Cost of Capital, Financial Growth, and Profitability Prediction: Evidence from Jordanian Industrial Firms

Abstract

This paper looks at how the cost of capital and different financial growth measures shape profitability predictions for industrial firms on the Amman Stock Exchange. The study uses data from 31 companies between 2017 and 2024 and runs a regression analysis to see how financing costs, profit growth, asset growth, and sales growth predict profitability, specifically, return on investment and revenue power. The results show that the cost of capital has a moderate but clear effect on both profitability measures, explaining about 37% of their changes. When it comes to return on investment, sales growth stands out as the strongest predictor among the growth factors. For revenue power, profit growth, and asset growth play a bigger role. Notably, when the cost of capital and asset growth are modeled together, the explained variance in return on investment rises to nearly 50%. These results carry practical implications for managers seeking to optimize capital structure and growth strategies in pursuit of improved financial outcomes.