The impact of capital structure on profitability of ethiopian construction companies evidence from large tax pay organizations

The choice of fund sources to finance an organization’s operation and investment

activities is one of the major activities organization managers have to decide. This decision of

managers in financing their firm’s operation and investment could involve; issuance of debt,

raising of new capital through issuance of additional shares of equity, or retaining of capital

from earnings generated from operations; and selection from among them largely depend on the

effect they have on the organizations’ profitability. The main essence of the study is to examine

the impact of capital structure on Ethiopian Construction Companies Profitability, evidence

from large tax pay organizations. This thesis shade a new light for Ethiopian capital structure

studies and the importance of giving a thorough thought for different maturity level of debt in

studies of capital structure. The data collected for this paper is limited on ten years financial

statement of selected construction Companies. This is because there is a problem to get accurate

financial information and also it is difficulty on data collection from companies itself. So, the

researcher wants to study on this sector by sampling ten large tax pay construction companies to

have the actual data and to ease of generalization based on their availability of data for the

researcher. The researcher found quantitative research approach appropriate. This is because

quantitative approach is an inquiry that grounded in the assumption that features of social

environment constitute an objective reality that is relatively constant across time and setting.

Accordingly the result of the study shows that Return on equity and short term debt ratio have

statically significant positive effect on the profitability of construction companies in Ethiopia.

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