The effect of capital structure on profitability in Tongrentang

Abstract

This essay focuses on the effect of different combinations of equity and debt on profitability of Tongrentang Group during the period from 2011 to 2019 quarterly in Chinese medical industry on the basis of the methods of correlation and regression examination, to prove whether the different combinations consists of the equity and debt over different periods affect the profitability. The paper collected the main financial data from related documents posted on annual report and Shanghai Stock Exchange as well as Tonghuashun iFinD. Through correlation analysis and regression analysis, the main findings tell that a positively relationship exists between debt (over different period) and profitability. It proves that debt acts as the main source for Tongrentang to finance their daily operations. Based on the main findings of this paper, Tongrentang Group should consider the components and proportion of its capital structure so as to generate maximum profit. Further research should concentrate on international medical market beyond Chinese market.