Investigating the Effect of Different Methods of Financial Supply on the Profitability Ratios of Companies Accepted in Tehran Stock Exchange

Hamed Ghafouri

doi:10.5901/mjss.2015.v6n1p339

Abstract

One of the most important stimulating factors that have an accelerating role in achievement the countries to stage of development are capital adequacy and financial supply. To supply required capital, there are different ways. These ways mainly consist of the use of debt, the use of shareholders' capital in the form of common stock, the use of retained earnings, the combination of these methods and etc. Different ways of financial supply have various risks and efficiencies and different economic, accounting, functional, liquidity and profitability variables of the company are markedly changed under the influence of different methods of financial supply. In this study, the influence of different conventional methods of financial supply (retained earnings, common stock and debt) as independent variables on profitability of companies (return on asset, operating profit margin, net profit margin and return on equity) as dependent variables has been examined. The present study is applicable and descriptive in correlation branches from view points of objective and the nature of method, respectively. Simple random and cluster methods were used for sampling. Thus, at first, the samples were selected among various industries active in Tehran Securities and Exchange using simple random sampling. And then all of the companies in the oil and petrochemical industry during years 2005-2012 were considered as research sample. Test results of the assumptions show that there was a statistically significant relationship between financial supply through retained earnings and the logarithm of return on equity and but a statistically significant relationship was not found between the financial supply of common stock and debt. Also, results showed that a statistically significant relationship exists between financial supply through retained earnings and debt with net profit margin. But a statistically significant relationship was not observed between financial supply through debt, retained earnings and common stock with return on asset and between financial supply through debt, retained earnings and common stock with operational profit margin. DOI: 10.5901/mjss.2015.v6n1p339

Highlights

The concept of financial supply determines the composition of essential resources for investment (Damodaran, 2010:616)
In this research we aim to answer this question that whether various methods of financial supply are effective on profitability ratios of companies? the main matter in this research is answering to this question: how is the effect of various common methods of financial supply on profitability of companies? Final purpose of various researches in the field of capital structure and different methods of financial supply is to achieve the optimal capital structure in any institution and organization according to task nature and activity of that organization
The relationship between return on equity (ROE) and various methods of financial supply was investigated and the results showed that a reverse significant relationship exists between return on asset (ROA) and common stock

Summary

Introduction

The concept of financial supply determines the composition of essential resources for investment (Damodaran, 2010:616). Determining the optimal structure of capital is one of the essential issues of financial supply of companies This point has an important application in the field of making a decision about financial supply of current operation and investment plans of companies. Topics of the theory are in relation to capital structure following on achieving a limit of balance between two main resources of financial supply, namely debt and return on equity to can maximize the stock value of the company at that point and minimize the cost of supply of financial resources. Financial supply resources in view point of a company consist of debt and return on equity Applying each of these resources in capital structure of the company has a specific property and it is done in accordance with dominated conditions. This study aims to determine the relationship between various methods of financial supply and the profitability of companies by understanding the necessity and importance of this matter

Objectives

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Results

Conclusion