AN EVALUATION OF CAPITAL STRUCTURE AND PROFITABILITY OF BUSINESS ORGANISATION

Capital structure is the proportion or each type of capital debt and equity used by a business organization. Many organizations employ debt in their capital structure because of its benefits. One of the benefits is that interest on the debt is tax deductible and reduces the tax liability of the organizations concerned. Furthermore, failure to pay interest commitment can result in financial backwardness. The financial managers consider so many factors in their capital structure decisions because of the implications in the use of debt. The factors are the cost of capital, debt capacity cash flow. Etc. The primary aim of a business organization is to make a maximum profit if possible. The researcher made a study of selected quoted manufacturing and oil servicing companies to see how capital structure related to profitability of business organizations. Five companies were selected and their financial statements for four years extracted and analyzed. The analysis showed that there is a strong relationship between capital structure and profitability between debt equity ration and shareholders’ return. It means that the cost of debt in the companies put together is less than their return on investment. A company having a return on investment greater than the cost of debt will have an increasing shareholders’ return.