Empirical analysis of correlation between Debt/Equity Ratio and the Net profit margin ratio in Small and Medium enterprises

Abstract

The present investigation addresses the financial results of the year 2017 of 1.900 companies of a capital city from Latin America, with which the financial indicators of capital structure and net profit margin are calculated. The central objective is to determine whether or not there is an inverse and significant correlation between the financial indicator of capital structure and the result of the financial indicator of net profit margin for companies, according to economic activity that they develop, through the calculation of the Pearson's correlation coefficient. A quantitative methodology, of an explanatory type, is applied that seeks to identify patterns in the analyzed financial results that give light of the existence of an optimal general capital structure (relationship between the liability and equity). As a general conclusion, with the analyzed data, it is evidenced that there is an inverse but not significant correlation between the indicators. It is proposed as a future research topic to delve into the same theme based on the size of the company, according to net sales recorded in a given period