Determinants of Return on Equity: Evidence from the Cement Industry of Pakistan
Ali Raza
Faculty of Management Sciences, KASBIT, Karachi, Pakistan
Umer Farooq
PhD Scholar at Institute of Business and management
Assistant Professor of KASB Institute of Technology
Abstract
In
the current era according to the floating industrial
ratings the top most industry of Pakistan is the cement
industry. This sector has been able to earn high returns
over the investment which has created more interest to
determine major factors which are needed to be focused
on while evaluating the profitability of the cement
companies. DuPont Model was one of the most significant
equation presented in 70’s which stated that Returns on
Assets (ROA) is to be considered for evaluating firm’s
performance but later the researchers figured out that
Return on Equity (ROE) is the major factor which should
be considered for assessing profitability and growth of
the company. The purpose of the study is to investigate
the most influencing factors which affect the Returns on
Equity (ROE) for the cement sector of Pakistan. Data
from 2006 to 2015 is taken for the analysis from annual
reports of 03 listed cement companies in Pakistan Stock
Exchange. Regressions model with the Panel Least Squares
method and Period random effects will be used for the
measurement of the data. The results of this research
will be beneficial for future researchers who aim to
focus on investigating the determinants of the Return on
Equity (ROE). The study will also describe the impact of
various financial ratios on ROE which will also assist
cement companies to work on their full potential and
acquire large market share which will ultimately result
in better profitability. The research is concluded with
the recommendations and suggestions for the selected
companies and this study provides tool for companies to
identify the main factors of the return on equity.
Keywords: Cement Industry, Return on Equity, Profitability, Financial Ratios.
