CAPITAL STRUCTURE AND PROFITABILITY ANALYSIS IN INDUSTRIAL COMPANIES: EVIDENCE FROM JORDAN

Abstract

The aim of this study was to investigate the relationship between capital structure and profitability in industrial companies. The study collected data by reviewing the annual financial reports of 32 industrial firms during the period from 2012 to 2022. An analytical descriptive approach was adopted to analyze the data and explore the impact of various financial variables on profitability, measured in terms of Return on Assets (ROA) and Earnings per Share (EPS). The analysis of the data yielded significant findings concerning the interplay of different financial metrics with profitability. Notably, the study revealed that the debt ratio, debt-to-equity ratio, and short-term debt displayed a negative correlation with profitability. These results suggest that higher levels of debt and short-term obligations might have adverse effects on both ROA and EPS, potentially hampering the financial performance of industrial companies in Jordan. Additionally, the study identified a positive association between sales growth and firm size with profitability. This implies that companies experiencing higher sales growth and operating on larger scales tend to exhibit improved profitability, as reflected in both ROA and EPS. Such findings indicate that expanding sales and operating at a larger size can be beneficial for enhancing the financial performance of industrial firms in the Jordanian market. Based on the study's results, it is recommended that industrial companies in Jordan carefully assess their capital structure decisions, keeping in mind the potential impact on profitability. Minimizing debt levels and ensuring a balanced mix of long-term and short-term obligations can help mitigate adverse effects on ROA and EPS.