracted from annual reports. In the sameseries, there was use of correlation and multiple regression as it revealed about positiverelationship in financial performance and capital structure. The capital structure is impactingorganization's financial performance as there debt asset, debt equity ratio and long term debt iscorrelated with Return on capital employed, net profit and gross profit margin, Return on equityand asset at 99% and 95% confidence interval. However, Öztekin (2015) has critiqued with study of effect of capital structure onfinancial performance of SMEs. It has revealed about positive relation in long term debt andgross profit margin but short term debt has presence of significant and negative relationship with2
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