Impact of Financial and Operating Leverages on firm’s profitability (A Case study of consumer product companies in Pakistan)

Abstract

The objective of the paper is to recognize the impact and relationship between the financial and operating leverages on firm’s profitability of the consumers’ product companies of Pakistan. Return on equity (ROE) of a firm is a key factor of the growth rate of its earning. The study sample included two Consumers’ product companies on the Karachi Stock Exchange extended from the period 2002 to 2013. Data analyzed by descriptive statistics, correlation and regression model; the dependent variables comprised of Return on Equity (ROE), Return on Assets (ROA) and Net Profit ratio whereas the independent variable was the leverage ratio. The result of the study shows that there is no significant impact of the leverages on ROA and ROE. But there is a significant impact of the leverages on net profit.