Capital structure is defined as mix of debt and equity, which is used to meet firm’s financing needs. From the last few decades, these financial decisions have been given special attention due to their relation with firm value. The literature of capital structure primarily focuses on two research objectives. First category tried to explore the consequences of capital structure, while others dealt with determinants of capital structure. In the present study, using data of 126 firms listed on the Tehran Stock Exchange during 2011-2015 as well as multivariate regression, we aimed to explore the effect of financial characteristics on the relationship between financial leverage and firm’s profitability, besides investigating the effect of firm’s financial characteristics on debt ratio or its financial leverage. The results of significance of coefficients test on the basis of fitted regression equations showed that firm size can increase financial leverage, and undermines the inverse effect of financial leverage on profitability. In addition to this, it was revealed that tangibility of assets is directly related to financial leverage, but at the same time it reinforces the inverse effect of financial leverage on profitability. In contrast, current ratio is inversely related to financial leverage and yet it reduces the inverse effect of financial leverage on profitability.
