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Does Capital Structure Influence Company’S Profitability?

Author

Listed:
  • HERCIU Mihaela

    (Lucian Blaga University of Sibiu, Romania)

  • OGREAN Claudia

    (Lucian Blaga University of Sibiu, Romania)

Abstract

Every company has a different structure of balance sheet. Some of the companies have more liabilities than equity. Considering the industry or debt-to-equity ratio, the balance sheet structure affects the company profitability measured by DuPont system. The main objective of the paper is to analyze the structure of balance sheet and to identify some optimal levels in order to increase company profitability. The DuPont returns like ROA (return on assets) and ROE (return on equity), but also the debt-to-equity ratio, will be used to measure the company profitability. The samples consist on the most profitable non-financial companies ranked in Fortune Global 500. The companies will be grouped in clusters (based on industry or debt-to-equity ratio) in order to identify the signification of the correlation between the profit and the balance sheet structure. The main results of the paper refer to the company profitability that can be increased by using an optimal structure of liabilities and equity.

Suggested Citation

  • HERCIU Mihaela & OGREAN Claudia, 2017. "Does Capital Structure Influence Company’S Profitability?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 12(3), pages 50-62, December.
    • Handle: RePEc:blg:journl:v:12:y:2017:i:3:p:50-62
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    References listed on IDEAS

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    1. Abdullah, Hariem & Tursoy, Turgut, 2021. "Capital structure and firm performance: a panel causality test," MPRA Paper 105871, University Library of Munich, Germany.

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