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Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange
Journal of Investment and Management
Volume 6, Issue 5, October 2017, Pages: 97-102
Received: Oct. 9, 2017; Accepted: Dec. 9, 2017; Published: Jan. 10, 2018
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Author
Peter Njagi Kirmi, Department of Business Administration, Chuka University, Chuka, Kenya
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Abstract
Capital structure is the mix of debt and equity that the firm uses in its operation. Managers utilize most of their substantial time in attempting to find the perfect capital structure in terms of risk/reward payoff for shareholders. This is true for both large and small companies trying to strategize on how much of equity and debt to be used without putting the business at risk. The main objective of this study was to determine the relationship between capital Structure and profitability of listed energy and petroleum companies in Kenya by establishing the relationship between long-term and short-term debts with profitability and its effects. Descriptive and causal research designs were used. The study target population was four energy and petroleum companies listed in NSE that operates in Kenya. A census all the 4 energy and petroleum companies listed in the Nairobi securities exchange was used. Secondary data used for data analysis was obtained from the companies financial statements for a period of five years from 2012 to 2016. Data analysis was done using inferential statistics using SPSS. The study established a strong positive relationship between short term debt and ROA and an average negative relationship between Long term debts and ROA and a weak positive relationship between total debt and ROA. Both the short term and long term debts were found to have no significant effect on ROA at 5% level of significance.
Keywords
Capital Structure, Long-Term Debt, Short-Term Debt, Return on Assets, Profitability
To cite this article
Peter Njagi Kirmi, Relationship Between Capital Structure and Profitability, Evidence From Listed Energy and Petroleum Companies Listed in Nairobi Securities Exchange, Journal of Investment and Management. Vol. 6, No. 5, 2017, pp. 97-102. doi: 10.11648/j.jim.20170605.11
Copyright
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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