Abstract:
The capital structure decision is essential for any business organization. To
understand how companies finance their operations, it is necessary to examine
the determinants of their financing or capital structure decisions. All decision
relevant to the capital structure is crucial for every company. The decision is
very impotent due to impact of this decision has power to achieve competitive
advantage as well as the prove survival of the company (Shubita &
Alsawalhah, 2012). Capital structure decision is the vital one since the
profitability of an enterprise is directly affected by such decision. The
successful selection and use of capital is one of the key elements of the firms’
financial strategy (Velnampy & Niresh, 2012). This paper seeks to investigate
the relationship between capital structure and profitability of listed companies
on the Colombo Stock Exchange (CSE) during a five-year period. In order to
meet the objectives of the study, data will collect from secondary data from
financial statements of the selected companies and descriptive analysis,
correlation and regression analysis is used as the methodology in this paper.
Variables used for the analysis include profitability and leverage, equity ratios.
Profitability measured by Return on Assets (ROA). The overall result of the
study suggests short term debt and debt to equity in Sri Lankan context to be
negatively related to profitability of the company. As well as long term debt
to total assets and sales growth of the firm positively influenced to the
profitability of the company.
