Corporate Profitability : Some Evidences Of Malaysian Listed Firms

When United States and Japan compete head to head in the open market, the latter have a clear advantage in terms of cost of capital. The low cost of capital is obtained
from debt financing. However, debt led to financial fragility. The influence of debt on profit leads a lot of researchers to do research on it. They consistently show that debt and profitability have negative relationship. The reason for the negative relationship is that as a firm increases its debt usage, the risk of not meeting debt
payments leads to higher rates of interest, which will reduce the profit.
The previous model only explains leverage and profitability. They failed to include liquidity and activity ratio as factors influencing profit. Therefore, in this study, we investigate the influence of leverage, liquidity and activity. We conclude that profitability is a function of leverage, liquidity and activity. We also proposed that 56-65% of leverage is the best optimal leverage. The mean, maximum, minimum and standard deviation of return on assets (ROT), debt ratio (DR), times interest earned (TIE), current ratio (CR), quick ratio (QR), inventory turnover (INVTO) average collection period (ACP), fixed assets turnover (FATO), total assets turnover (TATO) and earnings per share (EPS) are also determined in order to see the performance of industrial companies in Malaysia.
This study shows that leverage in industrial companies in Malaysia has an upward trend, liquidity is moderate but the activity performance of the cost of capital is poor.
The package used in this study is Statistical Package of Social Sciences and the methods used are multiple regression. Pearson correlation and descriptive statistics.
The samples are collected from industrial companies listed on the KLSE main board. A total of 320 samples are collected ranking from year 1993 to 1998.