Select Financial Ratios as a Determinant of Profitability Evidence from Petrochemical Industry in Saudi Arabia

Abstract

The pedestal of economic growth of the Kingdom of Saudi Arabia cardinally hinges upon the growth and development of the Petrochemical companies. Of late, there is risk of an increase in feedstock cost, which can pressurize margins for Saudi companies. This has encouraged the researchers to analyze the profitability and select financial ratios of petrochemicals industry in Saudi Arabia. The research paper makes an endeavor to determine the profitability of listed Petrochemical companies in Saudi Arabia with five years accounting period from 2008 to 2012. The paper encompasses six variables, namely, Creditors’ Velocity (CRSV), Debtors’ Turnover Ratio (DTR), Inventory Turnover Ratio (ITR), Long-Term-Debt to Equity Ratio (LTDER), Total Assets Turnover Ratio (TATR) and Net profit Margin (NPM). Profitability as a dependent variable is exhibited by Net profit Margin (NPM) while the select ratios (CRSV), (DTR), (ITR), (LTDER), (TATR) are expressed as independent variables. Based on the findings of the study, it is cogently revealed that there is a significant relationship between the four selected ratios and Net Profit Margin (NPM) of Petrochemical companies in Saudi Arabia.

Keywords: Profitability, Financial Ratios, Petrochemical industry