1.

Title: Capital Structure Management of a Manufacturing Company

Keywords: Capital Structure, Firms Performance, Growth, Ownership Structure, Firm Size and
Marketing.

Scope of Investigation: To find an optimal capital structure and the management of a

manufacturing company.

2. Introduction:

The main objective of the firms is to maximize its profits and in the same time minimize its costs,
when companies search about resources to finance its investments they take this objective in
consideration. The main sources that firms could use to provide the necessary finance are the
internal finance which is equity, and the external finance which is debt. Most of companies use a
mix between equity and debt which form the capital structure. This paper aims to find if there is
an Impact of Capital structure on Performance.

3. Overview of Literature:

The study in Impact of Capital Structure on Performance Empirical Evidence from

Sugar Sector of Pakistan. European Journal of Business and Management 5: 78-86, showed
the impact of using leverage in firms capital structure on firms performance. They applied
study on all firms of food sector listed on Karachi stock exchange. The paper covered a
period of five years from 2007-2011. The capital structure variables were three variables,
long term debts to total assets (LTDTA), Total debt to Equity (TDE), and Short-term debts
to Total assets (STDTA). and they measured firm performance by Return on Assets (ROA)
and Assets Turnover Ratio (ATO), they found that long term debts has a positive and
significant impact on firm performance, while, short term debts has negative significant
impact of on firm performance.
Le and Phungs study in Capital Structure and Firm performance: Empirical
evidence from Vietnamese listed firms, investigates the impact of capital structure on firm
performance in all firms listed in Vietnamese Stock Exchange during the period from 2007
to 2011. They used return on assets (ROA), return on equity (ROE), and Tobin Q to
measure firm performance, while to measure capital structure they used short-term debt,
long term-debt, and total debt ratios. They found that capital structure has a significant
negative impact on firm performance.
The study in Capital Structure Effect on Firms Performance: Focusing on
Consumers and Industrials Sectors on Malaysian Firms. International Review of Business
Research Papers 8: 137-155, discussed the influence of capital structure on firm
performance of Malaysian firms listed as consumers and industrials sectors in Malaysian
equity market from 2005 to 2010, to measure firm performance they use return on equity
(ROE) and return on asset (ROA), and to measure capital structure they use long-term debt
(LTD), short-term debt (STD), and total debt (TD). The study results that each of debt level
has significant negative relationship with ROE, while ROA has significant positive
relationship only with STD and TD.
Iorpev and kwanum in thier study investigate the relationship between capital
structure and firm performance of manufacturing companies listed on the Nigerian Stock
Exchange. They covered a period of five (5) years from 2005-2009. The study used
multiple regression analysis to examine firm performance indicators such as Profit Margin
(PM) and Return on Asset (ROA), while, the capital structure variables were, Long term
debts to Total assets (LTDTA), Short-term debts to Total assets (STDTA), and Total debt
to Equity (TDE). They found that STDTA and LTDTA have insignificant negative
relationship with ROA and PM; while TDE has positive relationship with ROA and
negative relationship with PM. STDTA is significantly related with ROA while LTDTA is
significantly related with PM. The study concludes that capital structure is not a main
determinant of firm performance - Capital Structure and Firm Performance: Evidence from
Manufacturing Companies in Nigeria. International Journal of Business and Management
Tomorrow.
Mumtaz in her study, Capital Structure and Financial Performance: Evidence from
Pakistan (Kse 100 Index). Journal of Basic and Applied Scientific Research 3: 113-119,
seeks to investigate the relationship between capital structure and firm performance in the
context of large private companies in Pakistan. To measure capital structure they used Debt
to Equity ratio (DR), while ratios such as, Return on Asset (ROA), Earning per Share
(EPS), Return on equity (ROE), Operating profit Margin, Price to Earnings Ratio are used
to measure firm performance. Moreover, the relationship between capital structure of a
firm and market value of the firm is significant and negative.
 4. Statement of Problem: What is the relationship between capital structure and financial
performance of a firm and what improvements can be brought in? A company with a
favorable capital structure is always in a position to take advantage of any beneficial business
opportunity that may arise at any given point of time. Hence the purpose of this study is to
review the management of capital structure of a manufacturing company.

5. Aim of the Project:

It helps the company for checking the efficiency of the firm.
The study provides a useful comparison of the companys performance with the
competitors performance.
It helps the company to make financial forecasting for the upcoming years.
Though the study the company it able to understand the need for careful utilization of
resources.
This helps to take many strategic decisions which adapt with market needs.

6. Objective of the Study:

To analyze whether the capital structure in Manufacturing Compan is effective
or not
To find out the extent of the need and adequacy of the capital structure of the firm.
To study the financial position of the company.
To analyze the changes in the capital structure of the company.
To determine the requirements of capital structure management in a manufacturing
company.

7. Research Question and Hypotheses:

Hypotheses:

The following hypothesis is formulated for the study:

H1: There is a negative relationship between capital structure (DR) and financial performance
(ROE).
H2: There is a negative relationship between capital structure (DR) and financial performance
(ROA).

H3: There is a negative relationship between capital structure (DR) and financial performance
(EPS).

8. Significance/Contribution to the discipline:

Capital structure planning is very important to survive the business in long run.
To do adjustment the capital structure according to Business Environment
To reduce the overall risk of the company with the components of capital structure.
Idea generation of new source of funds.

9. Conceptual Framework:

Important theories or approaches of capital structure which are used for this research study are:

Net income approach

Net operating income approach
Modigliani and miller approach (MM approach)

10.Research Methodology:

The scope of research methodology is wider than that of research methods.

It covers the following:

Research design

Research design is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure. It constitutes
the blueprint for the collection, measurement and analysis of data. The design adopted in the study
is both descriptive and analytical done at branch level.

Sources of data
The analysis of financial viability of the company necessitates accurate and reliable data.
Therefore, the methodology used for the collection of information.

Secondary data

The main source of secondary data was Annual report of the company, relevant journals, reports
and magazines.

Tools and Techniques

Ratio analysis
Statement showing changes in working capital

11. Limitations:

Due to paucity of time, the author cannot conduct empirical research to find the actual
relationship between capital structure and financial performances of the company. The authors
research is restricted to doctrinal type of research.

One cannot make an accurate analysis, using the data of previous years and judge the
performance of the whole company.
Only secondary data are used for the analysis, they were extracted for publishing the
statement of corporation.
This research is mainly based on ratio analysis and other tools to certain extent.

12.Implications:
The implications of capital structure management in a manufacturing company are:
Companys tax exposure
Management style
Growth rate
Market conditions

13.Timeline:
This research study covers a period of 6 months from August to January.
 14.References:

Raheel Mumtaz, S. A. (2013). Journal of Basic and Applied Scientific Research . Retrieved from Capital
Structure and Financial Performance: Evidence from Pakistan :
http://www.textroad.com/pdf/JBASR/J.%20Basic.%20Appl.%20Sci.%20Res.,%203%284%29113-
119,%202013.pdf

S, N. (2016, February 11). Journal of Business and Finance Affairs. Retrieved from The Impact of Capital
Structure on Financial Performance of the Firms: Evidence From Borsa Istanbul:
https://www.omicsgroup.org/journals/the-impact-of-capital-structure-on-financial-performance-of-the-
firmsevidence-2167--0234-1000173.php?aid=69978

Saeed, R. B. (2013). European Journal of Business and Management. Retrieved from Impact Of Capital
Structure On Performance Empirical Evidence : http://pakacademicsearch.com/pdf-files/ech/517/78-
86%20Vol%205,%20No%205%20%282013%29.pdf