An In-Depth Analytical Investigation of How Capital Structure Affects Listed E-Commerce Companies' Profitability in India

Abstract

Technological developments, changing consumer behaviour, and benevolent government regulations have all contributed to the exponential rise of the Indian e-commerce industry in recent years. Due to the significant expenditures sparked by this quick development, the market is now fiercely competitive. Under such circumstances, a company's capital structure—which is the ratio of debt to equity used to fund operations—becomes a crucial factor in determining its long-term viability and financial performance. In a few chosen listed Indian e-commerce companies, this study examines the complex relationship between capital structure, as determined by the debt-equity ratio, and profitability, as determined by important metrics like net profit ratio (NPR), return on capital employed (ROCE), return on assets (ROA), and return on equity (ROE). Considering secondary data from the annual reports of four well-known e-commerce companies—Info Edge Ltd., IRCTC, Zomato Ltd., and PB Fintech Ltd.—spanning six fiscal years (2017–18 to 2022–23), the study takes a quantitative approach. The study investigates the patterns and effects of capital structure choices on profitability using descriptive and inferential statistical tools, such as correlation analysis. Significant variation in financial measures among observations is revealed by descriptive statistics. For example, net profit varies greatly from a loss of -67.51 to a gain of 112.75, highlighting the volatility in profitability, while the debt-equity ratio averages at 0.1175 with moderate variability. In a similar vein, ROCE and ROE show erratic patterns that draw attention to disparities in equity returns and capital efficiency. These results offer a thorough assessment of the chosen companies' financial standing, setting the stage for a deeper analysis. The debt-equity ratio and ROE have a statistically significant and strong negative association (-0.980, p < 0.05), according to correlation analysis, suggesting that increasing leverage has a negative effect on shareholders' returns. Net profit and other profitability metrics (ROCE and ROE) show moderately favourable relationships, although they are not statistically significant, indicating complex interdependencies that need more research. The results highlight the need of careful debt management and the negative effects of excessive leverage on profitability, especially equity returns. Excessive debt can reduce long-term value development, worsen financial risks, and undermine investor confidence. As a result, e-commerce businesses are urged to optimise their capital structures through the implementation of strong risk management procedures, diversification of funding sources, and debt and equity balance. Enhancing profitability and building investor trust also depend on increasing operational effectiveness and keeping open lines of communication with stakeholders. By examining the comparatively understudied relationship between capital structure and profitability in India's rapidly growing e-commerce industry, this study adds to the body of current work. For managers, investors, and legislators, it offers practical insights and techniques for navigating the changing financial landscape and guaranteeing sustainable growth. Future research could expand the scope by incorporating a larger sample size, exploring sector-specific dynamics, and analysing external factors such as market conditions and regulatory changes. The study's conclusion emphasises how important financial structure is in determining how profitable Indian e-commerce companies are. It provides a sophisticated grasp of the financial tactics required to prosper in a market that is becoming more and more dynamic by utilising empirical data and statistical rigour.