ABSTRACT

The purpose of this study was to investigate the effect of financial leverage on profitability of Equity Bank Uganda Limited. The study was based on the following 3 objectives; (i) to examine the effect of debt ratio on profitability of Equity Bank Uganda Limited; (ii) to determine whether debt-equity ratio have any effect on profitability of Equity Bank Uganda Limited; and (iii) to establish if there is any effect of interest coverage ratio on profitability of Equity Bank Uganda Limited. The study adopted ex post facto research design technique and employed panel data of Equity Bank Uganda Limited over the period of 2006-2015. The method of data analysis used for the study was ordinary least square. The findings revealed that debt ratio is positively 03'=2.813) and statistically and significantly (sig-value=O.OOO) affect profitability of Equity Bank Uganda Limited; debt-equity ratio is positively (!3=0.081) and statistically and significantly (sig-value=0.002) affect profitability of Equity Bank Uganda Limited; and interest coverage ratio is positively ((3=0.023) and does not statistically and significantly (sig-value=0.426) affect profitability of Equity Bank Uganda Limited. The study concluded that debt ratio statistically and significantly affect profitability of Equity Bank Uganda Limited; debt-equity ratio statistically and significantly affect profitability of Equity Bank Uganda Limited and interest coverage ratio does not statistically and significantly affect profitability of Equity Bank Uganda Limited. The study recommended that management should ensure that financial decisions made by them are in consonance with shareholders' wealth maximization objectives; amount of debt finance in the financial mix of the firm should be at the optimal level; management should monitor the interest charged on debt financing to avoid liquidation of the company. Contribution of knowledge was gained from findings whereby this present study has made a significant contribution to knowledge by revealing not just how financial leverage of commercial banks affect their liquidity and efficiency but also return on assets and return on equity and further the implication of such effects; the researcher consider this study as having significantly contributed to knowledge by providing updated empirical evidence (2006-2015) in Uganda to explain the profitability of banks with respect to their financial leverage.