Most Influencing Factors on

Capital Structure Decision as

Manifested in Profitability vis--vis
Industry Average of the Selected
Manufacturing Corporations in
Metro Manila
A Research Paper Presented in the Faculty of College of Business
Management Major in Finance and Treasury Management

September 2015
The Authors
Angelique J. Ginete, CFMP
(Global Reconciliations Analyst at Northern Trust Corporation)
Leader

Maribeth B. Mendoza
(Analyst at Northern Trust Corporation)
Assistant Leader

Members:
Eunice D. Jimenez, CFMP (Analyst at Smart Communications)
Mary Ellaine A. Juanzo, CFMP (Financial Analyst at CGI Philippines)
Patrick Jan M. Milo, CFMP (Analyst at AQR Capital Management)
Klensch Kenrick V. Lagman, CFMP (Analyst at Factset)
Angela Nichole C. Macandog, CFMP (Financial Analyst at RCBC)
Judy Ann C. Moralde, CFMP (A/R Recovery Specialist at TSI)
Bryce Jenard C. Hernandez
Introduction

Through the years, the corporate world has been

continuously changing, from the conventional course
of business to a modern, contemporary approach.

Capital structure is a term that describes the

proportion of companys capital or operating money
that is obtained through debt versus the proportion
obtained through equity.

To consistently earn a profit is every companys goal.

Statement of the Problem
Main Problem :
Is there a significant impact of the most influencing factors on capital
structure decision to profitability vis--vis industry average of the selected
manufacturing corporations in Metro Manila?
Sub Problems:
What is the company profile of the respondents as to :
a. Nature of the business
b. Number of years in operation
c. Number of employees
d. Present size of capital
Which factors on capital structure decision mostly influenced the profitability of the
respondents?
What are the profitability ratios of the respondents in terms of:
a. Profit Margin
b. Return on Equity
Is there a significant difference on the profitability ratios of the respondents as contributed by the
most influencing factors on capital structure decision in terms of:
a. Profit Margin
b. Return on Equity
Research Methodology
Research Design
The researchers used the descriptive research method to gather more
pertinent facts about the study which enabled us to have sufficient and
precise understanding of the data gathered.

Research Locale
Selected manufacturing corporations in Makati City, Pasig City,
Valenzuela City, Manila City and Quezon City.

Description of the Respondents

In order to determine the factors considered in making capital structure
and how it affects profitability, the accounting head or the financial managers
of each firm was selected as respondents.

Population Frame
30 manufacturing companies, all of which are stock corporations
registered in Securities and Exchange Commission (SEC).
Instrumentation
Researchers have employed survey-questionnaires on the said
manufacturing firms to collect the most accurate and most relevant data.
For the profitability, we have downloaded their financial statements by
using the online system of SEC.

Data Gathering Procedure

The researchers have searched manufacturing firms located in Metro
Manila through the use of the online service provided by SEC and the
contact numbers of the selected manufacturing firms were acquired in
order for them to ask permission upon the floating of the questionnaires.

The profitability ratios were already computed using the respondents 2013
financial statements and such ratios were compared to the industry
average to analyze whether the companys ratio is in accordance with the
set industry average.
Research Paradigm Intervening Variable

Company Profile:
a. Nature of business
b. Number of years
in operation
c. Number of
employees
d. Present size of
capital

Independent Variable Dependent Variable

Most Influencing Companys

Factors on Profitability
capital vis--vis
Structure Industry
Decision Average

Figure 1: Research Paradigm of the impact of the most influencing factors on capital structure decision as
manifested in profitability vis--vis industry average of the selected manufacturing firms in Metro Manila.
Statistical Treatment
Frequency and Percentage Distribution
Used to classify and to present the actual response of the respondents to the
specific item in the questionnaire that talks about their company profile.
% = f/n x 100
Where % = percentage; f= frequency; and n = total number of respondents

Mean
Used to determine the average ranking of the factors according to the priorities of
the respondents.

Ranking
Used for the intention of determining which factors most influenced the capital
structure decision of the respondents.
Conclusion
After thorough analysis of the data gathered and the results of the statistical
treatment, the researchers have come up to the following conclusions:

1. The company profiles of the respondents are determined according to the

nature of business, age, size, and present size of capital.
a. Most of the respondents are manufacturing garments and food.
b. Majority of the respondents have already established a name in the
industry where they belong.
c. Most of the companies are large enough for they were able to acquire and
maintain more than 200 employees.
d. The present size of capital ranges from Php 1,000,000 25,000,000
depending on the need for capital to be able to run the daily operation of the
business.

2. The top most influencing factors on capital structure decision are Profitability,
Sales Stability, and Growth Rate.
3. The respondents Profit Margin and Return on Equity are as follows:
Company Profit Return on Company Profit Return on
Margin Equity Margin Equity
1 5.17% 3.28% 16 0.55% 6.78%
2 -45.06% 35.97% 17 082% 8.50%
3 0.05% 5.23% 18 1.84% 5.04%
4 -25.38% 60.45% 19 5.12% 9.80%
5 23.40% 28.98% 20 0.10% 7.00%
6 -36.17% 18.30% 21 4.75% 63.05%
7 3.73% 3.21% 22 5.13% 26.66%
8 1.00% 12.00% 23 2.38% 112.92%
9 9.72% 36.46% 24 0.78% 3.98%
10 7.11% 10.17% 25 2.11% 4.32%
11 177.00% 23.00% 26 4.66% 16.15%
12 3.04% 2.10% 27 2.66% 31.20%
13 4.91% 58.02% 28 6.26% 24.56%
14 1.25% 2.25% 29 1.49% 17.56%
15 0.24% 6.00% 30 12.57% 25.54%
4. There is a significant difference on the profitability of the respondents as contributed by the most
influencing factors on capital structure decision. Other companies are much profitable compared to
others because of the difference on the factors that they considered to be most leading.

5. There is a significant impact of the most influencing factors on capital structure decision to
profitability vis-a-vis industry average of the respondents.
For the top most influencing factor: Profitability and Asset Structure, lead to a favorable
level of profitability. Sales Stability, however lead to an unfavorable one.
For the second most influencing factor: Sales Stability and Profitability lead to a fair
level of profitability to the company. Growth and Internal Condition lead to a favorable one.
For the third most influencing factor, Growth, Sales Stability and Market Condition lead
to a fair level of profitability. Asset Structure lead to a favorable one. Management Control lead
to unfavorable level and lastly, Operating Leverage lead to an exceptionally favorable level of
profitability to the company.
Recommendations
Based on the results, the following recommendations are suggested:

1. In order for the manufacturing firms to have a favorable level of profitability, it is

recommended for them to adapt and prioritize the following factors upon making capital
structure decision : Profitability, Asset Structure, Growth, Internal Condition,
Flexibility, and Operating Leverage.

2. The manufacturing firms, especially the ones with unfavorable to exceptionally

unfavorable level of profitability may reconsider the way they prioritize the factors
considered in making capital structure decision.

3. The manufacturing firms must consider the balance between the said capital structure
factors and the factors concerning a firms profitability in order to come up with a good mix
of business plan.

4. Future researchers may limit their study to a particular business in manufacturing industry
to determine whether the variance is because of the nature of the business or they may
relate the factors to the firms liquidity and solvency.

5. Future researchers may investigate generalizations of the findings beyond manufacturing

firms in local area.
Questions?