Impact of Financial Leverage on Financial Performance of Pharmaceutical Industry in Pakistan

Abstract

This thesis investigates the correlation between financial leverage and the financial performance of the pharmaceutical industry in Pakistan. The pharmaceutical industry plays a vital role in global healthcare, offering essential goods and services for a wide range of medical conditions. The term financial leverage describes the degree to which an Investor or a industry is using the borrowed money in their business. The study focuses on ten pharmaceutical companies listed at Pakistan Stock Exchange (PSX).We analyzed the impact by utilizing their annual financial reports spanning data from 2012 to 2022. The primary objective is to assess the impact of financial leverage, as an independent variable measured by debt to equity ratio, on the financial performance, measured by Return on Assets (ROA), as the dependent variable. The control variables are firm size, liquidity and GDP. The research adopts a multiple statistical tool, combining descriptive statistics, correlation analysis, and regression analysis to analyze and interpret the collected data. The findings reveal a noteworthy negative relationship between financial leverage and financial performance across the selected pharmaceutical companies. This implies that as financial leverage increases, the financial performance, as assessed by ROA, tends to decrease. The thesis presents some policy implications and suggestions for regulators, law-makers, and multinational companies (MNCs) to lessen the negative effect of financial leverage on their financial performance.