Impact of capital structure on profitability evidence from selected trading companies in colombo stock exchange, Sri Lanka Mrs. Rajakumaran Thusyanthi1, Mrs. Yogendrarajah Rathiranee2 1Assistant lecturer Advanced Technological Institution Jaffna, Sri Lanka 2Senior lecturer Department of Financial Management Faculty of Management Studies and Commerce, University of Jaffna, Sri Lanka Online published on 22 June, 2018. Abstract Capital structure decision is important because the profitability of an organization is directly affected by the capital structure decision. Proper capital structure leads the firm to achieve the better performance and ensures the sustainability in its operation. The purpose of this paper is to empirically examine the impact of capital structure on profitability in trading companies in Sri Lanka. For this purpose the study investigated eight listed trading companies in Colombo Stock Exchange of Sri Lanka the past 5years period from 2008 to 2012. In this study, independent variable that is, capital structure of the company's is measured by leverage ratios of Debt to equity ratio and Debt to Assets ratio. Five profitability ratios such as gross profit ratio (GPR), net profit ratio (NPR), return on asset (ROA), return on equity (ROE) and return on capital employed (ROCE) are used as the dependent variables for the study. The data has been analyzed by using descriptive statistics, correlation analysis and regression analysis to find out the association between the variables. The results suggest that 44% of the total assets in the trading companies of Sri Lanka are representing by debt and on the basis of correlation analysis Debt to equity ratio and Debt to total Assets ratio positively and moderately correlated with gross profit ratio, negatively and moderately correlated with net profit ratio, positively and weakly created with return on capital employed and negatively and weakly correlated with other profitability ratios.. The outcome of the study may help to the entrepreneurs, Board of directors and policy makers to design better decisions in the debt-equity choice. Top Keywords Capital structure, Profitability, Total debt. Top |