The impact of Leverage, Liquidity and Revenue Growth on Firms' Profitability during Economic Downturns (2020-2023)

Abstract

This research aims at establishing the effects of liquidity, leverage and revenue growth on firm profitability across the textile industry of Pakistan during the COVID-19 pandemic period from 2020-2023. This study conducts a research on 20 firms listed in Pakistan Stock Exchange employing Ordinary Least Square regression analysis on a set of factors that includes Quick Ratio, Debt to Total Assets, Inventory growth Rate and Control Variables. Profitability metrics considered include Return of Assets (ROA). The findings indicate the validate a direct relationship between liquidity and profitability, and the moderate effect of leverage ratio on profits, but capital intensity and increasing interest rates have negative effect on firm performance. Inventory changes have no influence that can be observed in the analysis as well. The robustness of the results is assessed through the correlation analysis, VIF test, along with Hausman test with all results pointing towards the use of random-effect model. The work recommends guidelines for policies that include adequate levels of liquidity, conservative gearing and appropriate use of capital to support profits when the economy hits the rough patch. They advise organizations to ensure that they apply strategies that are friendly to short-term liquidity positions while at the same time encouraging long-term financial development because turbulent economic situations are inevitable.