A study on profitability of Nordic large cap companies, effects of free cash flow and debt

Abstract: This paper has studied the relationship between free cash flow & debt with profitability of the Nordic Nasdaq large cap for the period of 2012-1017. Population of the study consists of 223 Nordic companies listed in Nasdaq. From this population a sample of 100 companies from different sectors have been chosen by random sampling, but the sample does not include financial institutions because the way these kinds of institutions are financing differ from companies in other sectors. Data has been collected from Eikon program which provides financial information about the listed companies around the world based on the company's audited financial statements. validity and reliability of the data have been checked to make sure the data are not wrong. In this study, free cash flow, debt to equity ratio & debt ratio are considered as independent variables and profitability of the firm has been considered as dependent variable. In addition, diversity of the companies based on the countries they are established in is considered as dummy variable. Profitability of the firms have been measured by return on asset. The research philosophy is positivism and the research approach is deductive. Based on a quantitative research in which secondary data has been analyzed by running the Pearson correlation analysis and regression analysis. Result of the study revealed that; free cash flow has a positive effect on profitability of the Nordic Nasdaq large cap. In addition, the result of study showed that; debt ratio has negative effect on profitability of the targeted firms. But, the result showed that; the debt to equity ratio does not affect profitability of the firms. The result of running dummy variable revealed that; companies in Finland have 2,3 % lower return on assets compared with the companies located in Denmark. Also, the companies established in Sweden have a 2,3 % lower return on assets compared with Denmark.