Impact of Financial Leverage on Performance of Pharmaceutical Listed Companies in Pakistan

Abstract

The aim of this research project to examine the impact of financial leverage (debt ratio) on financial performance (return on asset) of pharmaceutical companies in Pakistan. The study focus on pharmaceutical listed companies on Karachi stock exchange for the period of 2005-2014.In this research select the 100 % papulation to find out the impact of financial leverage on financial performance of pharmaceutical companies in Pakistan and pharmaceutical companies consist of 9 firms. Secondary data collected through companies Annual reports and financial statements. Descriptive statistics, Pearson Correlation and Regression Analysis were used to find out the relationship and impact of financial leverage on financial performance of pharmaceutical companies in Pakistan. Debt ratio (DR) used as an independent variable and return on asset (ROA) used as an dependent variable along with current ratio (CR), size (SI) and asset turnover used as control variable. Results of study indicate that there is significant positively relationship between debt ratio and return on assets and regression show the debt ratio and return on assets have a significant positively impact on return on asset. Thus we can say firms used the external fund (debt) to increase their financial performance.

Keywords: Financial leverage, financial performance, Debt ratio and return on assets.