Page 115 - Azerbaijan State University of Economics

Nazrin Mammadova: The Effect of Investment Decisions on Firms’ Profitability (Empirical
Study on Listed Companies)

However, the association is fairly weak which can be attributable to other underlying
factors like the initial investment expenses and the amount of time it takes to really
get a profit from new investments.

Alltogether, these findings imply that businesses with more development potential
generates more profit and cash. Similar findings were reported by Stella (2011), who
suggested that, if successful, all large corporations and emerging SMEs eventually require
additional investments in order to grow or innovate more. As Bekaert, Harvey, Lundblad
and Siegel (2007) and Wurgler (2008) said investment decisions, particularly business
expansions matter for profitability.

The data analysis displayed statistical findings pertaining to financial leverage and
profitability. Calculating financial ratios of which debt to equity ratio was examined
in this study is the method the most frequently employed to gauge financial leverage.
The gearing ratio shows how much financing is provided by internally (owner funds)
compared to external funds. As seen from the econometric model applied above there
is positive relationship between financial leverage as an indicator of investments made
and profitability. Because every firm needs money when it decides to make any
investment and firms have two choices to generate fund either internally or externally.
In general, nowadays companies use external financing which increases gearing ratio
in order for making new different types of investments so they can repay both interest
and principal amounts taken from the banks by means of profits generated at the same
time from new investments. So, increase in financial leverage is an indicator of
increase in profitabilty as also seen from my research result.

CONCLUSION AND RECOMMENDATION
The research findings are summarized in this chapter. Furthermore, the conclusions'
implications and potential areas for further study are discussed. According to the
literature review, the study's findings are presented and contrasted with what other
reserachers have claimed.

Summary and conlusion
The results show that the size of new investments has a big impact on how profitable a
company is. So, more innovative businesses are more likely to achieve higher profitability
compared to less innovative ones when it comes to the introduction of new goods, services,
branches, and technologies. Due to decreased interest amounts, financial leverage may
improve profit after taxes. Ultimately, increased earnings may lead to better earnings per
share or dividend payout ratios, which may raise the profitability of the company. Even if
the marginal revenues from reduced interest expenses and tax shileds are kept for the
company's expansion, it may ultimately maximize the company's worth and lead to the
accomplishment of the wealth maximization goal that the real owners invest in.

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