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Impact of Capital Structure and Liquidity Conditions on the Profitability of Pharmaceutical Sector of Pakistan

Author

Listed:
  • RukhsanaRasheed

    (Department of Management Sciences, The Govt. Sadiq College Women University, Bahawalpur, Pakistan.)

  • Mehwish Shahid

    (Department of Management Sciences, The Govt. Sadiq College Women University, Bahawalpur, Pakistan)

  • Munaza Mukhtar

    (Department of Management Sciences, The Govt. Sadiq College Women University, Bahawalpur, Pakistan)

  • Mazhar Nadeem Ishaq

    (Department of Economics, The Islamia University of Bahawalpur, Pakistan)

Abstract

This study was conducted to find the impact of capital structure and liquidity condition on the profitability of pharmaceutical firms listed with Pakistan Stock Exchange (PSX). The dataset was comprised of eleven years 2010 to 2021. To assess profitabilitylevel, to dimensions return on assets (ROA) and gross profit margin (GPM) were used. The capital structure was measured through debt-to-equityratio (DER) and debt to total funds (DTF). The liquidity level was measured through current ratio (CR) and acid test ratio (ATR). The OLS regression, fixed and random effect models were used for analysis. The findings proved that high debt to equity ratio significantly and negatively affect the profitability. The liquidity conditions have positive association with profitability of firms. The study suggested that owners and company managers should use optimal value of debt and liquidity conditions for profit maximization and to reduce the cost associated with debt capital.

Suggested Citation

  • RukhsanaRasheed & Mehwish Shahid & Munaza Mukhtar & Mazhar Nadeem Ishaq, 2022. "Impact of Capital Structure and Liquidity Conditions on the Profitability of Pharmaceutical Sector of Pakistan," iRASD Journal of Management, International Research Alliance for Sustainable Development (iRASD), vol. 4(2), pages 135-142, june.
    • Handle: RePEc:ani:irdjom:v:4:y:2022:i:2:p:135-142
    DOI: 10.52131/jom.2022.0402.0068
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    References listed on IDEAS

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    1. Shafique Ahmed & Farhan Ahmed & Sahabia Kanwal, 2018. "Corporate profitability-working capital management tie: empirical evidence from pharmaceutical sector of Pakistan," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 8(7), pages 259-270, July.
    2. Shafique Ahmed & Farhan Ahmed & Sahabia Kanwal, 2018. "Corporate Profitability-Working Capital Management Tie: Empirical Evidence from Pharmaceutical Sector of Pakistan," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 8(7), pages 259-270.
    3. REHAN, Muhammad & KARACA, Suleyman Serdar & ALVI, Jahanzaib, 2020. "Capital Structure And Financial Performance: Case Study From Pakistan Pharmaceutical Sector," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 24(3), pages 66-82, September.
    4. Mohammed Ziaur Rehman Muhammad Nauman Khan & Imran Khokhar, 2015. "Investigating Liquidity-Profitability Relationship: Evidence from Companies Listed in Saudi Stock Exchange (Tadawul)," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(3), pages 1-11.
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