Financial Studies (Jun 2016)
THE EFFECTS OF PROFITABILITY RATIOS ON DEBT RATIO: THE SAMPLE OF THE BIST MANUFACTURING INDUSTRY
Abstract
The factors affecting debt levels of firms are related to the course of economy as well as the profitability of companies. But it is quite difficult to make a prediction about the course of economy. In this study, it is aimed to reveal how profitability indicators of companies affect debt levels. The purpose of this study is to examine the relation between the debt and profitability ratios of the companies that operate on the BIST (Istanbul Stock Exchange Market) manufacturing industry by using Panel Regression Analysis. The data of the 86 companies within manufacturing industry on the BIST between the years 1994 and 2015 were used. Furthermore, the variables such as asset growth ratio, return on asset, current ratio, leverage ratio, cash rate, new borrowing rates, total financial liability/total liability ratio, return on equity, investment and earnings have been studied. It has been observed in the study that the active growth and the return on equity ratios affect the new borrowing variables positively while investment, current earnings per share ratios affect the new borrowing variables negatively. In addition, it has been determined in the study that the return on investment, the return on assets and the current ratios affect the leverage ratio negatively while the active growth, the return on equity, the earnings and the cash ratios per share affect the leverage ratios positively. It has also seen that the active return on assets and the earnings per share ratios affect the total financial liabilities/total liability ratios negatively while the asset growth ratios affect the total financial liabilities/total liabilities ratios positively.
