Citation:Fernando, W.R.S. and Jayamaha, A. 2016. Impact of Capital Structure on Firm Financial Performance of Manufacturing Sector Companies in Sri Lanka. In Proceedings of the Undergraduates Research Conference - 2016, 11th January 2017, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka.
Date:2016
Abstract:
The discussion about the optimum capital structure has been a core topic in
corporate finance from several years in Sri Lanka. Capital structure defines as
a combination of debt capital and equity capital in an organization.
Organizations have different financing sources. It can be categorize into two
sources, the internal financing and external financing. It is challenging for
firms to identify the right mixture of debt and equity to achieve firms goals.
This study was investigated the relationship between capital structure and
firms financial performance of manufacturing listed companies in Sri Lanka.
The sample of the study consisted of 14 manufacturing listed companies in Sri
Lanka. This analysis is done by analyzing the financial statements of these
companies from 2010 to 2015. The findings revealed that capital structure as
measured by debt to equity ratio (DE) had statistically insignificant positive
relationship with financial performance (ROA). Whereas long term debt to
total assets (LDTA) had statistically significant negative relationship with
financial performance (ROA) and similarly, short term debt to total assets
(SDTA) had a negative and statistically significant relationship with financial
performance (ROA).
