1.Introduction

Finance is one of the most useful elements for every business concern and companies cannot run without financial resources. Companies require different types of financial assets and resources to carry out business operations. This research is related with financial aspects of business concerns. In this research, the impact of capital structure on the profitability of textile sector of UK will be analyzed. According to Abor (2005) capital structure is actually the combination of equity and debt securities that are used to finance the assets of organizations. It includes long term debt as well as permanent short-term debt along with common equity and preferred stock used to finance the company. Moreover, capital structure includes two basic elements including ‘structure’ and ‘capital’. The capital is considered to be the investment amount made by the owner to run a business concern while structure is related with the formation. The structure explains that what elements and financial sources have formed the capital. The aim of this research is to determine the impact of capital structure on the profitability of textile sector of UK. According to Filatotchev and Toms (2003) the textile sector of UK is highly developed and is one of the main employment sources for local and international labor force. In addition, the textile sector of UK is highly dependent on yarn and fabric production, and this sector is highly useful for the fashion industry of UK. The UK’s exports of clothing and textile are more than six billion pounds and UK’s textile industry uses highly advanced technology. In this research, the capital structure analysis of textile sector of UK will be carried out through which it will be assessed that what type of capital sources are used by this sector and what is their impact on the profitability as well as performance.

The main objectives of this research are:

1. To analyze the impact of capital structure on profitability of textile sector of UK
2. To evaluate the relationship between capital structure and profitability

The research will be carried out on the basis of theories, literature as well as statistical analysis. This research will include different chapters and the major chapters will be literature review, methodology, analysis, discussion as well as conclusion. This study will be backed up by past literature as well as various statistical tests.

2.Literature review

There are different scholars and researchers that have conducted various studies all over the world to find out the impact of capital structure on profitability of companies. They have focused on various sectors including automobile, manufacturing and retail sector. However, the studies specific to textile sectors are not huge in number. By reviewing different studies and researches, it will be understood that either there is an impact of capital structure on profitability of companies in textile sector and what the relationship between these two factors is.

The study conducted by Cullinan et al., (2002) indicated that both capital structure and profitability are related with each other, the study was conducted by taking sample from thirty-five different companies that were listed on the stock exchange of Hong Kong. Another study carried out by Abor (2007) found a significantly positive relation between return on equity and the ratio of short-term debt to total assets. In addition, the relationship between return on equity and the ratio of long-term debt to total assets was found to be negative. The research of Abor (2005) was further extended by Ali et al., (2016) and it was found that there is a positive relationship between profitability and short-term debt to total assets in various American manufacturing companies. However, it is highly important to understand that there are different studies conducted in past which showed different results. As per Arbabiyan and Safari (2009) and Filatotchev and Toms (2003) there is significant relationship between profitability and capital structure but liability was found to be inversely proportional to profitability. This indicates that if the liabilities of companies are high then it is not a positive or favorable sign for the business concerns and their profitability can be negatively impacted. In the view of Amjad (2007) the debts and profitability are positively and significantly correlated with each other. Moreover, the study was associated with the static trade-off theory and it was argued that the total debts have no significant relationship with financial performance for the reason that there exist hereditary differences between the features of short term and long term debts. There are different studies which have found different results. For instance, the research of Onaolapo, Kajola & Sunday