"IMPACT OF FINANCIAL LEVERAGE ON FIRMS PERFORMANCE; STUDY FROM THE PERSPECTIVE OF CEMENT INDUSTRY OF PAKISTAN"

Abstract

The main objective ofthe current research study is to investigate the effect offinancial leverage on profitability of the cement firms of Pakistan. The methodology of research consists of quantitative nature using deductive approach. The population includes the cement firms of Pakistan’s listed companies. The sample include 16 top cement firms of Pakistan, which were selected to estimate the industrial performance ofthe country. The data was secondary as it was collected from the Pakistan Cement Industry annual report from State Bank of Pakistan (SBP) for period 2005. The results of our study are based on three variables, financial leverage, ROE & ROA for firms’ profitability as these two ratios measures the financial performance. The study showed that financial leverage has an inverse relationship with ROA & ROE which are directly proportional to the financial performance. Pakistan cement firms generating more profit with ROA rather than ROE, due to which the cement firms of Pakistan are not suitable for the investors to invest in it and not liable to generate profit with return on equity available to it. The firms should decrease their financial leverage value and increase their return on equity (ROE) to make the firm less risky and capable in its paying back as the firm with significant financial leverage can increase in the returns ofinvestors.