This research examines the relationship between capital structure and financial performance of the listed companies traded in Colombo stock exchange (CSE). The common approach in empirical studies has been to examine the relationship between capital structure and financial performance. Problem of this research is to study how the capital structure negatively or positively influences on signalling the firm’s performance. The sample of this study composed of thirty companies listed on the Colombo Stock Exchange and period of 5 five years from 2007 to 2011. The required data and information for the study were gathered from published annual reports, fackbook, and website of listed companies in CSE from 2007 to 2011. The relationship between independent variable capital structure and dependent variable financial performance were tested by correlation analysis. It is focused on the overall point of view of the relationship between the capital structure and financial performance. There is a negative relationship between the capital structure and financial performance. This results that the researchers and interested parties of this research area are able to obtain information.

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