Interrelation Between Capital Structure and Profitability of FMCG Companies of India

Capital structure is the composition of debt and equity capital that comprise a firm’s financing its assets and can be rewritten as the sum of net worth plus preferred stock plus long-term debts. Capital structure is one of the most complex areas of financial decision making due to its interrelationship with other financial decisions variables. This paper focuses on interrelation between capital structure and profitability of FMCG companies of India. To proceed with this, the capital structure of listed firms has been analyzed by adopting an econometric framework over a period of five years. Estimating regression analysis and checking the relationship of the estimated model through Correlation Coefficient Test, I found that the profitability of the firm and its financial leverage have an insignificant impact on the capital structure of the studied firms during the examined period. Hence, the study is unable to establish any significant relation between profitability and financial leverage effect on the capital structure of a firm.