Investigating relationship between financial leverage and financial performance: case study – Bosnia and Herzegovina beverage industry (original) (raw)
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FINANCIAL LEVERAGE, CAPITAL STRUCTURE AND FIRM PROFITABILITY: AN EMPIRICAL REVIEW
Shodhasamhita : Journal of Fundamental & Comparative Research, 2022
The study examines the existing empirical research works pertaining to financial leverage and its impact on firm's profitability. The review considers the determinants of financial leverage as a part of capital structure decisions of firms. The theories of capital structure are considered as crucial in corporate financing decisions and in many research studies the capital structure theories explained the importance of debt financing. The review upholds the importance of financial leverage on firm profitability and researcher has made an attempt to trace out the determinants of leverage. The review is based on the research work done so far on leverages and its impact on firm profitability were majorly considered and those works related to leverage , firm profitability and determinants of leverage are the main key words used to do review , with the help of well defined inclusion and exclusion criteria. Research Methodology: The present study is based on empirical reviews and secondary data has been collected from various sources like peer-reviewed journals, Scopus indexed journals and books were considered and also used working papers on leverages etc. it is a descriptive and conceptual research paper on financial leverage, Capital structure and its impact on firm profitability. Results: The findings of the study revealed that factors such as growth rate, liquidity, tangibility have significant impact on leverage and other factors like firm size, profitability also have positive association with leverage in few studies.
Influence of Financial Leverage on Corporate Profitability: Does it Really Matter
International Journal of Economics and Financial Issues, 2023
Debt is an essential component of capital structure for firms. Companies use leverage to impact the returns that equity shareholders yearn for. In this study, the author attempts to establish a stochastic relationship between the use of leverage and the profitability of cement manufacturing firms worldwide primarily to assess whether leverage affects firm profitability. The study extends further to examine whether the level of debt affects the return on equity, return on assets and net profit margin in similar ways, as they are all proxies of profitability. The empirical analysis is performed on data from major cement companies listed on public exchanges worldwide. The data is collected from 2012 to 2018 with the sample size of the thirteen most prominent companies in the world in the cement manufacturing industry for 7 years consisting of ninety-one observations. Panel data regression analysis using the fixed effect model is applied to the data to investigate the relationship between the variables. Firstly, the study finds that financial leverage has a statistically significant inverse impact on profitability within the cement industry worldwide. Secondly, the study expands to determine that not all profit measures are influenced in the same way. The variables of profitability that really matter include the return on assets indicating the profit measured relative to the efficient use of resources and net profit margin that measures the returns from sales and by minimizing costs. The study does not find similar outcomes in relation to return on equity which contradicts theories that support debt as adding value to shareholders. The theory posits the stance of the benefit of tax-deductibility of debt, leveraged to increase profitability, and this study illuminates the incongruity of practical experiences to that of theory. The results of this study would assist corporate decision-makers in their capital structure decisions to critically examine the level of the worthiness of the benefit of tax deductibility of debt contributing to the firm's financial performance.
IOSR Journal of Economics and Finance, 2014
A common phenomenon in the financial reports of Nigerian pharmaceutical companies is the volume of short-term and long-term liabilities that forms a considerable size of their capital structure. Explaining the role of financial leverage in companies' financial performance is one of the primary objectives of contemporary researches and this role remains a questionable subject which has continued to attract the attention of many researchers. The main objective of this study is to determine the effect of financial leverage on financial performance of the Nigeria pharmaceutical companies over a period of twelve (12) years (2001-2012) for the three (3) selected companies. This work employed three (3) financial leverage for the independent variables such as: debt ratio (DR); debt-equity ratio (DER) and interest coverage ratio (ICR) in determining their effect on financial performance for Return on Assets (ROA) as dependent variable. The ex-post facto research design was used for this study. The secondary data were obtained from the financial statement (Comprehensive income statement and Statement of financial position) of the selected pharmaceutical companies' quoted on the Nigerian Stock Exchange (NSE). Descriptive statistics, Pearson correlation and regressions were employed and used for this study. The results of the analysis showed that debt ratio (DR) and debt-equity ratio (DER) have negative relationship with Return on Assets (ROA) while interest coverage ratio (ICR) has a positive relationship with Return on Assets (ROA) in Nigeria pharmaceutical industry. The analysis also revealed that all the independent variables have no significant effect on financial performance of the sampled companies. The results further suggested that only 16.4% of the variations on the dependent variable are caused by the independent variables in our model suggesting that 83.6% of the variations in financial performance are caused by other factors outside our model. Based on the above findings, the researchers now recommend that companies' management should ensure that financial decisions made by them are in consonance with the shareholders' wealth maximization objectives which encompasses the profit maximization objective of the firm. The amount of debt finance in the financial mix of the firm should be at the optimal level so as to ensure adequate utilisation of the firms' assets. The management should also monitor the interest charged on debt financing to avoid liquidation of the company.
Journal of Business Studies and Mangement Review
The current state of the world economy is in decline, including in Indonesia due to the Covid-19 outbreak, which has affected almost all economic sectors. However, several food and beverage companies listed on the Indonesian stock exchange have remained stable, if not rising, as if they will be unaffected by the outbreak of Covid 19 the purpose of this research was to investigate the impact of business size and leverage on financial performance and firm values. From 2017 to 2020, this study used a sample of food and beverage firms listed on the Indonesia Stock Exchange (IDX). The information used was gathered from a panel of people. Path analysis is the data analysis technique that was used.Firm size has a significant effect on financial performance, leverage has a significant effect on financial performance, firm size has a significant effect on firm value, leverage has insignificant effect on firm value, financial performance has a significant effect on firm value, and financial p...
The effect of financial leverage of financial performance toward firm size
www.iiste.org, 2018
This research aim is to observe the effect of financial leverage on financial performance with firms performance as a moderation variable, using a purposive sampling method to determine the selected samples; analysis use a multiple linear regression tests using the SPSS 24.0 software, the results show that there are 186 firms s meet the population set target, the results of multiple linear analysis test with 5% significance level, concludes that: (1) debt ratio affects ROE, (2) debt to equity ratio affects ROE, (3) firms size influences ROE, (4) firms size strengthens the influence of debt ratio on ROE, (5) firms size weakens the influence of debt equity ratio on ROE.
FINANCIAL LEVERAGE AND PROFITABILITY OF QUOTED FOOD AND BEVERAGE COMPANIES IN NIGERIA
, http://www.euroasiapub.org (An open access scholarly, peer-reviewed, interdisciplinary, monthly, and fully refereed journal.) Abstract This study examined financial leverage and profitability of quoted food and beverage firms in Nigeria. It is aimed at studying the relationship between measures of financial leverage and profitability. Time series data were sourced from the financial statements of the selected food and beverage firms and were subjected to rigorous statistical analysis such as the Augmented Dickey Fuller test, co-integration test, granger causality test and vector error correction models. They were used to examine the dynamic relationship that exists between the dependent and the independent variables. The level series result in model one found that total liability ratio relates negatively with return on equity (ROE) and return on assets (ROA) which were used as the dependent variables in the models while long term debt, equity ratio, debt ratio and debt equity ratio relate positively with the dependent variables. Model two found that total liability ratio, long term debt ratio, debt equity ratio and debt ratio have a negative relationship while equity ratio has a positive with return on equity. The Augmented Dickey Fuller test found that the variables are stationary at first difference; the co-integration test found the presence of long run relationship while the Granger causality test found a bi-directional relationship to exist between the independent and independent variables. The study concludes and recommends that firms going for debt financing should adopt debt financing mix of debt ratio, equity ratio and total liability ratio. Of these, debt ratio should be more vigorously pursued for its profound salutary effect on the profitability of quoted food and beverage firms in Nigeria.
Sugar Industry is the 2 nd most main industry of Pakistan after cotton. Pakistan is rich in the production of sugar, most of the production of sugar is consumed by the locals and surplus is exported. It is general concept that financial leverage and financial performance has positive relationship. The objective of the current study is to investigate the influence of financial leverage on financial and to investigate whether financial leverage has an effect on financial performance by taking evidence from listed sugar companies of Pakistan. The results of the study show the mix results. The results show the positive relationship of debt equity ratio with return on asset and sales growth, and negative relationship of debt equity ratio with earning per share, net profit margin and return on equity.
The Effect of Financial Leverage on Profitability and Risk of Restaurant Firms
The Journal of Hospitality Financial Management, 2005
Financial leverage is the use of fixed charge sources of funds to finance the firms' investment projects. A levered firm is a firm that employs debt in its capital structure. Excessive use of debt is likely to expose the firm to financial risk hence insolvency. Therefore, a firm should maintain an optimal capital structure that will minimise the overall cost of capital. This study sought to establish the effect of financial leverage on the profitability of firms listed in the NSE. Causal research design was employed on the target population of 66 listed firms. Purposive sampling technique was used to select a sample size of 30 listed firms. Data was analysed using descriptive and inferential statistics. Descriptive statistics was used to test for normality of data. Inferential statistics on the data were done using regression model. The study established that, firm size has a statistically significant effect on the profitability of listed firms with p value of 0.002. Liquidity and growth opportunity on the other hand were not statistically significant indicating p values of 0.062 and 0.914 respectively. This means they have no significant effect on the profitability of firms listed in the NSE.
Financial Leverage and Firms’ Performance: Empirical Investigation of KSE-100 Index
ETIKONOMI
Capital generation to fund everyday operations and long-term expansions is a constant concerning element in the corporate world. This study aims to investigate the optimal level of capital structure that firms can adopt to improve their financial performance given the industry dynamics and economic circumstances of the country. Using Hausman’s specification test, annual data for the period 2005 – 2014 of Karachi Stock Exchange (KSE) 100 index listed securities has been collected to analyze the impact of financial leverage on the firms’ performance. Return on assets, return on Equity, and TOBIN’s Q are the proxies of financial performance analyzed against financial leverage for the KSE 100 index listed firms. The finding of the paper indicates that capital structure, leverage, interest cover and sales growth as most significant variables impacting firms’ profitability. DOI: 10.15408/etk.v17i1.6102
EPH - International Journal of Business & Management Science
The research objective was to verify and analyze: (1) effect of leverage, internal factors and external factors towards financial risk Local Water Company (LCW) at Papua Province and West Papua Province; (2) effect of leverage, internal factors and external factors towards financial performance Local Water Company (LCW) at Papua Province and West Papua Province; (3) effect of financial risk towards financial performance Local Water Company (LCW) at Papua Province and West Papua Province. This study took the data of financial statements from Local Water Company (LCW) which in at Papua Province and West Papua Province. In the reporting period December 31, 2011, December 31, 2012, December 31, 2013 and December 31, 2014 (time series). The analysis tool used is SEM (Structural Equation Medelling) using methods PLS (Partial Least Square), the use of this method due to data used for further processing in small quantities that is data for 4 years (2011– 2014) with the number some Local Wat...