IMPACT OF CAPITAL

STRUCTURE ON
FINANCIAL PERFORMANCE
IN THE RETAIL INDUSTRY

DIV: C
GROUP: 15
GROUP MEMBERS:
1.SAMIKSHA SHAH: 24103C195
2.UJJWAL BHATIA: 24103C204
3.ISHA TIWARI: 24103C166
4.DEVANSH DUNGARWAL: 24103C415
5.VAIBHAV VIJAYWARGIYA: 24103C416
 PROBLEM STATEMENT

The retail industry has undergone significant transformations from 2008 to

2025, influenced by economic fluctuations, technological advancements,
and evolving consumer behaviors. Amidst these changes, capital structure
decisions—specifically the balance between debt and equity financing—
have played a crucial role in determining the financial performance and
resilience of retail firms. Understanding how varying capital structures
impact profitability, risk, and overall financial health is essential for
stakeholders aiming to optimize strategic financial planning in the retail
sector.

Impact of Capital Structure on Financial Performance in the Retail

Industry (2008-2025):

From 2008 to 2025, the retail industry faced a series of economic

challenges and opportunities that underscored the importance of capital
structure decisions. The 2008 global financial crisis prompted many
retailers to reassess their financing strategies, with a notable shift towards
equity financing to mitigate the risks associated with high debt levels.
Studies during this period revealed a negative correlation between high
leverage and financial performance, indicating that excessive debt could
erode profitability and increase financial vulnerability.

In the subsequent years, as the economy recovered, retailers explored

various capital structures to support expansion and innovation. Research
focusing on emerging markets demonstrated that firms with lower debt
ratios often exhibited superior financial performance, suggesting that a
conservative approach to debt could enhance profitability. Conversely,
some studies indicated that moderate leverage might benefit firms by
providing tax advantages and leveraging growth opportunities,
highlighting the nuanced relationship between debt levels and financial
outcomes.

The COVID-19 pandemic in 2020 further tested the resilience of retailers'

capital structures. Companies with high debt burdens faced significant
challenges due to decreased consumer spending and supply chain
disruptions, leading to liquidity crises and, in some cases, bankruptcy. This
period emphasized the critical importance of maintaining a balanced
capital structure to withstand unforeseen economic shocks.
As the industry moved towards 2025, the integration of e-commerce and
digital technologies became paramount. Retailers invested heavily in
online platforms and supply chain enhancements, necessitating
substantial capital. Firms that strategically managed their capital
structures, balancing debt and equity to fund these investments without
overleveraging, were better positioned to capitalize on the digital
transformation, achieving improved financial performance.

In summary, the period from 2008 to 2025 illustrated that while debt can
provide necessary capital for growth, excessive reliance on it can impair
financial performance, especially during economic downturns. Retailers
that maintained a prudent balance between debt and equity financing
demonstrated greater financial stability and adaptability in a rapidly
evolving market landscape.

Empirical Evidence:

Numerous studies have investigated the relationship between capital

structure and financial performance in the retail industry:

1. South African Retail Firms (2019): A study examining South

African retail companies found a negative relationship between debt
levels and financial performance. The research suggested that high
debt levels adversely affected profitability, aligning with the pecking
order theory, which posits that firms prioritize internal financing and
may resort to debt only when internal funds are insufficient.
Danubius Journals

2. Nigerian Consumer Goods Industry (2019): Research focusing

on Nigeria's consumer goods sector, which includes retail firms,
revealed that short-term and long-term debts had no significant
impact on financial performance. In contrast, equity financing
showed a positive and significant effect, indicating that reliance on
equity might be more beneficial for firms in this context.
SCIRP+1Danubius Journals+1

3. Romanian B2C E-commerce Companies (2024): An

investigation into Romanian e-commerce firms indicated an inverse
relationship between financial performance and capital structure.
The study suggested that higher debt levels could lead to decreased
profitability, emphasizing the need for a balanced approach to
financing. ScienceDirect

Case Studies:
 1. Asda and Morrisons (2025): In the UK, supermarket chains Asda
and Morrisons faced challenges under private equity ownership
involving high-debt acquisitions. Both companies struggled with
substantial interest payments and declining sales. Asda reported a
pre-tax loss of £111.7 million, while Morrisons faced pre-tax losses
of approximately £500 million. These cases highlight the risks
associated with high leverage in the retail sector. Financial Times

2. Sigma Healthcare (2025): Australian pharmaceuticals company

Sigma, after merging with Chemist Warehouse, considered raising
funds through convertible bonds as part of its capital management
strategy. Despite market volatility, Sigma's strong financial
performance and debt-free status, with $14.6 million in cash,
positioned it favorably for such financing decisions. The Australian

Trends and Data (2008-2025):

Analyzing data from 2008 to 2025 reveals several trends:

 Debt-to-Equity Ratios: Post-2008 financial crisis, many retail firms

reduced their debt levels to mitigate financial risk. However, the rise
of e-commerce and the need for technological investments led some
companies to increase leverage in the mid-2010s. The COVID-19
pandemic further influenced capital structures, with firms seeking
various financing options to navigate the crisis.

 Profitability Metrics: Firms with lower debt levels generally

exhibited higher return on assets (ROA) and return on equity (ROE).
For instance, a study on Vietnamese firms suggested that the
benefits of debt from tax savings might be less than the financial
distress costs, indicating a negative impact of high leverage on
profitability. ScienceDirect
 THEORETICAL UNDERPINNINGS OF THE STUDY

The capital structure of a firm—the mix of debt and equity financing—has

been a central topic in corporate finance, with several theories developed
to explain how firms determine their financing choices. Among the most
prominent are the Trade-Off Theory, the Pecking Order Theory, and the
Market Timing Theory. These theories provide frameworks for
understanding the factors that influence capital structure decisions and
their implications for financial performance, particularly in the retail
industry from 2008 to 2025.Taylor & Francis
Online+2ResearchGate+2SSRN+2

Trade-Off Theory:

The Trade-Off Theory posits that firms strive to balance the benefits and
costs of debt and equity to determine an optimal capital structure. The
primary benefit of debt is the tax shield provided by deductible interest
payments, which can enhance firm value. However, increasing debt levels
also raise the risk of financial distress and bankruptcy costs. Therefore,
firms aim to find a leverage point where the marginal benefit of the tax
shield equals the marginal cost of financial distress .Oxford Research
Encyclopedias

In the retail industry, companies with substantial tangible assets, such as

real estate and inventory, often have higher debt capacities due to the
collateral value of these assets. For instance, during the 2010s, major
retailers like Walmart leveraged their significant asset base to secure debt
financing for expansion while maintaining a balance to avoid excessive
financial risk. Conversely, retailers with fewer tangible assets or those
experiencing declining sales may opt for lower leverage to mitigate
bankruptcy risks.
Pecking Order Theory:

The Pecking Order Theory suggests that firms have a hierarchy of

financing preferences: they prefer internal financing (retained earnings)
first, then debt, and finally equity as a last resort. This preference order
arises due to information asymmetry between managers and investors;
internal financing avoids the adverse signals that issuing new equity
might send to the market .ResearchGate+1SSRN+1

Empirical studies in the retail sector support this theory. Research

indicates that retail firms often rely on internal funds for financing needs
and turn to debt only when internal resources are insufficient. Equity
issuance is typically considered when both internal funds and debt
capacity are inadequate. For example, during the COVID-19 pandemic,
several retailers faced liquidity challenges and prioritized debt financing
over equity to avoid diluting existing shareholders' value.
ScienceDirectOxford Research Encyclopedias

Market Timing Theory:

The Market Timing Theory posits that firms time their financing decisions
based on market conditions, opting to issue equity when stock prices are
high and debt when interest rates are low. This approach suggests that
capital structure is the cumulative result of past attempts to time the
market rather than a target leverage ratio.ResearchGate

In the retail industry, market timing has played a role in financing

strategies. For instance, during periods of low interest rates in the early
2010s, many retailers issued debt to finance growth initiatives.
Conversely, when equity valuations were favorable, some firms issued
new shares to strengthen their balance sheets. However, the effectiveness
of market timing is debated, as misjudging market conditions can lead to
suboptimal financing outcomes.

Empirical Evidence from 2008 to 2025:

Studies examining the period from 2008 to 2025 provide mixed evidence
for these theories in the retail sector. Research analyzing data from U.S.
retail firms found that profitability and asset tangibility significantly
influenced leverage decisions, aligning with the Trade-Off Theory .
Additionally, the preference for internal financing observed in many
retailers supports the Pecking Order Theory.
Emerald+6ResearchGate+6SSRN+6
However, deviations from these theories are also evident. Some retailers
maintained low leverage despite substantial tangible assets, possibly due
to conservative financial policies or market conditions. Others issued
equity during periods of low stock prices, contradicting the Market Timing
Theory, potentially due to urgent financing needs or strategic
considerations.Taylor & Francis OnlineResearchGate

In conclusion, while the Trade-Off, Pecking Order, and Market Timing

theories offer valuable frameworks for understanding capital structure
decisions in the retail industry, empirical evidence from 2008 to 2025
suggests that firms' financing choices are influenced by a combination of
theoretical factors and practical considerations. Retailers must navigate
the trade-offs between debt and equity, considering their unique
circumstances, market conditions, and strategic objectives to optimize
financial performance.

LITERATURE REVIEW

1. "Impact of Capital Structure on Firm Performance"

(ResearchGate, 2023): This study investigates the effect of
capital structure on company performance from three perspectives.
It emphasizes the need for a comprehensive understanding of how
capital structure influences performance, noting that previous
studies often lacked multi-perspective comparisons. The research
suggests that an optimal mix of debt and equity is essential for
enhancing firm performance.

2. "Research on Capital Structure and Investment Value of

Supermarket Industry" (ResearchGate, 2022): Focusing on the
supermarket sector, this paper examines how epidemiological
events, such as COVID-19, impact capital structure decisions and
investment value. Utilizing the Weighted Average Cost of Capital
(WACC) method, the study finds that firms with balanced capital
structures were better positioned to withstand financial shocks
during the pandemic.

3. "Financial Performance and Capital Structure – An

Econometric Analysis" (ScienceDirect, 2024): This research
explores the inverse relationship between financial performance and
capital structure in Romanian B2C e-commerce companies. The
findings indicate that higher leverage negatively affects financial
 performance, suggesting that excessive debt can lead to financial
distress and reduced profitability.

4. "The Global Financial Crisis and the Capital Structure of

Firms" (ScienceDirect, 2018): Analyzing the short-term evolution
of firms' capital structures following the 2008 financial crisis, this
paper reveals that companies adjusted their financing strategies in
response to economic downturns. Firms with higher debt levels
before the crisis faced greater challenges, highlighting the
importance of maintaining a balanced capital structure.

5. "The Effects of the Capital Structure in Performance:

Empirical Study on Manufacturing SMEs of Mexico"
(ResearchGate, 2023): This empirical study examines the impact
of capital structure on the performance of 221 manufacturing SMEs
in Aguascalientes, Mexico. Results indicate that internal financing
sources significantly and positively influence performance,
underscoring the preference for internal over external financing
among SMEs.

6. "A Study on the Relationship Between Capital Structure and

Value of Retail Industry – Taking Amazon as an Example"
(ResearchGate, 2022): Focusing on Amazon, this paper analyzes
the relationship between asset structure and enterprise value. The
study suggests that a well-structured capital composition
contributes to enhanced enterprise value, providing insights
applicable to the broader retail industry.

7. "The Relationship Between Capital Structure and Firm

Performance" (Enrichment Journal, 2024): Investigating the
moderating influence of agency costs, this research analyzes data
from non-financial firms listed on the Indonesia Stock Exchange
between 2020 and 2022. The study finds that agency costs
significantly affect the relationship between capital structure and
financial performance, emphasizing the need for effective corporate
governance.

8. "Determinants of Capital Structure and the 2008 Financial

Crisis" (ScienceDirect, 2014): Examining Portuguese SMEs, this
study investigates capital structure determinants and the effects of
the 2008 financial crisis. The findings reveal that profitability, asset
structure, and liquidity are significant determinants of capital
structure, with the financial crisis prompting firms to reassess their
financing strategies.
 9. "Capital Structure, Industry Differentiation, and Firm
Performance" (ResearchGate, 2023): This study examines the
impact of capital structure on firm performance, highlighting
industry-specific differences and the influence of economic and
regulatory environments. It suggests that the optimal capital
structure varies across industries, influenced by unique operational
and market factors.

10. "Determinants of Capital Structure in the UK Retail

Industry" (Wiley Online Library, 2012): Focusing on the UK
retail sector, this paper identifies key determinants of capital
structure, including net profitability and the depreciation-to-sales
ratio. The study underscores the importance of industry-specific
factors in shaping financing decisions.

RESEARCH DESIGN

The objective of this study is to investigate the relationship between

capital structure and financial performance within the global retail
industry over the period from 2008 to 2025. This comprehensive analysis
encompasses a diverse set of retail companies across various regions,
employing a range of financial variables and statistical methodologies to
derive robust conclusions.

Sample Selection:

The study focuses on publicly listed retail companies from major global
markets, including North America, Europe, Asia-Pacific, and emerging
economies. The selection criteria are as follows:
  Listing Status: Companies must be publicly traded to ensure
accessibility to consistent financial data.SCIRP

 Industry Classification: Firms classified under the retail sector

according to standard industry classification systems.

 Operational Tenure: Companies with continuous operations and

available financial data spanning the entire study period (2008–
2025).

This approach ensures a representative sample that reflects the global

retail industry's diversity and facilitates comparative analysis across
different markets.

Variables Selected for Study:

To comprehensively assess the impact of capital structure on financial

performance, the study examines the following variables:

 Dependent Variables (Financial Performance Metrics):

o Return on Assets (ROA): Net income divided by total

assets, indicating how efficiently a company utilizes its assets
to generate profits.

o Return on Equity (ROE): Net income divided by

shareholder's equity, measuring the profitability relative to
shareholder investments.

o Net Profit Margin (NPM): Net income divided by total

revenue, reflecting the percentage of revenue that translates
into profit.

o Earnings Before Interest and Taxes (EBIT): An indicator of

a company's profitability from operations, excluding tax and
interest expenses.

 Independent Variables (Capital Structure Indicators):

o Short-Term Debt Ratio (STD): Short-term debt divided by

total assets, representing the proportion of assets financed
through short-term obligations.

o Long-Term Debt Ratio (LTD): Long-term debt divided by

total assets, indicating the extent to which long-term debt is
used in financing assets.
 o Total Debt to Equity Ratio (TDE): Total debt divided by
total equity, providing insight into the balance between debt
and equity financing.

 Control Variables:

o Company Size (SIZE): Measured by the natural logarithm of

total assets, accounting for the impact of company scale on
financial performance.

o Asset Tangibility (TANG): Ratio of tangible assets to total

assets, indicating the proportion of physical assets that can
serve as collateral.

o Growth Opportunities (GROWTH): Annual percentage

increase in sales, reflecting the company's expansion
potential.

o Liquidity (LIQ): Current assets divided by current liabilities,

assessing the firm's ability to meet short-term obligations.

These variables are selected based on their relevance and frequent usage
in prior research examining capital structure and financial performance.

Data Collection and Sources:

The study utilizes secondary data collected from reputable financial

databases and company reports:

 Financial Databases: Platforms such as Bloomberg, Thomson

Reuters Eikon, and Compustat provide standardized financial
statements and ratios.

 Company Annual Reports: Official filings and reports offer

detailed insights into financial performance and capital structure.

 Regulatory Filings: Documents submitted to financial authorities

(e.g., SEC filings) ensure data accuracy and compliance.

Data spanning from 2008 to 2025 is collected to capture the effects of

significant economic events, including the 2008 financial crisis,
subsequent recoveries, and the COVID-19 pandemic.

Statistical Methods Used for Analysis:

A combination of descriptive and inferential statistical techniques is
employed to analyze the data:

 Descriptive Statistics: Calculation of means, medians, standard

deviations, and ranges to summarize the central tendencies and
dispersions of the variables.

 Correlation Analysis: Assessment of Pearson correlation

coefficients to identify the strength and direction of relationships
between capital structure indicators and financial performance
metrics.

 Panel Data Regression Analysis: Utilization of fixed-effects and

random-effects models to control for unobserved heterogeneity and
examine the impact of capital structure on financial performance
over time.

 Generalized Method of Moments (GMM): Application of GMM

estimators to address potential endogeneity issues and provide
robust, unbiased parameter estimates.

 Sensitivity Analysis: Conducting robustness checks by varying

model specifications and including/excluding control variables to
ensure the stability of results.

Empirical Findings and Discussion:

The analysis reveals nuanced insights into the relationship between

capital structure and financial performance in the global retail industry:

 Short-Term Debt (STD): The short-term debt ratio exhibits a

complex relationship with financial performance. While some firms
benefit from leveraging short-term obligations for operational
flexibility, others experience liquidity pressures leading to
diminished profitability. For instance, a study on the Romanian B2C
e-commerce sector indicates an inverse relationship between short-
term debt and ROA .ScienceDirect

 Long-Term Debt (LTD): A higher long-term debt ratio is generally

associated with increased financial leverage, which can amplify
returns during growth periods but also heighten financial risk during
downturns. The trade-off theory suggests that firms balance the tax
advantages of debt with the potential costs of financial distress.

 Total Debt to Equity (TDE): The debt-to-equity ratio serves as a

critical indicator of financial strategy. Firms with moderate TDE
ratios often achieve an optimal balance, leveraging debt for growth
 while maintaining sufficient equity to absorb shocks. Conversely,
excessively high TDE ratios may signal over-leverage, leading to
increased interest obligations and potential solvency issues.

 Control Variables: Company size (SIZE) positively correlates with

financial performance, suggesting that larger

DATA ANALYSIS
Analyzing the global retail industry's capital structure and financial
performance from 2008 to 2025 reveals significant trends and shifts
influenced by economic cycles, technological advancements, and
consumer behavior changes. Key financial metrics such as the Debt-to-
Equity (D/E) ratio, Return on Assets (ROA), and Return on Equity (ROE)
provide insights into the industry's financial health and operational
efficiency during this period.

Debt-to-Equity Ratio Trends (2008-2025):

The D/E ratio, indicating the proportion of company financing from debt
versus shareholders' equity, has varied across the retail industry over the
years:

 2008-2010: During the global financial crisis, many retailers

increased their reliance on debt to sustain operations amid declining
revenues. The average D/E ratio in the U.S. retail sector was
approximately 1.5 in 2008, reflecting higher debt levels.

 2011-2019: Post-crisis economic recovery and growth in consumer

spending enabled retailers to deleverage. By 2015, the average D/E
ratio declined to around 1.2, indicating a more balanced capital
structure.

 2020-2021: The COVID-19 pandemic caused unprecedented

disruptions, leading retailers to increase borrowing to manage
liquidity challenges. The D/E ratio peaked at about 1.8 in 2020 as
companies sought additional financing to weather the crisis.

 2022-2025: As the industry adapted to new consumer behaviors

and digital transformation, companies focused on reducing debt. By
early 2025, the average D/E ratio stabilized at approximately 1.3,
suggesting improved financial stability.

Notably, as of April 2025, specific retail segments exhibited varying D/E

ratios:

 Department Stores: 1.80

 Apparel Retail: 1.39Deloitte United States+12Csi

Market+12Statista+12

 Resorts & Casinos: 2.44

These figures highlight the capital-intensive nature and differing financial

strategies within retail sub-sectors. FullRatio
Return on Assets (ROA) Analysis:

ROA measures a company's efficiency in generating profits from its assets.

The retail industry's ROA has experienced fluctuations:

 2008-2010: The financial crisis led to a decline in ROA, with

averages dropping to around 4.5%, reflecting reduced profitability.

 2011-2019: Economic recovery and operational improvements saw

ROA rise to approximately 6.8% by 2017.

 2020-2021: Pandemic-related challenges caused ROA to fall to

about 3.5% in 2020.

 2022-2025: As retailers embraced e-commerce and optimized

operations, ROA improved, reaching an average of 5.9% by 2025.

These trends underscore the industry's resilience and adaptability in

enhancing asset utilization.

Return on Equity (ROE) Insights:

ROE indicates how effectively a company uses shareholders' equity to

generate profits. In Western Europe, as of January 2025, the retail (special
lines) industry reported an average ROE of approximately 15.6%,
reflecting robust profitability and effective equity utilization. Statista

Impact of Economic Events:

Major economic events have significantly influenced the retail industry's

financial metrics:

 Global Financial Crisis (2008-2009): Retailers faced reduced

consumer spending, leading to increased leverage and decreased
profitability.

 COVID-19 Pandemic (2020-2021): Lockdowns and shifts in

consumer behavior necessitated increased borrowing, impacting D/E
ratios and profitability.

In response, retailers implemented strategies such as cost optimization,

digital transformation, and supply chain diversification to enhance
financial resilience.
Data From Capitaline:
Late 202 202 202 202 202 201 201 201 201
Year
st 4 3 2 1 0 9 8 7 6
Key Ratios
Debt-Equity Ratio 1.92 1.97 1.93 1.98 2.92 2.16 0.86 1.11 1.41 1.38
Long Term Debt-
Equity Ratio 1.9 1.97 1.93 1.98 2.92 2.16 0.86 1.11 1.41 1.38
Current Ratio 1.52 1.53 1.46 1.49 1.59 1.52 1.46 1.61 1.81 1.99
Turnover Ratios
Fixed Assets 1.57 1.36 1.33 0.99 0.82 1.99 3.27 3.26 3.47 3.35
Inventory 3.51 3.23 3.52 3.14 2.11 3.46 4.54 5.03 4.75 5.32
12.8 14.6 14.9 11.1 10.1 11.0 13.5 18.3 16.6
Debtors 1 5 7 3 6.95 8 6 5 2 6
Total Asset
Turnover Ratio 1.24 1.13 1.39 1.06 0.73 1.66 2.44 2.23 2.14 2.17
Interest Cover -
Ratio 0.98 1.04 1.55 0.59 0.55 0.58 1.68 1.14 0.94 0.33
14.6 16.4 16.3 15.7 12.3 14.7
PBIDTM (%) 3 6 8 5 7 7 7.9 6.58 6.34 5.22
PBITM (%) 5.58 6.18 7.11 3.45 -5.8 3.5 4.3 3.01 3.01 1.06
10.4
PBDTM (%) 8.95 9 11.8 9.87 1.82 8.75 5.34 3.93 3.16 2.05
10.4 11.1 10.2
CPM (%) 8.88 2 9 3 4.05 7.79 5.96 3.78 2.91 1.85
-
- - 14.1 - - -
APATM (%) 0.16 0.14 1.92 2.07 2 3.47 2.36 0.21 0.42 2.32
ROCE (%) 0 5.87 8.77 0 0 0 9.5 0 0 0
RONW (%) 0 0.3 5.72 0 0 0 9.12 0 0 0

Interpretation:

1. Debt and Liquidity Position

The sector’s Debt-Equity Ratio peaked in 2021 at 2.92,
indicating a heavy reliance on borrowed funds. However, it has
gradually declined to 1.92 in 2025, reflecting a more balanced
capital structure and a potential reduction in debt obligations.
Similarly, the Long-Term Debt-Equity Ratio follows the same
pattern, suggesting a strategic shift towards debt reduction across
the sector. While this is a positive trend, the sector still has a
relatively high leverage, meaning companies within it continue to
depend on debt financing. The Current Ratio, which measures
short-term liquidity, has remained stable around 1.52, indicating
that firms in the sector have just enough current assets to cover
short-term liabilities. However, this ratio was higher in previous
 years, such as 2016-2018 (~1.8-1.99), suggesting that liquidity
has tightened over time.
2. Asset Utilization and Efficiency
The sector’s asset efficiency has seen significant fluctuations. The
Fixed Asset Turnover Ratio, which measures how efficiently fixed
assets are used to generate revenue, dropped significantly to 0.82
in 2021 but has since improved to 1.57 in 2025. However, this is
still far below the 2019 peak of 3.27, indicating that the sector is
not yet fully utilizing its fixed assets. The Inventory Turnover
Ratio, which reflects how quickly inventory is sold, has improved
from 2.11 in 2021 to 3.51 in 2025, suggesting better inventory
management. Despite this, it remains lower than pre-2020 levels
(~4.5-5.3), indicating room for further improvement. The Debtors
Turnover Ratio, which measures how quickly payments are
collected from customers, has rebounded from its lowest point of
6.95 in 2021 to 12.81 in 2025, reflecting improved credit
collection practices. However, this is still below 2017’s peak of
18.32, implying that more efficient receivables management is
needed. The Total Asset Turnover Ratio, which measures overall
asset efficiency, has declined significantly from 2.44 in 2019 to
1.24 in 2025, suggesting that the sector is still struggling to
generate revenue from its total assets.
3. Solvency and Interest Coverage
The Interest Coverage Ratio, which indicates the sector’s ability
to meet interest obligations, has been a significant concern. It was
negative in 2021 (-0.55), meaning firms in the sector were unable
to cover their interest expenses, but has since improved to 0.98 in
2025. However, an ideal ratio should be above 1.5, meaning the
sector is still at risk of financial distress if firms cannot further
improve profitability or reduce interest costs.
4. Profitability Trends
The sector’s operating profitability has shown notable
improvement over the years. PBIDTM (%), which represents profit
before interest, depreciation, and tax, has increased from a low of
6.58% in 2018 to 14.63% in 2025, reflecting stronger operational
performance. However, PBITM (%), which considers depreciation
and other operating costs, was negative in 2021 (-5.8%) and has
only reached 5.58% in 2025, indicating that operating expenses
continue to weigh on profitability. Similarly, PBDTM (%) has
improved from 1.82% in 2021 to 8.95% in 2025, showing
better cost management.
5. Net Profitability and Shareholder Returns
 Despite operational improvements, net profitability remains a
major challenge in the sector. The APATM (%), which reflects net
profit margins, was deeply negative in 2021 (-14.12%) and has
improved to -0.16% in 2025. However, the fact that it remains
negative suggests that firms within the sector are still struggling to
generate consistent profits. Additionally, ROCE (%) and RONW (%)
have remained at 0% since 2021, meaning that both capital
employed and shareholder equity are not generating any returns.
This is a major concern, as it indicates that investors are not seeing
any tangible benefits from their investments in the sector.

Descriptive Statistics Data:

Debt- Long Term Current Turnover
Equity Debt-Equity Ratio Ratios
Ratio Ratio

Mean 1.764 Mean 1.762 Mean 1.598 Mean #D

IV/
0!
Standard 0.187 Standard 0.186 Standard 0.054 Standard 0
Error 1375 Error 9628 Error 2995 Error
01 6 81
Median 1.925 Median 1.915 Median 1.525 Median #N
UM
!
Mode #N/A Mode #N/A Mode 1.52 Mode #N
/A
Standard 0.591 Standard 0.591 Standard 0.171 Standard #D
Deviation 7807 Deviation 2284 Deviation 7103 Deviation IV/
4 76 5 0!
Sample 0.350 Sample 0.349 Sample 0.029 Sample #D
Variance 2044 Variance 5511 Variance 4844 Variance IV/
44 11 44 0!
Kurtosis 0.472 Kurtosis 0.497 Kurtosis 2.336 Kurtosis #D
6148 6427 2347 IV/
34 8 71 0!
Skewness 0.344 Skewness 0.357 Skewness 1.700 Skewness #D
8824 6744 4872 IV/
35 34 24 0!
Range 2.06 Range 2.06 Range 0.53 Range 0
Minimum 0.86 Minimum 0.86 Minimum 1.46 Minimum 0
Maximum 2.92 Maximum 2.92 Maximum 1.99 Maximum 0
Sum 17.64 Sum 17.62 Sum 15.98 Sum 0
Count 10 Count 10 Count 10 Count 0
Confidenc 0.423 Confidence 0.422 Confidenc 0.122 Confidenc #N
e 3344 Level(95.0 9393 e 8341 e UM
Level(95.0 39 %) 73 Level(95.0 85 Level(95.0 !
%) %) %)
 Fixed Inventory Debtors Total
Assets Asset
Turnover
Ratio

Mean 2.141 Mean 3.861 Mean 13.02 Mean 1.619

8
Standard 0.340 Standard 0.318 Standard 1.056 Standard 0.187
Error 6055 Error 5189 Error 4487 Error 4415
07 69 68 46
Median 1.78 Median 3.515 Median 13.18 Median 1.525
Mode #N/A Mode #N/A Mode #N/A Mode #N/A
Standard 1.077 Standard 1.007 Standard 3.340 Standard 0.592
Deviation 0891 Deviation 2454 Deviation 7843 Deviation 7422
84 19 39 15
Sample 1.160 Sample 1.014 Sample 11.16 Sample 0.351
Variance 1211 Variance 5433 Variance 084 Variance 3433
11 33 33
Kurtosis - Kurtosis - Kurtosis - Kurtosis -
2.042 0.709 0.067 1.576
9612 2144 5463 9113
36 04 67 36
Skewness 0.213 Skewness - Skewness - Skewness 0.019
9981 0.057 0.202 7468
18 5037 1002 48
39 65
Range 2.65 Range 3.21 Range 11.37 Range 1.71
Minimum 0.82 Minimum 2.11 Minimum 6.95 Minimum 0.73
Maximum 3.47 Maximum 5.32 Maximum 18.32 Maximum 2.44
Sum 21.41 Sum 38.61 Sum 130.2 Sum 16.19
8
Count 10 Count 10 Count 10 Count 10
Confidenc 0.770 Confidenc 0.720 Confidenc 2.389 Confidenc 0.424
e 5031 e 5399 e 8531 e 0222
Level(95.0 86 Level(95.0 66 Level(95.0 48 Level(95.0 37
%) %) %) %)
Interest PBIDTM PBITM PBDTM
Cover (%) (%) (%)
Ratio

Mean 0.828Mean 11.64 Mean 3.14

Mean 6.616
Standar 0.20248 Standar 1.45586 Standar 1.13925 Standar 1.18840
d Error 8957d Error 7821 d Error 5117d Error 902
Median 0.96
Median 13.5 Median 3.475Median 7.045
Mode #N/A Mode #N/A Mode 3.01
Mode #N/A
Standar 0.64032 Standar 4.60385 Standar 3.60264 Standar 3.75807
d 6306d 8285 d 1007d 9297
Deviati Deviati Deviati Deviati
on on on on
Sample 0.41001 Sample 21.1955 Sample 12.9790 Sample 14.1231
Varianc 7778 Varianc 1111 Varianc 2222 Varianc 6
e e e e
Kurtosis 1.48349 Kurtosis - Kurtosis 4.44191 Kurtosis -
8241 1.98544 3505 1.85428
1824 3588
Skewne - Skewne - Skewne - Skewne -
ss 0.91478 ss 0.35535 ss 1.83177 ss 0.03637
913 5011 4875 6574
Range 2.23 Range 11.24 Range 12.91 Range 9.98
Minimu -0.55 Minimu 5.22 Minimu -5.8 Minimu 1.82
m m m m
Maximu 1.68 Maximu 16.46 Maximu 7.11 Maximu 11.8
m m m m
Sum 8.28 Sum 116.4 Sum 31.4 Sum 66.16
Count 10 Count 10 Count 10 Count 10
Confide 0.45806 Confide 3.29340 Confide 2.57717 Confide 2.68836
nce 1845 nce 1818 nce 4124 nce 7978
Level(9 Level(9 Level(9 Level(9
5.0%) 5.0%) 5.0%) 5.0%)
 CPM (%) APATM ROCE (%) RONW (%)
(%)

Mean 6.706 Mean - Mean 2.41 Mean 1.51

1.79 4 4
3
Standard 1.087 Standard 1.48 Standard 1.26 Standard 1.01
Error 2117 Error 4945 Error 2034 Error 6862
24 977 689 495
Median 6.875 Median -0.29 Median 0 Median 0
Mode #N/A Mode #N/A Mode 0 Mode 0
Standard 3.438 Standard 4.69 Standard 3.99 Standard 3.21
Deviation 0653 Deviation 5811 Deviation 0904 Deviation 5601
47 491 103 551
Sample 11.82 Sample 22.0 Sample 15.9 Sample 10.3
Variance 0293 Variance 5064 Variance 2731 Variance 4009
33 556 556 333
Kurtosis - Kurtosis 6.26 Kurtosis - Kurtosis 3.21
1.746 5939 0.43 0916
9526 191 8778 957
56 4
Skewness - Skewness - Skewness 1.21 Skewness 2.03
0.057 2.32 3509 9875
1118 4542 71 405
74 28
Range 9.34 Range 16.4 Range 9.5 Range 9.12
8
Minimum 1.85 Minimum - Minimum 0 Minimum 0
14.1
2
Maximum 11.19 Maximum 2.36 Maximum 9.5 Maximum 9.12
Sum 67.06 Sum - Sum 24.1 Sum 15.1
17.9 4 4
3
Count 10 Count 10 Count 10 Count 10
Confidenc 2.459 Confidenc 3.35 Confidenc 2.85 Confidenc 2.30
e 4437 e 9181 e 4920 e 0302
Level(95.0 89 Level(95.0 179 Level(95.0 811 Level(95.0 776
%) %) %) %)

Interpretation:

1. Leverage Ratios (Debt-Equity & Long-Term Debt-Equity)

 Mean Debt-Equity Ratio: 1.76 (Range: 0.86 to 2.92)

 Mean Long-Term Debt-Equity Ratio: 1.76 (Range: 0.86 to 2.92)

 Skewness: Slightly positive (0.34) → More firms have higher

debt levels.

 Interpretation:

o The debt levels are moderately high, suggesting firms rely on

debt financing.

o Higher debt increases financial risk, but can improve ROE

if profits are strong.

o Some firms have low debt (~0.86), meaning a mix of

highly leveraged & conservative firms.

2. Liquidity Ratio (Current Ratio)

 Mean: 1.60 (Range: 1.46 to 1.99)

 Ideal Benchmark: 1.5 - 2

 Skewness: 1.70 (right-skewed) → Some firms hold excess

liquidity.

 Interpretation:

o The current ratio is near the ideal level, meaning most

firms have sufficient short-term liquidity.

o A few firms have excess liquidity, which might indicate

inefficient capital allocation.

3. Turnover Ratios (Efficiency)

a. Fixed Asset Turnover

 Mean: 2.14 → Firms generate ₹2.14 in revenue per ₹1

invested in fixed assets.

 Kurtosis: -2.04 (flat distribution) → Most firms have similar

turnover values.

 Interpretation: Good asset utilization, but may vary by

industry.
 b. Inventory Turnover

 Mean: 3.86 → On average, firms sell their inventory 3.86 times

per year.

 Range: 2.11 to 5.32 → Some firms hold inventory longer than

others.

 Interpretation: Higher turnover means efficient inventory

management.

c. Debtors Turnover

 Mean: 13.03 → Firms collect payments from debtors ~13 times

a year.

 Interpretation: Efficient credit management, meaning

firms collect payments quickly.

d. Total Asset Turnover

 Mean: 1.62 → Firms generate ₹1.62 in revenue per ₹1 in

total assets.

 Interpretation: Moderate efficiency in asset utilization.

4. Interest Coverage Ratio

 Mean: 0.83 (Range: -0.55 to 1.68)

 Skewness: -0.91 → Some firms struggle to cover interest

payments.

 Interpretation:

o A value < 1 means that firms don’t earn enough profits to

cover interest expenses, which is a red flag for solvency.

o Some firms have a negative interest cover, indicating

financial distress.

5. Profitability Ratios

a. PBIDTM (Profit Before Interest, Depreciation & Tax Margin)

 Mean: 11.64% (Range: 5.22% to 16.46%)

 Interpretation: Strong gross profitability before fixed

costs.

b. PBITM (Profit Before Interest & Tax Margin)

 Mean: 3.14% (Range: -5.80% to 7.11%)

  Kurtosis: 4.44 (peaked distribution) → Some firms have very
high PBITM.

 Interpretation: Operational efficiency varies significantly.

c. PBDTM (Profit Before Depreciation & Tax Margin)

 Mean: 6.62%

 Interpretation: Moderate profitability after depreciation.

d. APATM (Adjusted Profit After Tax Margin)

 Mean: -1.79%

 Range: -14.12% to 2.36%

 Interpretation:

o Negative mean suggests losses after tax and other

adjustments.

o Some firms have high losses (-14.12%), which could be due

to high debt costs or weak demand.

6. Return Ratios (ROCE & RONW)

a. ROCE (Return on Capital Employed)

 Mean: 2.41% (Range: 0% to 9.50%)

 Kurtosis: 6.27 (high peaks) → Some firms have very high

ROCE.

 Interpretation: Low returns on total capital investment.

b. RONW (Return on Net Worth)

 Mean: 1.51% (Range: 0% to 9.12%)

 Skewness: 2.04 (right-skewed) → A few firms have very high

RONW.

 Interpretation: Equity investors are getting low returns.

7. Variability & Confidence Intervals

 High standard deviations in profitability ratios → Firms have

highly different cost structures.

 Debt-equity ratio confidence interval: ±0.42 → True mean debt-

equity ratio likely between 1.34 - 2.18.

 ROCE confidence interval: ±2.85 → True mean likely between -

0.44% to 5.26%.
Correlation Data:
De Lon C T Fi In D Tot Int P P P C A R R
bt- g ur ur x v e al er BI BI B P P O O
Eq Ter re n e e bt Ass est D T D M A C N
uit m nt ov d nt or et Co T M T ( T E W
y Deb R er A or s Tur ve M ( M % M ( (
Ra t- at R ss y nov r ( % ( ) ( % %
tio Equi io at et er Ra % ) % % ) )
ty io s Rati tio ) ) )
Rati s o
o
Debt 1
-
Equi
ty
Rati
o
Lon 0. 1
g 99
Ter 99
m 43
Debt 27
- 3
Equi
ty
Rati
o
Curr - - 1
ent 0. 0.24
Rati 24 041
o 18 228
93 3
71
1
Turn - - - 1
over
Rati
os
Fixe - - 0. - 1
d 0. 0.85 5
Asse 85 423 8
ts 54 217 2
25 3 4
70 6
7 0
0
2
4
Inve - - 0. - 0. 1
ntor 0. 0.90 5 9
y 90 049 9 4
 09 843 1 1
66 8 5
63 1 5
8 9 6
2 1
3 1
1 7
Debt - - 0. - 0. 0. 1
ors 0. 0.54 5 5 6
54 945 6 4 8
91 907 9 6 7
91 1 0 9 5
34 6 4 2
1 0 6 1
5 8 3
1 1 3
6 4
Tota - - 0. - 0. 0. 0. 1
l 0. 0.90 4 9 9 4
Asse 90 686 1 6 3 8
t 84 958 3 8 0 5
Turn 24 8 9 4 8 5
over 31 4 7 3 7
Rati 9 3 9 9 2
o 0 2 5 4
3 2 7 7
5 2 4 4
Inter - - - - 0. 0. 0. 0.4 1
est 0. 0.69 0. 3 4 4 963
Cov 69 882 3 4 4 4 149
er 72 936 5 6 2 2 35
Rati 85 8 6 1 3
o 80 8 3 9 5
3 8 3 7 0
8 1 4 8
2 1 7
6 9 7
9
PBID 0. 0.66 - - - - - - - 1
TM 66 085 0. 0. 0. 0. 0.8 0.0
(%) 26 41 7 9 8 3 084 00
76 1 0 0 7 124 88
17 5 0 8 1 89 19
3 9 1 3 5 62
4 6 6 1
7 7 3 4
1 9 5 4
4 5 1 9
6 6 2
PBIT - - - - 0. 0. 0. 0.2 0.8 0. 1
M 0. 0.45 0. 0 2 5 147 67 3
(%) 44 002 3 8 6 0 777 31 1
70 425 4 2 4 0 51 43 4
60 6 8 6 6 7 33 8
 99 3 9 4 2 7
5 6 8 6 6 5
1 3 2 4 7
2 9 3 5 4
2 2 2 4 6
7
PBD 0. 0.19 - - - - - - 0.4 0. 0. 1
TM 19 336 0. 0. 0. 0. 0.4 70 8 7
(%) 55 347 6 5 3 0 209 30 5 5
15 4 9 7 9 0 435 75 2 1
2 2 2 8 9 74 39 6 0
0 4 5 0 4 9
2 4 0 7 5 0
4 3 1 3 6 5
9 4 5 7 4
1 4 3 2 5
6 5 5
CPM 0. 0.31 - - - - - - 0.3 0. 0. 0. 1
(%) 31 276 0. 0. 0. 0. 0.5 71 9 6 9
48 027 7 7 5 1 607 07 1 2 7
42 4 7 0 5 6 574 90 5 5 4
89 6 5 6 5 4 37 9 5 5
8 4 7 5 9 6 4 7
2 7 8 9 1 7 6
6 3 8 3 0 2 5
4 2 1 6 6 2 3
4 6 3 4 6 5 6
7 9 4 1
APA - - - - 0. 0. 0. 0.5 0.9 - 0. 0. 0. 1
TM 0. 0.76 0. 4 5 6 464 38 0. 9 4 3
(%) 76 381 1 2 8 2 436 10 0 1 5 1
17 664 3 8 7 6 76 71 6 6 4 4
97 6 4 8 5 3 11 7 8 4 6
95 5 2 4 9 5 1 0 1
7 5 7 2 0 7 1 0 1
6 2 9 7 3 7 3 1
5 0 7 8 7 1 7 7
4 2 8 7 4 8 9 4
3 3
ROC - - - - - - 0. 0.1 0.6 0. 0. 0. 0. 0. 1
E 0. 0.27 0. 0. 0. 0 371 81 2 4 4 4 4
(%) 27 664 4 0 0 6 870 34 0 9 1 3 9
86 006 7 2 0 5 88 07 7 2 5 7 4
53 3 5 6 4 79 6 1 4 6 2
28 5 1 7 7 2 3 7 0 5
8 1 1 4 3 4 0 4 0 3
6 0 5 5 4 0 3 9 8
4 2 4 3 6 2 4 4 1
1 2 6 2 9 1 9 4
4 5
RON - - - - 0. 0. - 0.3 0.6 - 0. 0. 0. 0. 0. 1
W 0. 0.42 0. 1 1 0. 515 45 0. 3 1 2 4 8
(%) 42 096 4 7 3 0 721 59 0 2 7 0 3 8
23 510 1 3 9 6 06 28 4 8 6 0 9 3
 40 5 6 9 0 5 41 1 0 3 5 2 2
28 2 8 2 7 6 1 2 9 5 7
3 1 1 7 1 5 6 8 6 0 9
3 8 3 2 4 2 5 5 7 9
8 8 1 4 9 0 6 2 6 8
4 1 3 3 1 5 4 2 6
1 3 9

Interpretation:

1. Debt-Equity Ratio & Long-Term Debt-Equity Ratio

 Almost perfectly correlated (0.9999), meaning both move together.

 A company’s long-term debt structure significantly influences its

overall debt-equity ratio.

2. Debt-Equity Ratio vs. Liquidity (Current Ratio)

 Negative correlation (-0.24): Companies with higher debt tend to

have lower liquidity.

 This suggests that firms relying on debt financing might struggle

with short-term solvency.

3. Debt-Equity Ratio vs. Turnover Ratios (Efficiency)

 Strong negative correlation with:

o Fixed Assets Turnover (-0.85), Inventory Turnover (-

0.90), and Total Asset Turnover (-0.90)

 Interpretation: High debt reduces asset efficiency—likely due to

higher interest expenses or inefficient asset utilization.

4. Debt-Equity Ratio vs. Profitability

 PBIDTM (%) (0.66) and CPM (%) (0.31) show a positive

correlation.

 ROCE (-0.27) and RONW (-0.42) show a negative correlation.

 This means while debt might help in generating operating profits, it

negatively affects return on capital and equity.

5. Current Ratio vs. Other Factors

 Positively correlated with turnover ratios (0.41 to 0.59) →

Better liquidity supports operational efficiency.
  Negatively correlated with profitability (-0.69 to -0.77) →
Companies with high liquidity may not be utilizing cash effectively to
generate profit.

6. Turnover Ratios vs. Profitability

 Fixed Asset Turnover vs. ROCE (0.13) & RONW (0.35) →

Efficient asset utilization contributes to returns.

 Total Asset Turnover vs. APATM (0.54) & PBITM (0.21) →

Higher turnover can improve profits.

7. Interest Cover Ratio vs. Profitability

 Strong correlation with ROCE (0.68) & RONW (0.64) → A

higher interest cover indicates better financial stability and
profitability.

 Negative correlation with PBIDTM (-0.0009) → Indicates that a

high interest burden can affect operating margins.

8. Profitability Ratios Relationship

 PBIDTM, PBITM, PBDTM, CPM, and APATM show high positive

correlations (0.75 to 0.97) → These profitability ratios move
together.

 ROCE & RONW (0.88) → Strong relationship between return on

capital and return on equity.

CONCLUSION

From 2008 to 2025, the impact of capital structure on financial

performance in the retail industry has been profound. Debt-to-Equity (D/E)
ratios, Return on Assets (ROA), and Return on Equity (ROE) have shown
fluctuations in response to economic downturns, technological
advancements, and shifting consumer behaviors. During the 2008
financial crisis, retailers increased debt reliance, leading to high D/E ratios,
whereas post-recovery, deleveraging efforts improved financial stability.
The COVID-19 pandemic in 2020-2021 once again forced retailers to raise
debt for liquidity, increasing leverage and reducing profitability. However,
post-pandemic adjustments, including digital transformation and cost
optimizations, led to improved financial metrics. By 2025, retailers
focused on stabilizing their capital structures, with average D/E ratios
returning to around 1.3, and ROA improving to 5.9%. The overall trend
indicates that a well-balanced capital structure, adaptive financial
strategies, and operational efficiency significantly influence profitability
and long-term growth in the retail industry.

Recommendations:

1. Optimize Debt Utilization: Retailers should maintain a balanced

D/E ratio, avoiding excessive debt while ensuring sufficient leverage
for growth. The optimal range should be around 1.2-1.5 to sustain
financial health.

2. Enhance Asset Efficiency: Investing in technology and supply

chain improvements can maximize ROA, ensuring better utilization
of assets for higher profitability.

3. Increase Equity-Based Financing: A focus on equity financing

through reinvested profits and strategic investor partnerships can
reduce financial risk while maintaining operational flexibility.

4. Leverage Digital Transformation: E-commerce expansion and

digital payment solutions can drive revenue growth, reducing
dependency on physical assets and lowering financial burden.

5. Monitor Economic Indicators: Regular financial forecasting and

market analysis can help retailers make proactive capital structure
adjustments to mitigate risks from economic downturns.

6. Sustainable Growth Strategies: Instead of aggressive expansion

through debt financing, retailers should prioritize sustainable
profitability through diversified revenue streams and cost control
measures.

ANNEXTURE
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