IMPACT OF FREE CASH FLOW ON PROFITABILITY OF BANKING SECTOR

Abstract

The purpose of this research is to examine the impact of free cash flow on the profitability of firm. The studies of free cash flow which effect on profitability firm have been conducted on the banking sector of Pakistan after the era of privatization of conventional banks such as Bank A1 Habib, Askari Bank and Bank A1 Falah. The research on this study was done through secondary data and the financial statement of every bank. The newness of this study is that to know about free cash flow of banking sector after the era of privatization which impact on decision making for management and shareholders for their profitability. The dependent variables are used in this research on the profitability are Return on Equity, Return on Assets, Net Income Margin and Earning per Share. Independent variables are used in this research which have impact of dependent variables are Free Cash Flow, Current Ratio, Quick Ratio and Super Quick Ratio. The impact of current ratio and super quick ratio on net income is positively significant and at certain point there is also positive significant impact of quick ratio on net income, but there is negative significant impact of free cash flow on net income. The significance shows that there is an impact of these variables effect on the decision making for the investors as well for the management regarding to their free cash flow. Mostly every management of the company try to manage its internal resources from the free cash flow or from surplus cash, on that situation the shareholders demand to invest those money in the investment or to provide more profit, regarding to that conflicts between managers and shareholders, management cover up that situation in a good manner way which gives the result that free cash flow does not impact on net