Capital Structure And Financial Performance

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Capital structure and Financial Performance
This research proposal is intended to find out the effect of capital structure on the financial performance of Textile Company in the United States. The background of this study consists the elements capital structure involves debt finance, debt finance, and debt finance while the elements of financial performance are Earnings per share (EPS), Return on Equity (ROE) and Net Present Margin (NPM). The objective of the study will be to determine the impact of EPS, ROE, and NPM on sound financial performance.
The question of this research is how debt finance, equity finance, and retained earnings affect financial performance. The study formulated a hypothesis for testing is; there is no significant contribution of debt finance on financial performance (Kumar et.al.3450). The scope of the study is that the research will be conducted on Textile Company in the United States. The study will find out the effect of capital structure on financial performance. The research will take three months from March-July. The significance of the study will be how it will benefit the management of the Textile Company, employees, government, creditors and scholars.
Literature Review
This section will present the general overview of capital structure elements, financial performance as well as the relationship between capital structure and financial performance. Different scholars have tried to explain the capital structure. In general view of this, Pecking order theory states that different companies prioritize their sources of financing according to the cost of financing, and preferring to raise equity as a means of financing can be the last option. According to this theory, firms prefer internal financing, and they adjust their dividend policies to their investment opportunities (Anthill et.al.58). Trade-off theory states that firms should always come up with an optimal capital structure and this is through balancing the cost and benefits of the equity. Agency theory states that there exists a relationship between managers and shareholders and so there s...