Abstract:
This study examines the impact of capital structure together with their industry influence on
financial performance of the companies listed in the Land and Property, Plantation, Beverage
Food and Tobacco sectors of the Colombo Stock Exchange (CSE) for a period of five years
from 2011 to 2016. Data for the study was collected from published annual reports and the
sample consists of 51 companies in these sectors. Regression based capital structure models
were employed to investigate the phenomenon. The results reveal that the return on assets ratio
is significantly correlated with all the capital structure proxies and the net profit margin has
significant correlations with the long term debt to funds ratio and total debt to funds and short
term debt ratio. The long term debt to funds ratio and the total debt to funds ratio are significant
in determining the return on assets ratio. The long term debt to funds ratio has a significant
relationship with the return on equity ratio. Moreover, industry in which a company operates
has a significant impact on the level of financial performance. The findings of the study are
important for managers, existing and potential investors and future researchers. Managers
should focus on the results of the study on the impact of capital structure on financial
performance when determining the sources of financing to minimise the cost of capital and to
enhance profitability. The investors should focus on the same when making investment
decisions and identifying the impact of the capital structure on return enables them to make
informed decisions.
