The Relationship between Capital Structure and Financial Performance of Cement Industry in India

Abstract

Purpose- This paper intends to discover the relationship between capital structure and financial performance of the cement industry by taken debt equity ratio and interest coverage ratio and Net Profit, Return on Asset, Return on Capital Employed and Return on Equity

Design/methodology/approach- It is an exploratory method of research where Debt Equity Ratio and Interest Coverage Ratio are taken as independent variables and Net Profit, ROA, ROE, and ROCE are taken as dependent variables. In the current research work data of 23 cement companies have been collected from different sources for 18 years from 2003-04 to 2020-21 and analyzed for descriptive, correlation analysis, multiple regression analysis to find out the relationship between capital structure and profitability of the selected cement companies.

Findings- Based on the correlation coefficient study shows the negative relationship between debt equity ratio and profitability and a positive relationship between interest coverage ratio and profitability. Based on the multiple regression analysis the study shows that multiple regression equation explains desired level of variability in Net Profit, ROA, ROE & ROCE.

Implications- This study has important implications for financial managers in taking capital structure decisions.