Optimising Capital Structure for Financial Performance: Insights from the Pharmaceutical Industry in India

This comprehensive research explores the intricate relationship between capital structure and financial performance in the pharmaceutical industry. The study reveals that while debt financing offers tax advantages, excessive debt can compromise a firm’s financial health. Through regression analysis, it is found that the equity component positively influences financial metrics such as Return on Equity (ROE), Return on Assets (ROA), and Return on Capital Employed (ROCE). Conversely, both long-term and short-term debt components exhibit adverse effects on these financial indicators. The study underscores the importance of maintaining a balanced capital structure, prioritising equity financing, and cautiously considering long-term debt over short-term debt. Findings suggest that pharmaceutical firms should prioritise equity and long-term debt while minimising short-term debt to optimise financial performance. Ultimately, prudent capital structure decisions are vital for firms seeking sustainable growth and competitiveness in the pharmaceutical sector.