A Study on Financial Leverage and its effect on Profitability of Rane (Madras) Limited

Abstract

This study explores the relationship between financial leverage and profitability, focusing on Rane (Madras) Limited, a leading Indian automotive components manufacturer. Financial leverage, the use of debt to enhance equity returns, can lower capital costs and potentially boost profitability, but excessive reliance on debt may increase financial risks. Using secondary data from 2019 to 2024, the study analyzes key financial metrics, including debt ratio, debt-to-equity ratio, return on assets (ROA), and return on equity (ROE). Findings reveal a rising dependence on debt financing, with increasing leverage failing to yield consistent profitability. ROA and ROE showed significant volatility, reflecting inefficiencies in asset utilization and shareholder returns. Statistical analysis indicates no significant correlation between financial leverage and net profit, highlighting the influence of operational efficiency, cost control, and market conditions. The study recommends reducing debt reliance, improving liquidity, and optimizing costs to achieve a balanced capital structure and enhance financial performance.