The relationship between profitability and capital structure of the agricultural holdings in the Czech Republic

Jana Stekla and Marta Grycova
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Jana Stekla: Department of Economics, Faculty of Economics and Management, Czech University of Life Sciences in Prague, Prague, Czech Republic
Marta Grycova: Department of Economics, Faculty of Economics and Management, Czech University of Life Sciences in Prague, Prague, Czech Republic

Agricultural Economics, 2016, vol. 62, issue 9, 421-428

Abstract: Decision on the capital structure of an enterprise is very important because a bad decision can affect a company's profitability leading to a decrease in the shareholders value. The good financial decision can increase the market value of the owners' equity and poor financial decisions can decrease it. The main objective of financial decisions is to maximize the wealth of stockholders. The effect that capital structure decisions have on profitability and enterprise value is that it increases value through the present value of tax savings from the use of debt. The enterprises can use debt or equity capital to finance their assets. The best what they do is to mixture the debt and equity. This paper analyses how far the capital structure affects the profitability of agricultural holdings in the Czech Republic for a period of six years from 2008 to 2013. Data was obtained from the Albertina and was analysed by using the descriptive statistics, the correlation analysis and the regression analysis. The results show that there is a negative relationship between the short-term debt to the total assets and profitability, between the long-term debt to the total assets and profitability, and between the total debt to the total assets and profitability.

Keywords: long-term debt; regression; return on equity; short-term debt; total debt (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:62:y:2016:i:9:id:232-2015-agricecon

DOI: 10.17221/232/2015-AGRICECON

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