An Investigation of the Influence of Key Financial and Economic Indicators on Profitability of Cement Sector Companies in Pakistan

Abstract

For any business concern the net profit or bottom line for a particular time period is the end result of its investing, financing and operating activities. These activities can be visualized as being influenced by management’s decisions and a host of internal and external environmental factors. This paper investigates how profitability of firms, in the cement manufacturing sector of Pakistan, is influenced or linked to selected financial and economic indicators. The purpose of the research is to check whether the linkage of profitability with the selected indicators is in line with the relevant generally accepted theory. Also, if there appear to be some deviations from the theory, what the plausible reasons are which can explain these. Furthermore, the conclusions arrived through data analysis might lead to some useful policy recommendations for Pakistani cement companies, to better manage their profitability.

Keywords: JProfitability, Operating Leverage, Financial Leverage, Liquidity, Gross Domestic Product (GDP), Return On Assets (ROA), Return on Equity (ROE), Pakistan’s Cement Industry, Panel Data

JEL Classification: C23, G32