A Study on Financial Leverage and Financial Performance: A Case Study on KPR Mill Ltd

Abstract

The textile industry plays a vital role in the economy as it leads to generation of large employment and revenue through exports. Financial leverage i.e., the use of debt capital to finance its operations, is the important element which influences the viability and profitability of the companies. This research paper studies the impact of financial leverage on the financial performance of KPR Mills Ltd., a textile company. To study this impact, various financial ratios like debt-equity ratio, return on Assets, return on Equity, Dividend Payout Ratio, Earnings Per Share, Net Profit Margin, Current Ratio, Interest Coverage Ratio and Asset Turnover Ratios are used. Descriptive statistics is used for the analysis of the study. The study finds that there is positive relationship between DER and financial performance of the company. But the study also highlights that there are various other factors like operational efficiency, management abilities that influence the company’s performance.