Impact of Capital Structure on Profitability: UK Supermarkets

This report investigates the impact of capital structure on the profitability of supermarkets in the United Kingdom. The study begins with an introduction that defines capital structure and its components, including equity and debt financing, and highlights its importance for business operations and profitability. The research rationale emphasizes the dynamic nature of the retail environment and the need for effective capital management in the supermarket sector. The report sets out the research aim to analyze the impact of capital structure on business profitability in UK supermarkets, and outlines research objectives and questions to guide the investigation. A literature review explores the theoretical framework, discussing how capital structure influences firm performance, investment, and market value, referencing key studies and expert opinions. The methodology section describes the research design, data collection methods, and data analysis techniques. The report also touches on ethical considerations and potential research limitations. The conclusion summarizes the key findings and the significance of the research, offering insights into how capital structure decisions affect the financial success of supermarkets in the UK.

Impact of capital
structure on
profitability

Table of Contents
TITLE: ............................................................................................................................................1
CHAPTER 1. INTRODUCTION....................................................................................................1
Background..................................................................................................................................1
Research Rationale.......................................................................................................................1
The aim of Research....................................................................................................................2
Research objectives .....................................................................................................................2
Research questions.......................................................................................................................2
CHAPTER 2. LITERATURE REVIEW.........................................................................................2
Theoretical framework ................................................................................................................4
CHAPTER 3. METHODOLODGY AND METHODS..................................................................5
Research design ..........................................................................................................................5
Methods for data collection ........................................................................................................5
Research Context ........................................................................................................................6
Procedures....................................................................................................................................6
Methods for data analysis ethical considerations ........................................................................6
CHAPTER 4 DISCUSS SIGNIFICANCE OF PROPOSED RESEARCH ...................................7
Research limitations ....................................................................................................................7
CHAPTER 7. PROVISIONAL WORK SECHDULE ..................................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

TITLE:
“Impact of capital structure on profitability – A study on the chain of supermarkets in
UK”
CHAPTER 1. INTRODUCTION
Capital structure refers the amount of debt or equity employed by an enterprise to fund its
operations & manage the assets. It involves the sources of funds like: equity share capital,
preference share capital, long term debt etc. Capital is the need of every business and without is
business can not start and success. There are mainly two options through which an organisation
can raise funds such as: borrowed and equity funds. As companies can issues the shares to
general public so that it can acquire the money from the market. For the corporation it is
important because it can arrange the funds and than invest for the higher returns for the purpose
of profitability. To conduct the day to day business operations it is important for the organisation
to manage the capital so the business activities can be perform in effective manner and goals can
be achieve successfully. The management has decide about the capital structure and take all
important decisions in order to enhance the profitability of business. Capital structure can affect
the chain of supermarkets in United Kingdom. As the retail sector has been chosen because it is
one of the high growing sector and have more consumers so that chances of business growth and
profits are high.
Background
As the supermarkets comes under the retailing industry and for an example, Tesco is a
British Multinational groceries & general merchandise retailer and it belongs to United
Kingdom. As the chain of this supermarket is spread across seven countries which involves
Europe, Ireland, Thailand, Asia etc. In UK it is the market leader and third largest market leader
in the terms of revenue. The capital structure of company has includes both equity funds and
borrowed funds and it generate funds by issuing the shares so that money can be invested for the
purpose of higher returns and it leads to profitability (Zeitun and Tian, 2014).
Research Rationale
As the environment is dynamic and it is continuously changing and for the economic
growth of nation retailing industries plays a vital role and helps in development of economy. The
main problem which is faced by the chain of super markets is to arrange capital. Apart from this
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there are various problems has arises which includes environmental issues that keep preventive
the production. For the development of supermarkets it is important to arrange and manage the
capital so that business can start and get successful. It is required to fill the market gap so that
supermarkets can manage the capital structure which leads to higher profitability. If capital does
not structured properly than it affects the profitability. So to fill the gap it is essential to structure
the capital effectively. The chain of supermarkets of United Kingdom can acquire borrowed
funds as well as arrange the funds form equity and there can be combination of both (Gómez,
and Lizarzaburu Bolaños, 2014).
The aim of Research
To consider the aim of research is important so that researcher can get the direction that
how the whole work is being processed. It is helpful to develops the insights which is beneficial
to accomplish the goals.
The aim of research project is: “To analyze the impact of capital structure on business
profitability- A study on the chain of supermarkets in UK”
Research objectives
To set the objectives are important and it is helpful to achieve the goals. For the
researcher it is required to set the objectives so that work can be done are per the requirement
and it is helpful to shows the validity of project. The objectives are discusses as below:
 To determine the concept of capital structure.
 To identify the importance of capital structure in business.
 To examine the role of capital structure in supermarkets chain in UK.
 To analyse the impact of capital structure on profitability of business
Research questions
Research questions are being prepare by the researcher which are based on the objectives
and it is helpful to investigate the subject matter effectively. The research questions are describe
as below:
 What is the concept of capital structure in supermarket in UK?
 What is the importance of capital structure in retail business of United Kingdom?
 How to examine the role of capital structure in supermarkets chain in UK?
 What is the impact of capital structure on profitability of supermarkets?
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CHAPTER 2. LITERATURE REVIEW
Literature review is also known by the narrative review. It is a kind of secondary research
on a particular subject. The main objective of this review is to provide analytical detail to the
readers. In addition, it helps to the new researcher who wants to do research on already
researched topic. Apart from it, this review provides detailed information about the methodology
which is used in the research as well as analyse the contribution of each source of information. In
addition, literature review is always done on the pre- researched subject. It does not provide
review on the new topics (Vătavu, 2015).
As per the Lanli Zhao, Capital structure determines the level of the profitability. If capital
structure is of large amount then, there would be the scope of more investment and profitability
depends on the size of investment. Eventually, it is not easy for the organisations to increase the
capital structure because it needs money. So overall, capital is proportionate to the profitability.
There is a relationship between capital structure & firm performance. Capital structure of
a firm involves the combination of equity, debt or hybrid securities. If corporation use equity
source than it can earn limited profits because to operate supermarkets it requires huge
investment. Combination of equity and debt is more suitable to raise the capital and company
have to pay interest on the borrowed funds but it can arrange sufficient finance to carry its
business operations and generate higher profits as a result performance of firm will improve so
there is a relationship between capital structure and firm performance.
According to the Lappalainen, Capital structure has the equal value in all sized
organisations whether it is small or large. This is why because capital is a kind of term that is
needed at all stage of the profit making. In the absence of this, companies can not imagine to
sustain. So the importance of capital on the profit is very crucial. As per the Xu, Every
organisations want to earn more and more profit and for this purpose their should be efficient
money in the term of capital. Only that capital is worth-full which is invested by the owner,
otherwise rest of capital are considered as the liability. This is why because an business owner
can freely gain profit on its own capital not on the other external parties. Apart from this, capital
structure depends on the size of organisations. Large sized organisations need huge amount of
capital and in order they get good profit (Adesina and Adesina, 2015). As profitability is one of
the main factor which can influenced by size of investment because if investment will low than
supermarkets will generate lower profit from its business operations.
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According to Ziannetti, Profitability depends on many factors like size of entity,
investment etc. All these factors are based on the capital so directly profit is linked up with the
size of invested capital. Less capital means low profit as well as high capital means good profit.
In addition, organisations need to focus on increasing the capital because it impacts those factors
which are related to profit. According to the Bevan, In this competitive environment only those
companies can survive that have huge amount of capital. The capital structure of the
organisations plays an important role in the profit earning process. This is so, because capital can
bear all those expenses which incurs during the profit making. As the market value of
supermarkets can affect the profitability reason being if market value is low than investors will
hesitate to invest in the projects of supermarkets and due to the lack of investment business can
not expand so it will effect the profitability.
As per the Guo Wei, Market value plays an important role in the goodwill creation of the
companies. Herein, it is important to know that capital is needed for increase the market value.
Eventually, market value denotes the profitability. According to Chinaemerem and Anthony
(2012), capital structure impact profitability and financial performance. It is argue that,
development of UK supermarket recently practices various system and it has some consequences
regarding how retail companies assess the competition in the market. Basically supermarket
chains in UK follow the common standards for the consumer benefits which involve the
competition some times it's high and some times it's low. UK supermarkets offer variation and
deliver different offer rather than simple basket of goods. They deliver quality product with best
price which affect the consumer and their buying behaviours (Yazdanfar and Öhman, 2014).
Major supermarket companies such as TESKO, Walmart, Sainsbury's etc. are the
competitors of each other. Companies invest huge capital to make their supply chain effective or
manage their logistic part. In the supermarket, companies face the challenges such as delivery,
subscription service and discount on stores items. Aldi and Lidl is the biggest discounter of UK
supermarket and they cause for the their concern related to various offers they provide
customers. Now every company provide online option to purchase and provide home delivery
facilities too. For this, retail company required lots of capital investment to settle this function
which increase profitability. There are some online delivery specialist organisation such as
Ocado, US-based intercard, digital aggregators etc. all are delivering online grocery from the
choosen stores they want. Some of the brand sell their product direct to the customer such as
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Toblerone owner Mondelez expects sells $1 billion through direct sales from e-commerce
platform by 2020 and Amazon is predicted to be capture approx 3% grocery market of UK which
is approx $1.4 billion sales in 2020. demand of customer will increase according to time so it is
important build innovative strategies and business need to develop proper capital structure and it
required huge investment. But after successful completion will profile profitability because UK
supermarket have huge growth (Niresh, 2012). Profitability can be influence by size of firm
because if size is small than its investment will be minimum as a result it is not easy to expand
the business.
Theoretical framework
To conduct the research it is important and there are two types of research models which
can be used in research and it involves: quantitative and qualitative. Both of these models have
its own importance and objectives.
CHAPTER 3. METHODOLODGY AND METHODS
Research design
Research design is the arrangement of activities for the collection & data analysis which
motive to combine relevance to the purpose with economy in procedure. It involves different
types of research, explanatory research and descriptive research: As explanatory research has
emphasis on the questions which start with why (Enqvist and Nikkinen, 2014). It is helpful to
create potential relationship among variables by analysis of hypothesis. To develops the insights
about the specific problem and make new discoveries. The person who conduct the research
anticipates the various situations, analyse the variables of interest. Generally the experiments are
fixed before starting the data collections. Descriptive research denotes the features of population
& phenomenon which is being studied. In this type of research design the questions which are
frame they starts from what rather than why. It is beneficial to answer the questions which start
from what, where, who, in order to analyse the problem. This research design is useful to resolve
the answers of various issues. In educational research descriptive is more beneficial and helpful
when large number of samples does not analyse. To resolve the solutions of different problems
this research design is useful. When the researcher want to know the desires of customers,
organisation want to analyse the morale of its employees etc. Where as in this research project
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descriptive research design is being used because researcher want to analyze the impact of
capital structure on business profitability- A study on the chain of supermarkets in UK.
Methods for data collection
Data collection is the process which is useful to gather and analyse the information on
variables of interest in a specific way. It is helpful to know the hypothesis and consider the
results. Researcher collects the data so that it can know the views, suggestions, demand and
preferences of respondents. There are mainly two methods of data collection which are as
primary data and secondary data (Xu, 2012).
Secondary data: In this method second hand data are used in the research but the
authenticity is less. The researcher use online websites, newspaper and journals which is helpful
to conduct the research in successful manner. It is cost effective for the researcher because it
does not have to spent more money to make the project successful. To collect the information
secondary data has been used which involves articles, books and online websites so that effective
results can come up which is helpful to conduct the research in successful manner.
Research Context
With the help of research context the researcher can know about the preposed research.
To conduct the research in successful manner it is required to select the sample and in sampling a
part of population is being chosen. It is not easy for the researcher to know the perceptions of
each and every individual so it use sampling method to know the preferences and views of
people. As supermarkets are comes under retailing industry and the growth is continuously
increasing and which support the economic growth and development of country. Retailing is the
commercial activity which aims to deliver the products and services from distinct types of
businesspersons. For an example, Tesco is a supermarket which is from retailing sector and it
have various products such food, clothes, consumer goods etc (Zeitun and Tian, 2014).
Procedures
To conduct the research there is a certain procedure which is required to be follow by the
researcher and to access the people is important and to know their point of view helps the
conduct the research in successful manner. It is important to collect the questionnaire data for the
person who conduct the research so that point of views can be analysed which are given by
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different respondents. The interview procedures are needed to be appropriate according to the
desire of researcher.
Methods for data analysis ethical considerations
To analyse the data is important for the researcher which is helpful to understand the
point of views of various persons. It is require that data provide true and fair information which
is helpful to meet the research objectives. Duplicate data does not use while conducting the
research because it minimise the authenticity of work. For the data analysis it is important to take
care about ethical considerations so that quality work can be produce.
CHAPTER 4 DISCUSS SIGNIFICANCE OF PROPOSED RESEARCH
To conduct the research is important so that objectives can be achieve as per the
requirement. This research is helpful to analyse the impact of capital structure on profitability on
the chain of supermarkets in UK. Research contributes to make this project successful as per the
requirement. It is beneficial to develop insights which is helpful to reach the objectives and it is
helpful to know the understanding, views and perceptions of persons about the capital structure
and its impact on supermarkets in UK (Salim and Yadav, 2012).
Research limitations
The scope of research is limited due to the limitation of time and resources and it is not
easy to know the views of whole population so sample method has been chosen so that work can
be done easily. These are the main limitations which are arises while conducting the research.
CHAPTER 7. PROVISIONAL WORK SECHDULE
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CONCLUSION
As per the above described report, it has been concluded that capital structure can affect
the profitability on the chain of supermarkets. It is required to manage the capital effectively in
order to meet the business operations and activities. To run the supermarkets it is require huge
capital so it is important for the company to effectively manage the funds and finance can be
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arrange through different sources such as: borrowed funds and equity funds. The most important
thing is, the funds can be arrange from those sources which are more convenient and corporation
have to pay less amount of interest in order to enhance the profitability. If the capital structure
does maintain properly than profitability of chain of supermarkets can be affected.
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