The role of capital structure in financial performance: a case study of precision Air Services ltd

PW has registered what has been viewed as a good financial performance cover the past nearly one decade. Among the reasons floated for this is the capital structure of the company and preference for debt financing. This study was home out of the need to establish the presence or otherwise of the responsiveness of financial performance to the capital structured of PW, hence the following hypothesis; that the financial performance is directly related to the capital structure of PW, that the evaluation of the capital structure has led to improved financial performance of the airline and that the benefits of such leverage are a reality in the success of the company. Both primary and secondary sources of data were used in the study. We analyzed the PW financial statements by computing the performance rations in order to achieve our study’s objective. The relationship between the ratios and the relative growth over the 8 years (2001-2008) was subjected to regression analyses. Further we interviewed the senior management of the company on the possible explanations for the marked growth in the company performance. In order to recognize the role of the alternative factors that may have impacted on performance. Other explanatory variables as gathered from interviews with the management have been used in this study as control variables, namely; the huge capital outlay in aircraft purchase, the level of customer services and human skills capacity IATA regulations. IT advancement, the local development of the financial sector especially in aviation and debt financing. The impact of all such factors noted in the process of the study was held constant and only the impact of capital structured analyzed. Our results indicate that performance indicators used in our study are fairly sensitive to the capital structure of PW but do not wholly explain the apparent good performance of the airline. Most of the results indicate R2 factor of between 40% and 65% which reflects a significant contribution of capital structure to the performance. We; however, recommended further research into the other non-quantitative factors above to establish the extent to which they have influenced the airline performance.