The Effect of Capital Structure on Profitability -An Empirical Analysis of Indian Paper Industry

Financing the firm’s assets is a very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital in financing firm’s assets. While designing an optimal capital structure, the management has to keep in mind the objective of maximizing the value of the firm Thus, an attempt has been made in this study to find the relationship between the capital structure and profitability. The overall analysis of impact of profitability on capital structure reveals that operating profit margin, net profit margin and market price per share disclosed a positive and significant relationship with capital structure of majority of the selected companies during the study period. However, return on capital employed, return on net worth and earnings per share predicts a negative but statistically significant relationship with capital structure of majority of the selected companies during the study period.