Empirical analysis of the impact of capital structure on the profitability of automobile industry

The Capital Structure of a firm describes how it has sourced its finances. This capital structure is comprised of the owned & the owed capital. There are a number of determinants that affect the decisions taken while determining this capital structure like cost of capital, control, flexibility etc. The Indian Automobile Industry is the seventh-largest auto producer in the world with an average annual production of 17.5 Million vehicles. This paper is an attempt to ascertain the impact of capital structure (CS) on the profitability (P) of the firm. This study is focused on Bajaj Auto Limited, TVS Auto Limited, Hero Motors Limited and Atul Auto Limited. All these four companies are into the manufacturing of two and three wheelers auto Products. Liquidity and growth in terms of performance of the firm have significant influence on debt-equity ratio. In other words, sustainable growth along with credit worthiness of the firm influences debt-equity ratio i.e., degree of financial leverage. Capital structure, the mix of long term debts and equity securities, is generally used to finance long term assets of companies. It consists of permanent short-term debt, preferred stock, and common equity. The results revealed there is positive relationship between capital structure and financial performance.