Financial Ratios - A Linchpin of Firm Profitability: The Case of Unilever Pakistan Foods Limited and Food & Personal Care Sector

Abstract

Profitability is the main focus of companies and through this study we are highlighting which financial ratios are important. The factors that affect profitability are also discussed in this study. Although, Return on Assets and Return on Equity are commonly used to measure profitability of any firm but in our study, we also incorporated Return on sales to measure the performance. The purpose of this study is to analyze Unilever Pakistan Foods Limited financial performance along with the Food and Personal Care sector. Moreover, using regression analysis, we have investigated the determinants of Return on Sales for the listed firms in the Food and Personal Care sector on Pakistan Stock Exchange covering the period from 2010 to 2020. The results show that mostly during the studied period, Unilever’s ratios are inversely moving as compared to the industry specially in down times. Also, regression highlights that current ratio and firm size are significant drivers of food sector listed firms in Pakistan. Thus, managers could further improve their firms’ profitability by focusing on these two financial ratios