Abstract
This paper examines the impact of capital structure on the financial performance by evaluating the relation between different performance variables such as, net profit margin ratio (NPM), return on asset (ROA), return on equity (ROE) and total assets (TA) with capital structure variables being short term debts (STD), Total equity (TE) and debt/equity ratio (DER).Regression model applied to 61 small, medium and commercial enterprises of different sector for the period of 2012 to 2014. Only central and southern Punjab SME’s and commercial enterprises have chosen so, the result cannot be generalized to all companies. The paper is the first to study the significance of Capital structure to SMEs & Commercial sector firm’s financial performance. The findings of current research elaborated that in the organizations of commercial division there is a strong positive relationship between firm’s financial performance and its capital structure. Firm’s financial performance is based on total equity, short tenure debts and debt to equity ratio. For large enterprises, these variables strongly effected Return on Assets, Return on equity and NPM. For medium enterprises, there was comparatively less effect of same independent variables on Return on Assets, Return on equity and NPM. For small enterprises, only total equity displayed significant relation with dependent variables and all other independent variables’ effect was found non-significant.