Capital structure decision is one o the most important and most controversial decisions in the field of financial management and corporate finance, and refers to optimal debt to equity ratio in the financial structure of the company. This paper explores the relationship between capital structure ratio and profitability ratio of the textile and clothing industry in the Republic of Croatia by using extracted data from publicly available financial statements of the companies on the web site of the Financial Agency and relate to 2008 and 2013. The paper applies a statistical method of multiple linear regression. Results have revealed there is a negative significant relationship between total debt to equity ratio (UO/E) and return on equity (ROE) and debt to equity ratio (D/E) and return on equity (ROE) which is consistent with Pecking order theory. However, in 2008 it was found that the relationship between total debt to equity ratio (UO/E) and return on equity (ROE) is not significant. Due to quality of available data, this paper takes into consideration only companies whose revenues in both years are exceeding 5 million kuna. Also, companies that are in bankruptcy, have negative equity or don't provide relevant information are excluded. Thus, the sample is reduced to a great extent. During the implementation of empirical research conducted initial models are due to the need to comply with the initial conditions modified and therefore results in individual years are not comparable. For future studies recommended is to use other control variables that would better explain performance of companies and to extend the analysis to each year from 2008 to today, which would give better understanding of the impact of the financial crisis on the company's debt and the overall performance of the company.