Effect of Financial Leverage on Firm Performance: Reference to Investment Trust Companies Listed in Sri Lanka

Abstract

The research investigates the effect of financial leverage on firm performance: reference to investment trust companies listed in the All Share Price Index (ASPI) on the Colombo Stock Exchange (CSE). Data for the study were collected for the period through annual reports and analyzed data using multiple linear regressions. The Profitability, Liquidity, and Asset Management efficiency performance of firms are measured respectively by Return on Asset, Current Ratio, and Total Asset Turnover Ratio. Financial Leverage is measured by Debt Ratio, Debt Equity Ratio, and Interest Coverage Ratio. Based on the analysis performed, it is noted that there’s no significant relationship between financial leverage and profitability, liquidity, and asset management while having a positive significant relationship with debt ratio and asset management performance of investment trusts listed in the All Share Price Index.