Financing decisions are considered to be one of the most crucial areas for finance managers while measuring their impact on capital structure and financial performance of the companies. It always was an area of interest and attracted worldwide researchers to understand the relationship between capital structure and financial performance of the company. Thus, it will be quite correct to say that capital structure is the most significant discipline of company’s operations. It acts as a financial tool which helps to determine ‘how do firms choose their capital structure?’ The capital structure of a firm is the composition or structure of its liabilities and therefore it influences the behavior of the company as well as its performance results and also affects its value. The present study is an explanatory and non experimental in nature and intended to examine the nature of capital structure and firm’s performance. The time period of the study comprises of ten years i.e. 2006-07 to 2014-15 and the data of eight trading companies listed in Bombay Stock Exchange (BSE) have been analyzed. The collected data was entered into the Eviews and multiple regression analysis method was used for analyzing and testing of hypotheses. Results of the study reveal that capital structure influences financial performance of firm. The findings show that equity and long term debt have a positive and significant effect, whereas short term debt has a negative impact on financial performance. Thus, from the findings and results it can be concluded that equity and long term debt financing enhances financial performance.