The Capital Structure and It’s Impact on the Profitability of the FMCG Companies in India – A Study

,Dr Amalesh Patra

doi:10.47191/jefms/v4-i10-28

Abstract

The purpose of this study is to examine the impact of the capital structure on the profitability of the companies under the FMCG sector listed in the National Stock Exchange (NSE) of India. The sample of 10 companies over 14 years from 2007 to 2020 is considered in this study. To examine the impact of capital structure on the profitability, Total Debt to Total Assets (TDTA) Debt- Equity (DE), Interest Coverage Ratio (ICR) consider as the independent variables, Price to Book Value Ratio (PBVR) and Growth (GROW) considered as the control variables and Return on Capital Employed (ROCE) considered as dependent variable (profitability). To fulfil the objective of the study Pearsons' Correlation has been conducted for testing the Collinearity, Shapiro- Wilk test has been run for normality test of the variables, to test the Stationary Hadri LM test, Kao and Pedroni test for cointegration test and to choose the appropriate model Hausman test and finally, for the result, I run Fixed Effect Model. The result of the Regression analysis showed that Total Debt to Total Assets (TDTA), Debt- Equity (DE), Interest Coverage Ratio (ICR), and Price to Book Value are the factors that have an impact on the Profitability (ROCE) of the company. The empirical result also suggests that total debt to Total Assets (TDTA), Interest Coverage Ratio (ICR), and Price to Book Value of the company have a positive impact but Debt -Equity has a negative impact on the ROCE

Highlights

The objective of this study is to the impact of capital structure on the profitability of the FMCG sector listed in the National Stock Exchange (NSE) of India
Data collection and Study design This study is analytical and using secondary data to find the impact of capital structure on Profitability of the companies under the FMCG sector listed in the National Stock Exchange (NSE) of India
The study took Total debt to Total Assets (TDTA), Debt- Equity (DE), Interest Coverage Ratio (ICR), Price to Book Value Ratio (PBVR), and Growth (GROW) that may have an impact on the profitable variable Return on Capital Employed (ROCE) of the companies

Summary

Introduction

The capital mixes in such a way that the company can earn profit at a minimum cost. There are many sources of loan capital such as bank loans, issues of debentures by the company, loan taking from non-banking financial institutions, etc. It has to be repaid at a later date with interest. The key financial strategy will be the successful selection of debt and Equity capital in such a proportion the company can earn maximum profit with a minimum cost of capital. The FMCG sector is a core sector of the Indian economy, study of capital structure would provide meaningful insight into understanding its behavior and measure the degree of influence on the profitability of the companies. The objective of this study is to the impact of capital structure on the profitability of the FMCG sector listed in the National Stock Exchange (NSE) of India

Methods

Findings

Discussion

Conclusion