Effect of Capital Structure Determinants on Profitability: With Special Reference to Iron and Steel Sector Units of India

Abstract

This paper is an attempt to study the capital structure of Indian Steel Industry and its major determinants. In this study, almost 50% of companies out of 22 sample size are bearing highly debt driven in their capital structure and it creates financial risk to the debt driven companies. Debt driven companies have obligation to pay interest irrespective of profit made or loss incurred by the firms. Hence we tried to find out which are the various factors significantly explaining the return on capital employed. For which we have considered four independent variables from early studies and employed correlation analysis, multiple regression analysis techniques and ANOVA in this study to test the dependency of the return on capital employed ratio on independent variables. The researcher found three variables such as debt equity ratio, operating profit ratio and interest coverage ratio respectively having significant impact on the return on capital employed to ratio of selected sample size of steel companies.