IMPACT OF FINANCIAL LEVERAGE ON FINANCIAL PERFORMANCE OF A COMPANY

Abstract

Purpose The study aims to find if there is any impact of financial leverage on financial performance of companies pertaining to the oil and gas exploration sector. Additionally it seeks to measure that this effect is positive or negative. The purpose is to see whether this relationship can be used to the benefit ofthe sector that is if leverage can be used to increase profitability ofthe industry. Methodology & Design All four listed companies from the oil and gas exploration sector were considered. The facts and figures were taken from their annual statements which were published publically on Pakistan Stock Exchange (Psx). The data was secondary in nature and spread over the period of 10 years. Multiple Regression Analysis, Descriptive Statistics and ADF test were used in analyzing the data and coming up with the findings that are stated below. Findings Overall findings of the study indicate that leverage does not have a significant impact on financial performance of the firms in oil and gas exploration sector. Reason being that in exploration sector, maintaining the debt ratio is not the prime focus rather measures of profitability are spread more over social and environmental indicators.