Financial Performance of Firms: Evidence from Pakistan Cement Industry

Farah Naz · Farrukh Ijaz · Faizan Naqvi

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Financial Analysis and Corporate Governance Corporate Finance and Governance Working Capital and Financial Performance

Abstract

Financial performance principally reflects business sector outcomes and results that shows overall financial health of the sector over a specific period of time. It indicates that how well an entity is utilizing its resources to maximize the shareholders wealth and profitability. Although a complete evaluation of a firm’s financial performance take into account many other different kind of measures but most common performance measurement used in the field of finance and statistical inference is financial ratios. This paper provides a comprehensive study of the financial performance literature with respect to the cement industry of Pakistan. The literature cover studies from the Iran, India and Pakistan but some international evidences are also presented. The financial ratios used for the measurement of financial performance of the cement sector are profitability ratios, asset utilization ratios, leverage ratios, liquidity ratios and cash conversion cycle from the period 2006-2014. Return on Investment (ROI) is taken as predicted variable and five ratio parameters are taken as predictor variables. The research study found that all parameters have positive relationship with the dependent variable except the leverage ratios which has insignificant relationship. This result is also supported by Selvam et al. (2004), whereas Chandrasekaran (1989) and Dhanalakshmi (1994) identified that the external finances is the key significant factor in determining investment in cement industry. To overcome the limitations of the future study, the considered numbers of years need to be increased and other models like MVA, CAPM, and EVA required being tested for the research to analysis other factors that may affect the financial performance.

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References

2004Liquidity - profitability tradeoff: An empirical investigation in an emerging market 2007WORKING CAPITAL MANAGEMENT AND PROFITABILITY-CASE OF PAKISTANI FIRMS 1967Firm Size and Profitability 1972The Elements of Market Structure 1995Changes in Working Capital of Small Firms in Relation to Changes in Economic Activity 1993CASH CONVERSION CYCLE AND FIRM SIZE: A STUDY OF RETAIL FIRMS

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