Asian Journal of Economics, Finance and Management

The capital structure of a firm is the mix of stock and debt it uses to maximize shareholder returns. One of the most important duties of every company's management is to find the ideal funding - a mix of equity and debt - where the cost of capital is decreased and the company's performance is maximized. The study attempts to solve how capital structure influences a company’s profitability. In this research we have considered Hotel Industry and Automobile Industry as they are 2 of the fastest growing industries of the Indian economy and accounts for about 8% and 9% of the country’s GDP respectively. The capital structure and profitability for the last 10 years of 5 major automobile and hotel firms are taken. To check if there is any relation between the capital structure variables and profitability variables, regression analysis is used. The effect of dependent variables (Debt Equity Ratio and Debt Asset Ratio) on the independent variables (Return on Assets, Return on Equity, Return on Capital Employed, & Net Profit Ratio) was found using Karl Pearson's correlation analysis. The comparison between capital structures of the selected industries is done using line graphs.