Leverage Decision and Profitability of IT Companies in India

Leverage decision is fundamental for any business organization because of the need to maximize return to the various stake holders and also because of the fact that such decision has great impact on the firms’ ability to deal with competitive environment. It is a crucial issue confronting management that how to choose the combination of debt and equity to achieve optimum capital structure that would minimize the firm's cost of capital and improves return to owners of the business. In this study an attempt has been made to analyze the Operating Leverage, Financial Leverage and Combined impact of these leverage measured through Total Leverage and its impact on profitability during 2009 to 2013 (05 years) financial year of pharmaceutical industry in India. The data from 5 Information Technology companies representing a measure share of total market capitalization of the industry is used as sample for the study. The various statistical tools like correlation, regression analysis is used through SPSS and the outcomes of the study may guide entrepreneurs, loan- creditors and policy planners to formulate better policy decisions in respect of use of fixed cost as well as the mix of debt and equity capital and to exercise control over profit planning.