Impact of financial leverage on financial performance: Evidence from textile sector of Bangladesh

Abstract

The principal intention of this paper is to find out the relationship between financial leverage and financial performance as well as to assess the impact of financial leverage on the financial performance of sample textile industries in Bangladesh. Debt-assets ratio & debt-equity ratio are proxy of financial leverage and return on assets and return on capital employed is proxy of the financial performance of sample textile industries. In this paper correlation and regression analysis have been conducted by SPSS-20 over the 5-years (2008 to 2012) sample data. In this study, result indicates statistically significant negative tie-up between debts-equity ratio to return on assets (-.293) and insignificant negative relationship between debts-equity ratio to return on capital employed (-.249) as well as statistically significant detrimental tie-up between debt-assets ratio to return on assets (- .285) and return on capital employed (-.335). Financial leverage insignificantly impacts the financial performance of the sample textile companies.