AN ANALYSIS OF CAPITAL STRUCTURE AND IT'S IMPACT ON PROFITABILITY: A STUDY OF SELECT LISTED COMPANIES IN INDIA

ABSTRACT
This study investigates the relationship between capital structure and profitability among
selected listed companies in India, focusing on five major sectors: Information Technology,
Pharmaceuticals, FMCG, Automobiles, and Capital Goods. It analyzes financing decisions using
indicators such as the debt-equity ratio, debt ratio, equity ratio, and interest coverage ratio, and
assesses their impact on profitability measures including Return on Equity (ROE), Return on
Assets (ROA), Net Profit Margin (NPM), and Earnings per Share (EPS).
To uncover these relationships, the research applies statistical methods such as correlation
analysis, multiple regression, and two-way ANOVA, exploring both firm-level and sectoral
patterns. The findings suggest that excessive reliance on debt reduces profitability, while
depending solely on equity also leads to diminishing returns. This highlights the importance of
maintaining a balanced combination of debt and equity. The interest coverage ratio showed only
a moderate influence, suggesting that broader capital structure choices matter more than the
ability to service debt alone.
At the sector level, notable differences were observed. IT and FMCG firms exhibited stronger
profitability compared to Automobile and Capital Goods companies, which reported relatively
weaker outcomes. Profitability trends remained fairly stable across the study period, indicating
that industry-specific factors are more influential than short-term market shifts.
Overall, the research concludes that capital structure decisions have a significant impact on
financial performance. Striking the right balance between debt and equity is crucial for
sustaining long-term profitability. These insights can guide managers in shaping financing
strategies and assist investors in evaluating opportunities across different sectors.