The Impact of Financial Leverage on Firm Performance in Fuel and Energy Sector, Pakistan

Abstract

Fuel and Energy are playing a vital role in the economy of developing and developed countries. It provides support for the economic development of the country by viewing positive trends towards the sector’s growth, over and above serving as a control for the growth of firms different departments like; manufacturing, trading and service. It offers considerable participation for production, trade and service. General perceptions are happening that the financial leverage is supportive to increase the financial performance of the firms. For calculating the impact of financial leverage on the firm financial performance, it is necessary to understand that whether there is a positive relationship lies between the financial leverage and financial performance or not? So, in this study, I’m going to test the hypothesis and to see the impact of financial leverage on the firm financial performance of the Fuel and Energy sector in Pakistan. The main aim of this study is to examine the simplification that the firms get work with high profits may choice high leverage by using different statistical tools. The analysis of this study shows that financial leverage positively affects the firm financial performance by accepting the alternate hypothesis H₁ and H_o is rejected. The study confirms that those firms who having high profits must improve their financial performance because of having high liquidity conditions. It also expose that the participant (investor/owners) of the fuel and energy in Pakistan can improve their financial performance by occupying the financial leverage and can achieve a sustainable future growth by making proper decisions about the selection of their most favorable capital structure.

Keywords: Financial leverage, Firm Performance, Energy crisis, Financial Ratios, Fuel and Energy Sector in Pakistan