Relationship Between Leverage and Profitability of Selected Real Estate Companies †

Abstract

The paper investigates the influence of leverage on the financial performance of selected Indian real estate companies, focusing on profitability indicators like Return on Total Assets (ROTA) and Return on Capital Employed (ROCE). To evaluate and compare the leverage positions across companies, a comprehensive ranking system has been applied based on mean values and coefficients of variations of the profitability indicators. Real estate companies constantly performing better based on the annual turnover and listed on NSE and BSE have been considered for the study. The findings underscore the importance of strategic leverage decisions in maximizing shareholder value and optimizing capital structure in the Indian real estate sector. The study highlights the critical balance that firms must maintain between risk and return while managing debt financing. The study concludes that high degree of leverage is associated with higher profitability for the real estate sector. Future research may be conducted considering sectoral comparisons and regulatory impacts to provide a broader understanding of capital structure dynamics in emerging economies.