The Impact of Debt on Profitability of Restaurant Companies in Thailand: An Empirical Study from 40 Leading Restaurants
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Abstract
This study aims to explore the situation regarding debt and profitability of 40 leading restaurant companies in Thailand from 2018 to 2022 and to investigate the impact of debt on the profitability of these companies by employing the fixed and random effects regression analyses. In this study, profitability is measured by two financial ratios, namely, return on assets (ROA) and net profit margin.
The findings reveal that during the study period, the average ROA and net profit margin of these 40 restaurants companies were 7.40 and 3.60 percent, respectively, whereas their average total liabilities to total assets ratio was 51.44 percent. Additionally, these 40 restaurants companies, on average, had greater short-term debt than long-term debt as the average current liabilities to total assets ratio was 34.64 percent, while the average non-current liabilities to total assets ratio was only 16.81 percent. The findings also revealed that the total debt had a significantly negative impact on ROA but no significant impact on net profit margin. Furthermore, ROA was negatively affected by only the short-term debt but was not affected by the long-term debt, whereas the net profit margin was determined by none of them. The findings from this study are beneficial to both investors and policy makers. That is, investors can utilize the findings to make decisions on investing in stocks or debentures issued by restaurant companies, whereas policy makers can utilize them to promote restaurant companies’ operation management to obtain favorable and sustainable capital structure.
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