The relationship between companies’ perforemances and financial structure in construction companies in sri lanka

Abstract

Corporate finance is mainly concerned primarily three types of financial decisions which are investments, financing and dividend decisions. Financing decision which is capital structure decision is the fundamental one because it is directly affect to the profitability of a company. The successful selection and use of financial structure is one of the key elements of the firm’s financial strategy. The success of modern enterprises depends on the adoption and implementation of good management practices. According to the economic condition organizations should be change their corporate strategies to achieve the firms’ objective and goals. Therefore proper care and attention need to be given by organizations to determine the financial structure decision. The purpose of this study is to investigate the relationship between financial structure and performances of construction companies in Sri Lanka. The study is limited for seven corporate construction organizations in Sri Lanka. The study is achieved through three objectives which are organizations’ motivation with different financial arrangements, organizations’ performance with financial decision making under different economic conditions and relationship between organizations’ and financial structures. The data has been analyzed by using descriptive statistics and correlation analysis. Capital structure has been indicated through debt to equity, debt to Assets and Long term Debt to Assets and organizations’ performance has been indicated through Return on equity, Return on assets, Net Profit margin and Earnings per share .These measures are in accordance with typical corporate Performa measures. Results show that Long term and Equity shares are the major sources of finance in Sri Lankan Construction Corporate organizations. Further it has found While during an economic down, the companies are arranging their capital structure with retained earnings, less equities and less debt, it is arranged with equity shares and long term loan in an economic growth. It shows that negative relationship between financial structure and organizations’ performance except the association between capital structure indicators and Net Profit margin. Further results show that Sri Lankan Corporate construction organizations are the geared institutions as average level. Therefore capital structure measures will be a sound basis for financial measures for the corporate management in construction in Sri Lanka.