CAPITAL STRUCTURE AND PROFITABILITY OF FINANCE COMPANIES IN NEPAL

Abstract

The objectives of research are; to assess the current status of the capital structure and profitability of finance companies, to analyze the relationship between capital structure and profitability of the financial companies and to examine the impact of capital structure on the profitability of the financial companies. The objectives are meet using the descriptive and casual comparative research design. The independent variables of the study are Long term Debt, price earnings ratio, Total Liabilities to Total Assets, common Stock and dependent variables are return on equity and return on assets. The population of the study are 17 finance companies. The sample are three finance companies running Namely Manjushree Finance Limited (MFL), Pokhara Finance Limited (PFL) and Good will Finance Limited (GWFL). The data are secondary nature collected from the annual report of the finance companies. The descriptive statistics analysis, correlation analysis and regression analysis are conducted for the achievement of the objectives. It is found that the minimum, maximum and mean different are seem very high and the standard deviation also seem very high for all the variables. The higher standard deviation mean the higher fluctuate or deviate in the data flows. The relationship of debt to equity ratio, long term debt to total assets, short term debt to total assets, equity to total assets, interest coverage ratio and bank size (log of assets) to the return on assets is significant. The relationship of interest coverage and return on equity is also significant. The relationship of debt to equity ratio, long term debt to total assets, short term debt to total assets, equity to total assets and bank size (log of assets) to the return on equity is not significant. The impact of long term debt to total assets, Short Term debt to total assets and interest coverage ratio to the return on assets is significant. The impact of Debt to equity ratio, equity to total assets and bank size (log of assets) is not significant to the return on assets. The impact of long term debt to total assets, Short Term debt to total assets and interest coverage ratio to the return on equity is significant. The impact of Debt to equity ratio, equity to total assets and bank size (log of assets) is not significant to the return on equity.