The Relationship between Changes in Financial Leverage and Equity Returns in Hospitality Industry: The Case of Restaurant Firms (original) (raw)
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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.
Works of the Faculty of Agriculture and Food Sciences University of Sarajevo, Volume LXII, No. 67/2, str. 613., UDK 63/66 (058)0808.1/2, BH ISSN 0033-8583., 2017
Nowadays, managing a company is becoming a more and more complex task. Factors, such as fast-changing environment, highly competitive market put in focus managers’ abilities to recognize investment possibilities, establish flexible capital structure and consequently mitigate the level of financial risk and contribute to the overall company stability. One way in achieving above mentioned is an efficient use of financial leverage. Therefore, the aim of this paper is to investigate whether capital structure/financial leverage positively influences a company’s financial performance. This question has been discussed for decades, mostly in the developed world, while no similar research is done in B&H. The research is done using secondary data from Bisnode BH database for a period of last five years. The sample includes 28 companies from the beverage industry which is fast-growing and one of the strongest industry in B&H. Regression analysis was used to determine the relationship between the variation in firm value and capital structure. The debt to equity ratio was used as a proxy for capital structure and the following ratios were used for firm value: Net Profit Margin, Return on Assets, Return on Equity, Operative Margin, and Value added per employee. Results of this study will provide valuable inputs for managers of companies as well as potential investors in the sector of beverage industry.
Proceeding International Conference on Information Technology and Business (ICITB), 2019
This study aims to obtain empirical evidence about the influence of leverage, profitability, dividend policy and investment opportunity on the company value in Indonesia and Malaysia banking company year 2012-2016. The method using in this research is purposive sampling method. The dependent variable in this research is company value by proxy PBV. Independent variable in this research is leverage, profitability, dividend policy and investment opportunity. This research is taken by the financial report and annual report of 10 banking companies with a total observation as much as 28 companies. Data analysis was performed with the classical assumption and hypothesis testing with multiple linear regression method. The result of this study show that leverage does not affect significantly on the company value, while the profitability, dividend policy, and investment opportunity has a positive and significant effect on the company value.
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.
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...
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.
Financial Leverage and its Impact on Earning Per Share
Leverage analysis is an important tool in the hands of business firms. Leverage is thus is a benefit to the effective utilization of the funds with low cost of resources yielding a relatively high amount of returns. There are financial as well as operating leverages for a firm that can be considered for analyzing the financial position of the organization. This is a case study measuring the financial performance with its leverage. Data is retrieved from the financial statements of the concern for five years and accordingly the current status of financial leverage is analyzed and its impact on return on asset, return to equity and earning per share is concluded. During the period of study the financial leverage does not influence the profitability. It is noteworthy that the sign of financial leverage is positive meaning that more leveraged firms had more profits on average even though it was not statistically significant.
Management Science Letters, 2013
The primary objective of this study is to investigate the effect of growth and financial strength variables on the financial leverage for some listed companies in the Tehran Stock Exchange. For this purpose, a sample of 700 firm-years among listed companies in the Tehran Stock Exchange over the period 2006-2010 was examined. In the present study, the growth variables, including asset growth, profit growth and sales growth; and financial strength calculated by the Altman Z-bankruptcy model have been considered as independent variables. In addition, the ratios of long-term debt to total assets, long-term debt to fixed assets, total long-term debt and short-term receivable facilities to equity capital and total long-term debt and short-term receivable facilities to total assets are used as measures of financial leverage and dependent variables. The results indicate that there is a negative and significant relationship between assets growth and some indexes of financial leverage. There is also a positive and significant relationship between the variables of profit growth, sales growth and financial strength with financial leverage measures.