Abstract:
This study aimed to establish; the impact of the capital structure on firms' financial performance of capital goods sector
listed CSE in Sri Lanka. The study developed secondary data consisting of audited financial statements of 22companies
at the CSE, Totaling 33 firms for five years (2015 to 2019). The study was to examine the nature of the relationship
between capital structure and financial performance of capital goods companies listed in CSE Sri Lanka from 2015 to
2019. Debt to Equity and Debt Ratio represented capital structure proxies; Gross Profit, Net profit, Return on Equity, and
Return on Capital Employed represented financial performance. The study was attached to the positivism paradigm and
guided by the following capital structure theories: static trade-off theory, pecking order theory and agency theory.
The study concern descriptive and inferential statistical methods to analyze the data and multiple regressions were
applied to establish the extent of the impact of the capital structure on firms' financial performance of the capital goods
sector. In contrast, correlation and multiple regression were used to analyze the relationship between capital structure
and firm performance. The study concluded that it established a significant negative correlation between capital structures
and financial performance indicators of GP, NP, and ROE and positively correlated with ROCE. The financial
performance, it was recommended that firms invest in easily to re-locatable and quality. Future the studies to investigate
other factors that account for variability in financial performance on the relationship between the capital structures of the
capital goods sector in Sri Lanka
