Impact of Financial and Operating Leverages on firm’s
profitability
(A Case study of consumer product companies in Pakistan)
Saeeda Habib
Lecturer
Khadim Ali Shah Bukhari Institute of Technology
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.
Keywords: financial leverage,
operating leverage, Return on assets, Return on equity,
Net Profit.
JEL Classification: M1; M10; M12
