The Effect of Leverage on Financial Health of the Firms: A Study from Cement Industry of Pakistan

Muhammad Nadeem, Rashid Ahmad, Ammar Ahmed Naveed Ahmad, Syeda Rabia Batool Khalil-Ur-Rehman

Abstract


This research paper has tried to measure the relationship between leverage and profitability of firms in the cement industry of Pakistan. Debt to equity is used to measure the leverage of the companies in the cement industry in Pakistan. Short term debt to equity (STD/E) and long term debt to equity (LTD/E) are considered as leverage variables .Return on equity (ROE) and return on assets (ROA) are used to measure the financial performance of the companies. For this research paper 10 cement companies are considered, listed in the Karachi Stock Exchange during the time period 2008-2012. To measure the relationship between leverage and profitability of firms in the cement industry of Pakistan regression model and descriptive statistics have been used. Our results found negative and significant relationship between leverage and profitability of the firm.

Keywords: Leverage, Profitability, Cement industry, Capital Structure


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ISSN (Paper)2224-6096 ISSN (Online)2225-0581

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