Evaluating the Nexus between Leverage and Profitability: With Specific focus on the Cement Industry

Abstract

In this study, the authors attempt to empirically investigate the relationship between the use of leverage and the profitability of listed firms in the cement industry. The main objective is to examine whether the level of debt affects the return on equity, return on assets, and net profit margins as proxies of profitability. The sample used for the empirical analysis is the seven major cement companies listed on the New York Stock Exchange (NYSE) for the period of 2012 to 2018. Panel data regression analysis is applied to the data to investigate whether any relationship exists between the variables. The study finds that financial leverage has a statistically significant inverse impact on profitability within the cement industry. The leverage variable of importance is debt to total assets, whereas the dependent variable of importance is the return on assets among the others evaluated. These findings would provide further insight to the players in the cement manufacturing industries worldwide in their capital structure decisions. It is quite relevant in current times, where economies are reviving themselves from the aftereffects of the pandemic, where the real estate sector is a fundamental contributor to economic outcomes.