Impact of Capital Structure on Profitability of Cement Industry in Bangladesh

Abstract

Purpose: This paper seeks to unearth the impact of capital structure on the profitability of listed cement companies at the Dhaka stock exchange in Bangladesh. Methodology: Data have been collected from secondary sources for the 10 years from 2009-10 to 2018-19 to accomplish the objectives. Data gathered tabulated, categorized, arranged, and concluded the necessary calculation for the production of panel data to fulfill the purpose. The capital structure ratios, profitability, and multiple linear regressions have been used to analyze data with the help of IBM SPSS-21. Capital structure ratios are short-term debt to total assets (STDTA), long-term debt to total assets (LTDTA), total debt to total assets (TDTA), long-term equity debt (LTDEQ), and total equity debt (TDEQ) and are considered to be the independent variables. The return on total assets (ROA), return on equity (ROE) are selected as the profitability and used as a dependent variable Findings: Results forced to conclude that short-term debt to total assets, long-term debt to total assets have a neagtive effect on the return on total assets. This implies that the company would reduce profits by accumulating more borrowed money. On the other hand, short-term debt to total assets, long-term debt to total assets have a positive influence and long-term equity debt have a negative impact on return on equity. Limitations: The study is conducted based on secondary data. So the validity and reliability cannot be judged. There are 32 cement companies of Bangladesh of which only seven are listed so the availability of data scope of the study was narrow. Practical Implications: This implies that the firm raises more borrowed capital will reduce profit. So the authorities should use debt judiciously. Originality: Research indicates that profitable companies are less dependent on debt as their key funding choice. In the case of Bangladesh, a high proportion of the debt is covered by short-term debt.