The Effect of Financial Structure, Financial Leverage and Profitability on Industrial Companies Shares Value: Applied Study on a Sample of Saudi Industrial Companies

Purpose: The purpose of this study is to investigate the effect of financial structure, financial leverage and profitability on industrial company’s value as a long term strategic analysis that helps the analyst in predicting future company’s value on the light of the mentioned variables in addition to external environment. Design/methodology/approach: A sample was selected from Saudi industrial companies listed in Saudi Stock Market amounting Forty-six companies .The study used the brochures issued by Saudi capital market for four years during the period of 2009 – 2012. Findings: The results confirm that there is statistically significant direct relationship between two independent variables: return on equity and capital structure and the dependent variable represented by stock market price. However, there is weak and inverse relationship between financial leverage and stock value, and this relationship is not significant, so there is no statistically significant relationship between financial leverage and company’s value. Research limitations/implications: This research examined the effect of financial structure, financial leverage and profitability on industrial company’s value. However, this study did not explore the other factors that affect company’s value. This is considered as study limitation. Practical implications: The results indicate that companies ‘management have to pay attention to financing aspects represented by differentiation between different financing sources , and in particular investment debt funds in are turn exceeds capital cost , which leads to increase and improve profitability , which have a positive impact in increasing the company value. Originality/value: This study will enable companies' managements to have a better understanding of the impact of profitability and, which will lead to increase and improve company’s values in order to increase shareholders wealth.