This study aims to empirically examine and analyze the impact of capital structure decision on the firm’s profitability by using a sample of 35 Indian pharmaceutical companies listed on Bombay Stock Exchange (BSE) during the period of 5 years from 2012 to 2016. Regression Analysis is used to measure the extent and nature of the relationship. Capital structure variables used in the study are ratio of long-term debt to total assets (LDA), ratio of short-term debt to total assets (SDA) and ratio of Total debt to total assets (DA) while profitability has been measure by Return on Equity (ROE). Firms Size (SIZE)and Salesgrowth(GROW) are also used as control variables. Results reveal a positive effect of SDA and DA on ROE, while a weak-to-no effect was found of LDA on ROE.
This book mostly concentrates on firms with positive earnings, but this chapter focuses on the negative earnings firms or firms with very low earnings. It is easier to value a positive earning firm than a company with negative earnings. Analyzing negative earning firms has always created problems for researchers and analysts. In case of a negative earning firm, growth rates cannot be predicted or used in the valuation of firms. When current income of the firms is negative, growth rate will make it more negative. Tax computation becomes more complicated and the Going Concern Assumption does not apply properly. Authors start with complications in valuing negative earning firms, discuss the causes of negative earnings, and whether the problem is short-term, long-term, or cyclical in nature. Finally, authors provide the appropriate valuation technique for each case.
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