ABSTRACT

Capital structure is most significant discipline of company`s operations. This researcher constitutes an attempt to identify the impact between capital structure and companies performance. Taking into consideration the level of companies financial performances. The analyze has been made the capital structure and its impact on financial performance capacity during 2006 to 2010 (5 years) financial year of business companies in Malaysia. The result shown the relationship between the capital structure and financial performances is positive. Hence business companies mostly depend on the debt capital. Therefore, they have to pay interest expenses much.

OVERVIEW OF THE STUDY

The theory of the capital structure is an important reference theory in enterprise's financing policy. The capital structure referred to enterprise includes mixture of debt and equity financing. Whether or not an optimal capital structure exists is one of the most important and complex issues in cooperate finance. Capital structure is one of the most complex areas of financial decision making because of its interrelationship with other financial decision variables. Poor capital structure decisions can result in a high cost of capital thereby lowering the NPVs of project and making more of them unacceptable. Effective capital structure decision can lower the cost of capital, resulting in higher NPVs and more acceptable project and thereby increasing the value of the firm. The capital structure at which the weighted average cost of capital is minimized, thereby maiming the firms value. An optimal capital structure that balance the firms benefits and costs of debt financing. The major benefit of debt financing is the tax shield. The cost of debt financing include the probability of bankruptcy, agency cost imposed by lenders, ad asymmetric
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information, which typically cause firms to raise funds in a pecking order so as to send positive signals to the market and thereby enhanced shareholder wealth. The best capital structure can be selected by using a valuation model to link return and risk factors. The preferred capital structure is the one that results in the highest estimated share value, not the highest EPS. Other important no quantitative factors must also be considered when making capital structure decisions.

OBJECTIVE OF THE STUDY

The focus of this study is Impact of Capital Structure on Performance of the Business industry in listed companies in Malaysia. y y y To reveal the impact of capital structure on financial performance To evaluate the interrelationship between capital structure and performance To determine the determinants of a capital structure

LITERATURE REVIEW
Modigliani and Miller (1958) claim that under perfect capital market conditions, a firms value depends on its operating profitability rather than its capital structure. In 1963, Modigliani and Miller (1963) fix the previous paper; argue that, when there are corporate taxes then interest payments are tax deductible, 100% debt financing is optimal. This means that the firms value increases as debts increases. Titman (1984) demonstrates the idea of indirect bankruptcy costs. He argues that stakeholders not represented at the bankruptcy bargaining table, such as customers, can suffer material costs resulting from the bankruptcy. Leland (1994) demonstrates a standard trade-off model. At the optimal capital structure, marginal bankruptcy costs associated with firms debt are equated with marginal tax benefits. The static tradeoff theory was the original retort to the theory of capital structure relevance. Modigliani and Miller (1963) argue that, when there are
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corporate taxes then interest payments are tax deductible, 100% debt financing is optimal. In this framework, firms target an optimal capital structure based on tax advantages and financial distress disadvantages. Firms are thought to strive toward their target and can signal their future prospects by changing their structure. Adding more debt increases firm value through the markets perception of higher tax shields or lower bankruptcy costs. But optimal capital structure at a 100% debt financing are clearly incompatible with observed capital structures, so their findings initiated a considerable research effort to identify costs of debt financing that would offset the corporate tax advantage. Since then, extensions of the Modigliani-Miller theory have been provided by the following researches. Robichek and Myers (1965) argue that the negative effect of bankruptcy costs on debt to prevent firms from having the desire to obtain more debt. Jensen and Meckling (1976) identify agency cost in governing the corporation. The general result of these extensions is that the combination of leverage related costs (such as bankruptcy and agency costs) and a tax advantage of debt produces an optimal capital structure at less than a 100% debt financing, as the tax advantage is traded off against the likelihood of incurring the costs.

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RESEARCH METHODOLOGY
Kamdar Company (2006) Profitability Ratio: i. Gross Profit Margin = Gross Profit/ Revenue x 100% = 59729586 / 168645897 x 100% = 35.42%

ii.

Operating Profit Margin = Operating Income / Revenue x 100% = 1423376 / 168645897 x 100% = 0.84%

iii.

Net Profit Margin = Profit Before Tax / Revenue x 100% = 9950768 / 168645897 x 100% = 5.9 %

Kamdar Company (2007) Profitability Ratio: i. Gross Profit Margin = Gross Profit/ Revenue x 100% = 62576977 / 177442850 x 100% = 35.27%

ii.

Operating Profit Margin = Operating Income / Revenue x 100% = 3218166 / 177442850 x 100% = 1.81%

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iii.

Net Profit Margin = Profit Before Tax / Revenue x 100% = 13352131 / 177442850 x 100% = 7.52 %

Kamdar Company (2008) Profitability Ratio: i. Gross Profit Margin = Gross Profit/ Revenue x 100% = 68343838 / 182416834 x 100% = 37.5%

ii.

Operating Profit Margin = Operating Income / Revenue x 100% = 1456032 / 182416834 x 100% = 0.8%

iii.

Net Profit Margin = Profit Before Tax / Revenue x 100% = 15052971 / 182416834 x 100% = 8.25 %

Kamdar Company (2009) Profitability Ratio: i. Gross Profit Margin = Gross Profit/ Revenue x 100% = 71218308 / 193747834 x 100% = 36.76%

ii.

Operating profit margin = operating income / revenue x 100% = 12273816 / 193747834 x 100% = 6.33%

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iii.

Net profit margin = profit before tax / revenue x 100% = 26012425 / 193747834 x 100% = 13.43 %

Kamdar company (2010) Profitability Ratio: i. Gross profit margin = gross profit/ revenue x 100% = 80314253 / 207727542 x 100% = 38.7%

ii.

Operating profit margin = operating income / revenue x 100% = 2181005 / 207727542 x 100% = 1.05%

iii.

Net profit margin = profit before tax / revenue x 100% = 19956941 / 207727542 x 100% = 9.607 %

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AIRASIA (2006) Profitability Ratio: i. Gross Profit Margin = Gross Profit / Revenue X 100% = RM 259 283 / RM 862880 X 100% = 30.05%

ii.

Operating Profit Margin = Operating Income / Revenue X 100% = RM 4587 / RM 862 880 X 100% = 0.53%

iii.

Net Profit Margin = Profit Before Tax / Revenue X 100% = RM 115 517 / RM 862 880 X 100% = 13.39%

AIRASIA (2007) Profitability Ratio: i. Gross Profit Margin = Gross Profit / Revenue X 100% = RM 86 565 / RM 1 603 261 X 100% 5.40%

ii.

Operating Profit Margin = Operating Income / Revenue X 100% = RM 261 799 / RM 1 603 261 X 100% = 16.33%

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iii.

Net Profit Margin = Profit Before Tax / Revenue X 100% = RM 278 049 / RM 1 603 261 X 100% = 17.34%

AIRASIA (2008) Profitability Ratio: i. Gross Profit Margin = Gross Profit / Revenue X 100% = RM 301 827 / RM 2 634 688 X 100% = 11.46%

ii.

Operating Profit Margin = Operating Income / Revenue X 100% = RM 351 658 / RM 2 634 688 X 100% = 13.35%

iii.

Net Profit Margin = Profit Before Tax / Revenue X 100% = RM 869 198 / RM 2 634 688 X 100% = 33.99%

AIRASIA 2009 Profitability Ratio: i. Gross Profit Margin = Gross Profit / Revenue X 100% = RM 102 383 / RM 3 132 901 X 100% = 3.27%

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ii.

Operating Profit Margin = Operating Income / Revenue X 100% = RM 912 754 / RM 3 132 901 X 100% = 29.13%

iii.

Net Profit Margin = Profit Before Tax / Revenue X 100% = RM 622 288 / RM 3 132 901 X 100% = 19.86%

AIRASIA 2010 Profitability Ratio: i. Gross Profit Margin = Gross Profit / Revenue X 100% = RM 35 943 / RM 3 948 095 X 100% = 0.91%

ii.

Operating Profit Margin = Operating Income / Revenue X 100% = RM 1 066 961 / RM 3 948 095 X 100% = 27.02%

iii.

Net Profit Margin = Profit Before Tax / Revenue X 100% = RM 1 098 856 / RM 3 948 095 X 100% = 27.83%

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KPJ Healthcare Berhad Annual Report (2005) i. Gross profit margin =Gross profit/ revenue x 100 = 169 472/583 397 x 100 = 29.04% ii. Operating profit margin = operating income/revenue x 100 = 6815/583 397 x 100 =1.168% iii. Net profit margin = net profit before tax/revenue x100 =40646/583 397 x 100 =6.967%

KPJ Healthcare Berhad Annual Report (2006) i. Gross profit margin = Gross profit/ revenue x 100 = 187 970/659 643 x 100 = 28.49% ii. Operating profit margin = operating income/revenue x 100 = 6312/659 643 x 100 =0.956% iii. Net profit margin = net profit before tax/revenue x100 =42301/659 643 x 100 =6.412%

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KPJ Healthcare Berhad Annual Report (2007)

i.

Gross profit margin =Gross profit/ revenue x 100 =242 910/831 455 x 100 =29.21%

ii.

Operating profit margin = operating income/revenue x 100 =16 732/831 455 x 100 =20.049%

iii.

Net profit margin = net profit before tax/revenue x100 =60 060/831 455 x 100 =7.223%

KPJ Healthcare Berhad Annual Report (2008) i. Gross profit margin =Gross profit/ revenue x 100 =327 389/1108 024 x 100 =2.954% ii. Operating profit margin = operating income/revenue x 100 =13 489/1108 024 x 100 =1.217%

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iii.

Net profit margin = net profit before tax/revenue x100 =85 255/1108 025 x 100 =7.694%

KPJ Healthcare Berhad Annual Report (2009) i. Gross profit margin =Gross profit/ revenue x 100 =386 355/1267 305 x 100 =29.06% ii. Operating profit margin = operating income/revenue x 100 =15 964/1267 305 x 100 =1.259% iii. Net profit margin = net profit before tax/revenue x100 =114 052/1267 305 x 100 =8.99%

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FINDINGS
Based on Research Methodology we use Profitability Ratio. Profitability Ratio analyze whether the management of a firm is generating adequate profit from the use of the firms capital and assets. Ratios used are: a) Gross Profit Margin b) Operating Profit Margin c) Net Profit Margin Overall about Research Methodology use the Profitability Ratio, we can conclude about the best of Air Asia annual report on 2010. We can see the percentages of income statement and balance sheet are increase. Aside that, second company of annual report is Kamdar. We choose the best performance on 2010, the result of balance sheet and income statement is higher. The last one is KPJ Health Care Bhd on 2009 include in our research shows that the percentages of value also increase.

ANALYSIS
Analysis annual reports for three company

40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2006 2007 2008 2009 2010 AIR ASIA KAMDAR KPJ

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CONCLUSION
In our conclusion, we provide capital structure and performance from three companies in our research such as Air Asia, Kamdar and KPJ Health Care Bhd. We use the profitability ratios to get the result. There are a weak positive relationship between gross profit and capital structure at the same time; there are a negative relationship between net profit and capital structure. Just focus on the overall point of view of the relationship between the capital structure and financial performance.

RECOMMENDATION
The following suggestions are recommended to increase the Companys financial performances based on capital structure:  Performances standards should be established and communicated to the investors. This will help investors to achieve the standard and take better investment decisions.  Identify weaknesses of investment may be best one to improve the firms financial performance, because it indicates the area which decision should be taken.  Motivation investors to help to achieve the high level of firms financial performance.  Political changes are very important factor in the share market. It is also determine the firm performance. Therefore, political should possible to increase the financial performance of the listed companies.  Inflation and exchanges rate also affect the listed company performance. So, government should consider the economic growth to control the inflation.

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REFERENCES:
 Annual Report Kamdar Group (M) Berhad (2006-2010)  Annual Report Air Asia Berhad (2006-2010)  Annual Report KPJ Healthcare Berhad (2006-2010)  Principles of Managerial Finance by Lawrence J.Gitman (2009)  Financial Management by Ng Kean Kok, Zhang Weina, Maran Marimuthu, Sandeep

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