Leverage and profitability: case study in a Peruvian textile company

Abstract

The literature shows that leverage is a factor that motivates business growth, the different levels of debt are oriented to either the lowest cost or the term and are decisive to create greater value for the company. Considering these points, this study aims to determine the relationship between leverage and profitability in a textile industrial company in Santa Anita, from the period of 2014 to 2017. The study follows a non-experimental correlational design, developed through a non-probabilistic sample for convenience, formed by 48 monthly financial statements. The results determine that there is a significant and inverse relationship between operating leverage and profitability on assets, as well as between operating leverage and profitability on equity, and between operating leverage and profitability on capital employed. Likewise, it was determined that there is a significant and inverse relationship between the items of financial leverage and return on assets, financial leverage and profitability over and among the indicators of financial leverage and return on capital. Therefore, empirically, the items as a whole demonstrate considerable significance between leverage and profitability, establishing that the greater the leverage generated by the entity, its profitability has been reduced.